How Does Money Work?

It's been awhile since I've posted anything but that's been due to two things. I've been very busy and I haven't had anything that I really wanted to post. I do now though.

For many years now debt has been a fact of life. Car loans, credit cards, lines of credit, overdraft; my wife and I have them all. When we started to feel like we were losing ground, we hit the bank up for a consolidation loan. That helped for a couple of months but just as we started to make some progress we needed to replace our car and Bam! Just like that, we got another loan for a mini van. Then the oven died and we needed a new one of those and put both a new fridge and a new stove onto the sears card. It was no big deal though, because we got it at 24 months with no interest!

At that point all of our income was tied up. If my wife didn't work full time, we couldn't keep up. And that was with a renter paying room and board every month! The stress and pressure of that lifestyle built and built and soon every moment was spent working to make money to make ends meet. In addition to my full time job I took on contract work to try and get ahead. The reality though was that we weren't even keeping up.

In August I broke down. I was done. I didn't care anymore. I ran the numbers on our finances and we were literally spending money faster than we were making it. Despite the long hours of work and the thousands upon thousands of dollars earned, we were losing ground. Life was not enjoyable. Something had to change. We had to change.

In the middle of August we met with a financial advisor who is a good friend and also a Christian. He gave us a lot to think about but the most profound thing we heard from him was that debt is a result of sin. Specifically, greed, glutony, impatience and presumption of the future. Now, you don't have to buy into that if you don't want to but we did. We decided then and there that we would take on no new debt and that we would get our existing debt paid off a fast as we could.

The problem at that point was not one of desire or commitment, but rather the same one that had been plaguing us all the way along: Lack of cash flow. In order to pay off the debt, we were going to have to make some changes to our lifestyle. Big changes.

At the top of the list was eating out. Between lunches at work, dinner in the evening and meals out with friends we were spending almost as much on dinning out as we were on groceries. That had to change. So we made some new rules. No more eating lunches out. No more eating out for convenience. If we did eat out, we had to use a coupon or it had to be with friends whom we hadn't already been out with that month. The only exceptions to that were road trips (like to Three Hills or Vancouver) and planned special events like birthdays and anniversaries.

Next on the list was our purchasing habits. When we wanted something, we pretty much bought it. We thought we had things under control because we had a couple of rules that we lived by. A $50 rule that said if you were going to spend more than $50 on an item, you have to have your spouse's permission and a $100 rule that said any spur of the moment purchase over $100 could only be bought the next day. In other words, we had to sleep on it. The idea behind these rules was that they would cause us to talk things over before making a purchase. If I couldn't convince my wife that a $70 computer game was worth it, then I couldn't buy it. If we found a TV on sale for $999 and still felt like it was a good decision after having slept on it, we bought it. The problem was we were both so weak that we rarely said no to each other and worse yet, if I said no to my wife, she might say no to me the next time I asked. And of course, you could buy a $40 item one day and a $30 item the next day without breaking that rule.

Our solution to that is that we each get $30 mad money each month. That money is not budget money and we're not accountable to each other for where it gets spent. We can use it to eat out, buy clothes or whatever. At first it was really hard, wondering if I could make the $30 last until the end of the month but twice now since August, I've had money left over at the end of the month.

Between not eating out and curbing our spending we have managed to free up money to make extra payments on our debt and we have managed to stay out of our overdraft. In short, its making a difference. We have a little bit of breathing room and there's money left at the end of the month.

Its ironic though. Several times now there's been money left at the end of the month and we start to look around and say... hmm... you know... we could spend this on something. That's dangerous thinking. You see, life has a way of expanding to use up the available resources. Whether its time or money or space, if there's room to grow into it, we inevitably will.

So the question before me is, are the changes we've made enough to get us out of debt? To be honest, I don't think they are. We can make new rules and try to stick to them but as soon as we have a bit of breathing room we're going to slip up and fall right back to where we were. We might not take on any new debt, but we still haven't learned how to effectively manage the money that we do have.

At thise point I can hear someon shouting from the back of the room: "What you need is a budget!" A few months ago, say last July, I would have agreed with them. Today I don't.

In The 7 Habits of Highly Effective People, Stephen Covey teaches that the way to effect positive lasting change is through a "Paradigm Shift". You know that sounds a lot like what we need. A complete change in our thinking and belief system around money and debt.

So, I've set out shift my paradigm by learning how money works, and while I'm doing that, I've got $30 burning a hole in my pocket!