I’m about to break it down for you, folks. Opening up the armor and letting you in to my financial world, in detail. I’m going to talk about how I’ve learned to save money while you’re in debt, with only one (not so huge) income.
This might hurt, but it’s called accountability, and I’m in great need of some, as are most of you, I’m sure.
So here’s the thing… my daughter, her father, and I live on a single income. It’s not something we’re thrilled about, but he’s disabled due to back injuries, and I’m the only one who really can do work on a regular basis. Before you start thinking that I’m about to brag to you about what a financial superhero I am – please know, if it weren’t for the help of our families, we’d be in serious trouble. The gratitude we have for the help is immeasurable.
However, one of my goals is to get to the point where we’re once again self-sustaining, AND out of debt, AND able to save up for special things like inexpensive mini-vacations to spend time together as a family, Christmas and birthdays, and so on. It’s all about my kid, as far as I’m concerned. I want her to have the happy, fun childhood that I had. Part of that means finding as many ways possible to give her daily fun and happy memories that are free or super inexpensive, of course. But the rest is all about making memories while being financially responsible.
One of my goals in all of this (no, it’s not a resolution – because I suck at keeping those and I want a permanent habit/solution – not a temporary one) is to find ways to organize my finances, plan for everything, and make sure we can have a cushion of some sort for if and when things don’t work out as planned.
My Bank Account
I’m lucky that the credit union I have allows me to set up different savings accounts all in the same account. I could have 30 of them if I wanted to, for no additional fees or anything. It’s really great, and if you’re not in a credit union now, I strongly suggest you find one for this, and many other reasons.
So what I do is that anytime I get paid, be it for my day job or another project, is I break out the funds into these extra accounts.
I’ve got the following in there right now:
- Checking – This is the main account where all the money goes in (direct deposit, personal projects, etc.) and comes out for bills, groceries, etc.
- 10% Family Savings ($15k goal) – Whenever I get income, 10% of it goes into this account. The goal is to have $15k in this account for overall “backup” money should my income cease for some reason, so we can continue to live while I generate new income.
- 20% 911 Fund ($40k goal) – Yep, 20% of my pay goes into this account, with a goal of $40k. This is a HUGE goal, and it’s going to take for-freaking-ever to make it. But it’s in case of some major catastrophe that would give us a year of expenses should something horrible happen. Call it “insurance” in a way. Life insurance, homeowner’s insurance, what have you. But this is for what you’d call a super big, holy crap kind of emergency. Once I get to about half way, I feel like I’m going to start doing some CD’s or put it into a Roth IRA – but I’m not sure yet.
- 20% Income Taxes – I’m self-employed/independent contractor, and I’ve been in the thick crap where you find yourself at the end of the year needing to pay thousands in income taxes but don’t have it. So the IRS takes every penny of any possible return you’d get, even after you get the earned income credit for having a child, until it’s paid off. It took me 3 years to pay it off. It’s clear. But I vow to NEVER go through that again, so I put 20% of my paycheck away each time into this account.
- Family Emergency Fund – This one is for unexpected emergencies like when a car breaks down or someone needs dental work or what have you. I don’t have a goal set for this one because it’s one that I draw from if I have to, in order to pay a bill or get groceries too. But the idea is to get ourselves to the point where we don’t have to do that. What I do is after the month is up, if there’s any money left over, I toss it in here before the next paycheck comes in.
- His, Mine, and Hers – These accounts are ones I try very hard to drop at least $25 or more into every time I get paid (each account gets at least $25). The idea is that either separate or combined, these are our “fun money” accounts. I haven’t yet set specific things to save for, and that might be my problem, but the truth is, I want money for each of us to have that will cover any time we really want something. I will say this here and now, they’re also the first ones I used to draw from when we needed the money, but I’m working very hard at not doing that anymore, no matter what. It’s HARD. But it’s what budgeting is meant to help with.
Now, in all truth and fairness – I’ve not been perfect with this setup in the past. But I’m getting much better, and for the first time ever, the total amount in all of them is pretty nice to see. Every two weeks that I go without having to dip into them makes me super proud of myself. I’ve learned to just pretend like they don’t exist, and to say “no” when the money in the checking account doesn’t call for spending. This, is all imperative when you’re learning and figuring how to save money while you’re in debt.
I also don’t have anything set up for my daughter for when she’s older and may want to go to college. I don’t have anything set up for us for “retirement” either – but we do have small life insurance policies for myself and her dad, so we won’t have to worry about expenses should something happen to one or both of us. Eventually, I’d like to add on to them, and work on building and growing a retirement account, but it’s just not something we can truly focus on just yet.
But what about the debt?
So we’ve both got student loan debt, we’ve both got some credit cards and stuff that are in collections, and I’ve got a few medical bills from when insurance didn’t cover certain aspects of being pregnant. Yes, we’re in debt, and the last time I checked, combined we’re at around $30k.
I know this might sound REALLY shitty, but the truth is, I’m happy without access to a credit card. I’m beyond lucky that we’re living in my grandmother’s home (paying rent to my father who owns it, to cover the cost of property taxes and such) and don’t have the need for a mortgage. Provided we get through life without the tragedy of losing this home to a disaster of some kind, we really don’t ever “need” a mortgage. We can always stay here.
So while it may not be popular opinion, because I do know that your credit score can affect more than just your ability to get a mortgage or car loan (it can affect your ability to get a job, or get a good rate on your car insurance), it’s really not something I’m choosing to stress over right now. Will we pay on it? Of course we will. I’ve worked out how to pay down a little bit here and there when I can on the non-student loan debt (since they’re all in collections, they’re no longer going up due to interest), and we’ve filed for forbearance on the student loans until we can get everything else caught up. But if you’ve read this post expecting a “trick” on how to save money while you’re in debt, that’s the trick. Don’t stress over the debt. Focus on today forward, and take care of the debt as you can.