Money counts and we're counting

This post is part of an ongoing series created by Jana at An Attitude Adjustment called Spill it! The “Spill It!” series is where bloggers wear their heart on their sleeves and share parts of themselves they might not otherwise feel comfortable discussing.

I’ve been told, on more than one occasion, that right now I’m living the most expensive part of my life. I would love to believe this to be true, if, at the very least to help justify the amount of debt my husband and I currently have. I suppose there is something to it. We still have many years left on our mortgage despite having bought our first house 10 years ago. My husband and I are still climbing our respective professional salary ranges, we’re making car payments, and we have a hefty monthly daycare bill. These things, of course, all take a toll on our budget, but I’m reluctant to accept them as an excuse for the position we find ourselves in now.

In my heart, I know the truth is really poor money management. After two year-long maternity leaves, and the choices that we made when we built not one, but two houses, we find now find ourselves in a deep hole. And we’re digging, slowly, but surely, we’re digging ourselves out.

In Canada, we get 12 months paid maternity leave. However, the amount we get from the government under the Employment Insurance program is not equal to our salary. Depending on how much a person earns, it can be as much as 55% of their annual salary, though it is capped and actually means less for many of us. Without question, this is a fantastic program. I know how fortunate we are to have access to it in our country. We get to stay home with our babies for a lot longer than people in many other countries and with a bit of a safety net. But here’s my confession, I like to live a certain lifestyle. I wouldn’t say it’s extravagant, or even beyond our normal means, but there are a few indulgences that I prefer not to live without. When I went on maternity leave, the smart thing would have been to cut back, given that I was bringing home less than 50% than I normally would. When I went on leave with my second son, we still hadn’t recovered properly from my first leave. Do you think I had learned my lesson? Not a chance.

On top of that my husband and I decided to build a second home between our two children for reasons not related to this post. It is a misconception that building a house yourself will save you money. For one thing, you tend to upgrade more and justify it with the excuse that you are saving in other ways. But not only that, the way a house is mortgaged when you build it yourself is quite different than when you buy one resale or from a developer. Often you need to cash out the mortgage before the work is complete and that can translate to out-of-pocket costs to finish the house.

So here we are. We’ve built two wonderful homes, we’ve had two beautiful children and we’re steeped in debt. The debit itself isn’t unmanageable, the struggle is that we live what is described as “the most expensive part of our lives” under severely “cash strapped” circumstances. To be blunt, it sucks.

When I started back to work in February we realized it had reached the point where we would have to take drastic measures. Until now we’ve lived on a budget, but it wasn’t a budget that dictated what we could spend, it was a budget that accounted for only what we had to spend. That means that all of our fixed expenses: mortgage, taxes, utility bills, groceries, savings for our retirement and the kids education and gas were all accounted for and paid first. After that we treated money like gravy. This was not healthy. I’ve traditionally been the money counter in our house and I’ve never liked the idea of putting a cap on things like my Starbucks addiction, our family vacations, and other shopping related activities (clothes, things for the house). I would just spend with a confidence that things would all work in the end. This worked fine before children.

I’m here to tell you that this approach does NOT work now, and somewhere along the line I lost control.

So here’s how we are fixing it. You may be familiar with the show ‘Til Debt Do Us Part with Gail Van- Oxlade. I’m a fan, though I’m ashamed to admit it was because I used to feel better seeing others in worse financial trouble than us.

No more.

I’ve learned my lesson and I’m buying into Gail’s budgeting approach. But not exactly. We’ve come up with a hybrid of our own. This is how it works.

Every month we work backwards from a budget, just like we always have. Our fixed expenses are always accounted for and paid first. Many of these expenses I continue to charge to our points credit card. I do this without shame. We’ve enjoyed many a free vacation because of this card. I’m okay doing it this way, because these expenses are covered-first.

After they are paid we’re left with a certain sum. According to Gail’s program this amount would be divided into jars for various variable expenses: gas, food, clothing. I see gas and food as fixed expenses, so they are charged and paid before we get to this stage. That means the money that’s left over gets divided into two areas: debt repayment (our one credit card and our line of credit) and spending. Spending is a bulk line item for anything that is not considered a fixed expense: clothes, trips, gifts, stuff for the house. These are the things that I never used to keep track of. Now I do because we only pay for with cash. When it’s gone, it’s gone.

This is hard.

Why? Because until now, I had very little idea of how much we actually had left over and I realize just how easy it was for us to go over and charge it up. But I’m learning, and we’re making slow, but steady progress. We’re also making a few hard decisions, such as deciding to sell our camping trailer so that we can have a large chunk of cash to pay debt. We’d prefer not, but it’s the responsible thing to do. And now we think twice about buying things, we’re forcing ourselves to think carefully about what we need versus what we want. It’s good for us and a good example for our kids.

I know we’ll get there and come out on the other side healthier, not only financially, but in our attitude toward stuff. And this is the lesson I believe to be the most important, because somewhere along the line we lost sight of reality. Things don’t make us happy, living does. Now we’re focusing more on living, less on shopping and we’re getting back on track.

Do you have a budgeting system that works for you? Any tips you’d like to share? Or do you prefer to keep financial issues private? If so, why is that?

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