Sunday, January 20, 2008

2007 Debt Redux (aka A Cause for Celebration)

Last year, I used 20% of my income to pay down 40% of my debt. No kidding.

I definitely went without some things I really wanted, though I learned and practiced different techniques to help me work towards a debt-free, higher-asset financial position. The greatest factor in me accomplishing this was staying true to my Crack Spreadsheet. Each week, I would deposit my pay and then immediately go to the spreadsheet and move the money to the specified savings and debt accounts. It was (and still is) highly addictive. I added a little calculator that tells me exactly what dollar amount I’ve paid off, how much is left, and what percentage of the original amount I’ve paid down.

Can I repeat it again? I paid off 40% of my debt last year! That is not an insignificant sum (it’s around $10k) – especially in light of how much I actually made last year (not as much as I expected or hoped). I mastered the art of living frugally a few years ago, and I’ve maintained that since I started earning more money.

Now, this is not to say I don’t still use my credit card…because I do, and I did last year. I don’t use it wantonly, and I most often pay down the amount I’ve charged each month – in addition to my regularly scheduled debt payments [as outlined on my budget spreadsheet]. I use my credit card when I’m in a jam, or if I’ve simply forgotten my debit card at home (I sometimes switch purses several times each week). I also used it to buy a new laptop (which was mostly a work-related expense). Though, one of my financial goals for this year is to use cash instead of my debit card (and so far it’s gone reasonably well). I know that I can also go in to a store that has things I like and would love to have, and not walk out the door with them and a credit card receipt.

I’ve realized that it’s necessary to have a balance between your debt, your savings, and your budget and that you can’t focus solely on one to the exclusion of the others. Sometimes I went over budget in a particular week, other times I was under budget. So, while I aggressively paid down my debt, I was also funding my emergency fund [to 3+ months expenses], starting an IRA, and still using my credit card for the occasional purchase.

It’s taken a lot of hard work and some sacrifices to do this. However, in a way I’m glad I’ve had to go through this, as it shows exactly what I can do financially when I set my mind to it. I've also learned how I need to approach my budgeting for me to be happy, in addition to paying down my debt (which makes me happy, but not in the same way as going on a proper vacation).

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