In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.
Kathleen is thirty-one years old, single, and living in Portland, Oregon. She loves her job, even if it isn’t very lucrative. Since her income was $33,000 last year, she’s looking to make more money from “side hustles” (like her blog, Frugal Portland) this year. To learn more about Kathleen, read her bio. Kathleen is on Team Sara, with Certified Financial Planner Sara Stanich.
Kathleen’s report this month, below, includes Kathleen’s progress during November 2013. You can read her October report here. Following Kathleen’s own self-analysis, Sara Stanich will offer thoughts from her perspective.
Comments and analysis from Kathleen
I became free from debt earlier this year! Here’s my post from June describing what it feels like to owe nothing to anyone. It wasn’t long before I had a mortgage to pay, though, so I didn’t spend my days wondering, “Whatever will I do with all this cash?” It was hard for me, actually, to “get over” the idea that all debt was bad debt and for several weeks I wondered if I was just simply backsliding into the dark world of consumer debt I’d been drowning in for what seemed like forever.
I thought life would be different after my debt freedom date, and that simply wasn’t the case. I guess I thought accomplishing a big ferocious goal would turn me into a different Kathleen. But one thing I realized, beyond all else, was that the tricks I used to pay off debt were useful in building my net worth. When I was working toward debt freedom, I never kept much more than $1,000 buffer in my account. Now, I realize I can trust myself with a little more, but I still need tricks.
See the savings line on my spreadsheet? That’s possible simply because every single paycheck gets split evenly between two credit unions. So I’m living on half my income — mostly. I’m not super strict about how I use my savings, so I don’t have to beat myself up for buying nice living room furniture, even if some of that came out of savings. But since I don’t see huge balances in my checking account, I don’t fool myself into believing I can afford all of the treats.
The only debt worth having, in my opinion, is debt that can make you more financially independent. So, unless you’re living rent-free, a mortgage is a great start. And if you can get a 0.9% interest rate on a car, and you know of a credit union that will give you 2.25% interest (I have one, so they’re out there) you can make money in the margins. That’s okay debt to have. The rest of it? No. Save up for things. Just because financing is available (for all of the things!) doesn’t mean you should be financing your life.
Feedback from Sara Stanich, CFP
I like how you zeroed in on the psychological aspect of paying off debt and staying debt free, Kathleen.
It seems like we should all be able to trust ourselves when it comes to our money. But haven’t we all seen people (maybe even ourselves) pay off debt completely, only to let it creep up again and return to the same bad situation a short time later?
As you say, it’s better to “trick” ourselves a bit. It works!
What are “tricks?” Automating transfers to savings or retirement before it hits your checking account. Keeping credit cards at home instead of in your wallet. Even keeping your savings in a separate account makes it a little less accessible (and less likely to be spent mindlessly). And so on.
It sounds like you’ve put good habits in place and appreciate your debt-free (mortgage is ok!) life.
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Feedback from Luke Landes
This has been a positive year for you, financially. You have a lot to feel good about. When you’re in debt, it means that at least part of the time you spend working, you’re not working for yourself. You’re working for whomever you owe the money to. Now, that’s still true with a mortgage — if you pay, say, $500 a month for your mortgage, tax, and insurance, and you earn an average of, say, $25 an hour, the first twenty hours a month you work, you’re not getting to see that money personally. But at least with a mortgage, the trade-off is an asset that provides shelter. It’s one of the most basic human needs.
Finding a financial institution that returns more than 2% interest on savings is fantastic. Even the best online savings accounts from banks don’t offer that much. Anyone who finds a credit union that offers competitive savings rates, is conveniently located, and whose membership is open, should consider this a great alternative to for-profit banks. I have not yet been able to pin down a credit union that is convenient to access for me and that I can become a member; otherwise, I’d have turned to non-profit, membership-based credit unions a long time ago.