Filed Under: debt

It’s odd how quickly a word can dominate our shared vocabulary. In 2000 it was “hanging chad.” In 2002 it was “post 9-11.” This year it’s “economy” and “recession” and “toxic assets.” They might just be words, but they reflect the changes that are happening in my life and your life and your neighbors next door, who aren’t going to live next door anymore, because they defaulted on their mortgage.

As much as people’s lives are changing, mine hasn’t changed that much. Sure, my job is as secure as a lockbox sealed with chewing gum, and I moved to a cheaper apartment to cut my living costs, but otherwise I’m living the same life I’ve always led. Financially speaking this means I save money, sock cash in my retirement accounts, and spend less than I earn. Evidently I was a radical ahead of my time for doing all these things.

I feel genuinely sorry for the suffering this recession has caused, for people who are stuck in houses that have lost value, for people who can’t make ends meet, and for the retirement plans that have been torpedoed because the stock market went KAPOW!! I know that many people have done all the right things, handled their money wisely, and have still been screwed over by life circumstances. That said, I’m happy that the recession is making some people handle their money in ways they should have been handling it all along. People are saving more, spending less, and watching their budgets like never before. It sometimes takes a disaster to make you do what you should have been doing, and I only say this is because in my early 20’s I learned the hard way how to manage my money too, which means I went SPLAT! into debt.

By the time I graduated college, I had about $5000 in credit card debt. I’d used all my student loans, but I could still use my plastic! I carried a balance for 3 months before I started playing a game where I would sign up for a new credit card that gave me 0% interest for 9 months. Nine months later, I’d sign up for another one and move the money again. I would not recommend this as a good way to handle money, since I have no idea what it did to my FICO score, but it did save me lots of money in interest. I was also fortunate that I’d never missed a payment, so I was approved for these cards.

Have you ever played the board game LIFE? Wasn’t that game a lot more fun before it resembled your actual life? Over the next year I was hit with “Pay $7000 for gallbladder surgery!” and then “You owe $1200 in dentist bills” and then “You transmission breaks! Pay $2000 for a rebuild.” I kept chipping away at my debt, but something always came along to bump it up again.

After two or three years of steady payments, I finally paid the credit cards off, leaving my only debt in student loans and a car loan. The number on those credit card statements had felt like the number of pounds weighing on my back. It was burdensome to be beholden to the credit card companies and to not have enough in savings to cover unexpected emergencies. That’s why I bought some books on personal finance and educated myself about IRAs, compound interest, stocks, bonds, mutual funds, money market accounts, and figured out which places I should put my money first and in what amounts. It was a lot of information, and could be very confusing, but I never, ever, ever wanted to be in debt like that again. So I took the time to learn it myself.

When I bought my car I carefully made a budget and determined how much money I could afford to pay each month on the loan and purchased a vehicle within that price range. When I moved to an apartment, I determined how much I could afford, or what other expenses I would have to cut if I decided to move to a more expensive location. It wasn’t fun, but it was necessary, so I did it.

These days, I use a simple budget program (called SimpleD Budget in case you were going to ask) to enter my receipts into every day. (Or sometimes every 3-4 days if I’m feeling lazy.) I can then look at the numbers and the graphs and get a sense of what I’m spending and if I need to pull back in one area until the end of the month. I’ve tried using more complicated programs like Quicken or Microsoft Money, but they have so many features that I feel overwhelmed. I just want to track my variable spending, not every single asset I have.

There are also free online programs that will help you budget and analyze your spending, like Mint.com or Quicken Online. I have heard great thing about these sites, but I am too paranoid to give a web site all my financial passwords. I’ve worked as a web developer at several companies, and I know how insecure some online products actually are, so no thanks.

If you are looking for more information on personal finances, Suze Orman’s books and shows are extremely helpful and are targeted at newbies and women. I read a book called Girls Just Want to Have Funds simply because I loved the title, which taught me a lot of basics. Sites like The Motley Fool have loads of information, and a good blog on how to manage money is Get Rich Slowly.

Even though the recession sucks, I hope it helps people learn how to manage their money better, just as my young and stupid years taught me to open a Roth IRA and start taking advantage of compound interest. Hopefully we’ll all keep our good “cents” even when this recession is over.