Friday, December 9, 2011

Mistakes with Money Were Made

I don't write much about the nitty-gritty of our finances here.  There's all the status and shame wrapped up in it, and not wanting to burden you too much with details, and needing to respect our privacy.  But E. and I are going through some interesting financial transitions, and it's on my mind, so I'm writing about them here.

Our history, in brief:

I grew up without much money, and with a personality predisposed toward the material (nurture+nature on that one).  Then we inherited money when I was a teenager.  Not a ton, but enough so that things got easier and my level of material access increased quite a bit.

I have always worked hard.  I have made good career choices, have frequently been privileged or lucky, and have consistently moved up the salary ladder.  At the same time, I have made really bad spending choices.  I am a spender.  I like to have clothes and little treats and eating out and all that.  I'm not good at telling myself no.  I have been in debt, different kinds of debt, for a long time.

E. grew up without a ton of money either (I think--his history is always hazy).  He also worked really hard, but didn't always make awesome career choices.  It took him a while to get through college.  He has not been disposed toward the material, except in the form of large expenditures.  He's willing to pay money to buy exactly what he wants, but is able to save for it, and doesn't spend money on lots of little things like I do.  He has always earned more than I have, until this year (by choice, for him) and is willing to argue hard for what he is worth to employers.

E. is a saver.  He is not haunted by the material in the way I am.  Before meeting me, he had more than enough money and rarely needed to check his bank balance.  I, on the other hand, would spend my checking account down to the last penny.

Then we got married.  We were in a lot of debt because E. was out of work for a while, I didn't make much money, and I spent too much.  Then I took over the finances, created spreadsheets and a debt payment plan, we started making more money at work, we made some more money on a real estate transaction, and we made the decision to get out of debt.  Or, I should say, credit card debt.  We still owe quite a lot on my student loans and we have a mortgage.  But we've been out of credit card debt for a long time now, and plan to stay that way.

A few years ago, E. took over the finances.  We have been fighting and fighting about them because we just fundamentally do things differently and see spending differently.  Like I said, I'm a spender, but he's also had unrealistic assumptions about how much it takes to keep a vibrant family of four going.  Clashes ensued.  I relinquished control and waited to be told what to do.

More clashes ensued, but we soldiered on.  Life was good.  We make good money, and I often make extra money at work that back-filled any gaps that arose now and then.

Around that same time, we decided to put all of our monthly expenses--utilities, cable, groceries, gas, etc.--on two credit cards, one from Frontier and one from Southwest.  The idea was that we would pay these cards off every month and earn frequent flyer miles, which would help defray the insane travel costs of visiting our families a couple of times of year by air.  Four tickets would easily run us $1200, so it seemed like a good idea.

We've stuck to it.  We've always paid those bills every month.

But then we noticed something, and fought for a long time about fixing it.  The thing we noticed was that we somehow weren't saving any money (other than what automatically went into our 401ks).  Even worse, we were sometimes spending more than we earned and the savings accounts we had been so proud of were getting depleted.

This didn't make sense.  We're earning more money now than ever, and our substantial childcare costs have decreased significantly.  Certainly there was some lifestyle inflation in there (thank you, new bathrooms; thank you ski tickets; thank you my Boden addiction), and E. started taking one day off a week, but on paper we still should have been okay.  Things just never added up in reality.

Well, the problem turns out to be those credit cards. See, when you put all of your expenses on the credit card, it gets really hard to track how much money you actually have, because the statements for the cards are timed differently from your bank statements.  Plus, both of us were spending on two different accounts, and had no idea what the other had spent.  E. would reconcile at the end of every month, but we still didn't have a good sense of the big picture as to where the money was going, or how much we had left in the bank at any given time.

All this leading to years of not saving as much as we should have and spending more than we should have.

It's all going to be fine.  We're not in any real trouble.  A couple of months of belt-tightening and I think we'll be in excellent shape.  E.'s going to have to work Mondays again for a bit, and is considering taking a promotion at work. We're both committed to scaling back the lifestyle inflation, getting back to basics, and beefing up the savings.

But now we're in this transition phase of having to get off the cards and go back to spending directly from our joint account for tracking purposes.  There is a time lag, so we essentially have thousands extra to pay off of the cards to get them down to zero while we transition to spending from that joint account (this doesn't sound right, but it's just because our credit card payment date happens late in the month, and meanwhile we will have been spending on the joint.  It just puts the squeeze on for a few months while we make up the lag).

So, Merry Christmas to us.

I'm really glad we're doing this, though.  I prefer simple, transparent systems where we can see how much we have, and when the amount we've allotted for certain things is gone, it's gone.  Then you get frugal and creative, and I really like that.  I like that challenge and enjoy it.  I'm also overwhelmed with how rich our lives are, and how lucky we are to get to choose this particular transition rather than have it forced on us.  I'm grateful to all the family members who agreed to opt out of giftmas this year.  I'm also excited to begin saving so that we can build our savings accounts back up and maybe also start to save for vacations or other treats.  I think this will be good for us.

Long story short:  we broke that first rule of personal finance--track what you spend--and now we're paying for it.  No amount of frequent flyer miles is worth that (what were we thinking?).  And if I spend time with you personally, you might see some shifts in the kinds of choices I make for a while till we get things figured out.  But I think E. and I both are ready to try to fix things, and feel optimistic about where we're headed now.

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