Thursday, September 4, 2008

On the Road to Financial Freedom: Part II- Newlyweds

For Part I: The Beginnings of a Thrifty life, click here.

The Middle Ground
The next big step in my financial life happened during college, when I met and married my sweetheart Chad. Luckily, we had taken the time to discuss our views on money management before tying the knot, and so, for the most part, we knew what to expect. These were the areas where we found a middle ground:

-- We don't like to owe people money, especially with random consumer credit card debt. I had no credit card debt because I never really understood how credit cards worked and I was too afraid to get one for fear I would screw something up. Chad kept his debt to a minimum, but as a bachelor he had incurred some debt buying a car and exercise equipment- oh, and don't forget my beautiful engagement and wedding rings!

-- We both had grown up in families where money issues caused a lot of contention, and we didn't want to continue that legacy. We agreed on an open partnership with our money.

-- The open partnership meant that we would consult with one another on any major purchase (and for us, that meant anything over $10!) and we would not be frivolous with our spending.

-- We wanted to buy a home ASAP so we could stop renting.

These were very basic things, but they helped us to really unite.

The Aha Moment
In those early days, I couldn't help reflecting on my own parents' failed marriage and thinking of the causes and warning signs of their eventual breakup. I think there was a part of me that thought that if I could guard against those problems early, then my marriage wouldn't suffer the same fate.

That is what got me interested in personal finance. I started reading up on it, and the first book I read was called, "The Four Laws of Debt Free Prosperity." (read the first chapter here, see sidebar for a great deal on this book) It was while reading this book that I had my Aha Moment. As I read the story of a middle-aged family man in a desperate financial plight, memories of my parents fighting over the bills flashed through my mind. My parents were good, smart, rational people. How could they get into a situation that made them so angry and bitter and desperate? More importantly, I considered myself a good, smart, rational person. Would I someday be in a similar situation?

I was troubled, and the thought that dawned on me at that moment was this: That which doesn't change stays the same. In even clearer terms, that which I don't change stays the same. 

At the time, my husband and I had been married for less than a year, and we had the aforementioned debt to pay off, not to mention other financial concerns. We were living paycheck to paycheck, and I even remember one week when my mom came to take me shopping for groceries because we couldn't afford to buy food. I realized that our life would always be that way unless we took some proactive steps to change it. Sure, I could sit around waiting to win the lottery, or waiting for a pay increase, or waiting for a rich relative to die and leave me an inheritance- but those things were uncertain and out of my control. It's like the serenity prayer- you must accept the things you cannot change and have the courage to change the things you can.

That's when I got to work.

The First Family Budget
I sat down with Chad and we began taking a closer look at our finances. The first step was to compare our input with our output- were we bringing in as much money as we were spending? If not, how could we adjust the balance? Luckily, as I recall we discovered that we were in the positive in that regard, but only by a small margin.

We decided to take that small margin, which consisted of the money that was left over after all the bills were paid, and plan a budget using the same system I had used in college- we gave ourselves a fictional $100, then we divided it up according to our needs and wants. The resulting amounts were the basic percentages we used on each paycheck after the bills were paid. I kept track of these different "accounts" in a small notebook, and remarkably, we found that it gave us much more freedom with our spending, because we knew exactly how much we had available to spend in each category. For example, if our "eating out" budget had $10, then we knew we could enjoy a little treat because the bills were paid and we had already set aside money for savings, gas, etc. We finally got to enjoy some pleasures guilt-free.

Our next step was to make a pay-down plan for our debt (yes, once you get married, any debt becomes "our debt!"). We decided to follow advice we had heard repeatedly and tackle the highest-interest rate debt first by adding a little extra to the payment, and continuing to make minimum payments on everything else. Once that debt was paid, we added the amount to the next highest-interest, and so on. Slowly but surely, the debt disappeared.

The next few years brought personal heartache along with financial blessings, financial struggles, and children. Check back next time to read about how we finally set our financial compass, and how it still guides every decision we make today...

Did you ever have a financial "Aha Moment"? I would love to read about it! Please share in the comments section!

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