Indeed, Now What Do I Do?

Now What?Haven’t we all wondered what exactly a dog expects to do if it should catch the hubcap of a moving car? Of course, the answer is that the dog doesn’t know; it just feels compelled to run after the car.

This notion came to my mind last Thursday morning — October 17th — when I reached my financial milestone of complete debt elimination, except that I’m not totally clueless as to what I’m going to do next, but more about the order of my next milestones. However, without a doubt, reaching this point has been quite a ride.

After giving much thought during my three-week sick leave from work in September 2011 to the notion of when did I last feel content and in control of my life, I got up on Saturday, October 1, 2011, one week after returning to my job, and began working on a spreadsheet. Indeed, it occurred to me during the time I was putting everything about myself into question that one of my many bad decisions in the previous years had been not to pay attention to my finances, for I was very fortunate in that there seemed to always be enough money coming in to cover all the bills and simply glide by. Of course, having the bailiff show up at my door on the morning of my very first appointment with Lucy brought home that I wasn’t really doing such a great job at gliding by.

So, that October morning, I mustered up the courage to look at my accounts online to see how bad things were. I found just over $21K of debt which I immediately consolidated onto my line of credit, and tried to think of all the unusual expenses I would have to cover in the coming months, like weekly appointments with Lucy and the divorce. But then two questions popped into my mind.

  1. From March 2006 to August 2007, somehow I had managed to clear almost that much debt. Mind you, my monthly expenses are somewhat higher in Montréal than they were in Halifax back then, but not insurmountably higher. Why can’t I do that again? Have I allowed my list of wants to grow into my income?
  2. Why is it that, when someone is paid every two weeks, there really isn’t two “extra” paycheques per year?

That second question in particular is what brought me to think about cash flow for an entire year rather than month by month and Gail Vaz-Oxlade’s “magic jars” in which she gets people to put cash for a specific purpose (food, transportation, etc.). I combined and adapted those two notions by listing all my recurring expenses like rent, phone, insurance, steady debt repayment and so on, figuring out how much they each cost per year, and dividing each of those figures by 26 — the number of pay periods in one year. This exercise confirmed that I was very lucky to have more than enough money left over for food and vices, and with some trimming back here and there, I could put even more on debt repayment.

So, after resetting the counter at zero and figuring out my expected cash flow for the next two years, I implemented my plan starting with my paycheque of October 6, 2011. My best-case scenario, which included paying for my (failed) therapy to quit smoking and my divorce lawyer, projected total debt elimination by the beginning of 2014. “Best-case scenario” was the operative term; I hadn’t thought through vacation travel and couldn’t anticipate hefty fines, car breakdowns, or the need to buy new tires or dress clothes. However, I also assumed no salary increase, no extra pay for overtime or no better-than-expected year-end bonus, and no elimination or reduction of recurring expenses (e.g., getting rid of my land line in favour of a MagicJack, closing the account I no longer needed at my backup web host, closing dormant resold accounts with my web host that I’d simply left open for no good reason, etc.).

In the end, in precisely 743 days (or 2 years, 1 week and 5 days), I paid off just shy of $28.5K. To achieve this, though, I placed exactly one-third of all income during that time on debt reduction and I don’t recommend that anyone else do the same because, unlike myself, people have a life. I had lived below the poverty line for the 10 years prior to March 2006, which is how I got into debt in the first place, and my best gross income before that was one exceptional year in the early ’90s when I made a hair over $30K. In other words, I’m accustomed to getting only what I need and not what I want — within a few exceptions, of course, owning a car being one of them.

Now that’s not to say that I think I’m more virtuous than everyone else! I just think that most people, when they attain a level of financial security, quite naturally allow themselves to indulge more in what they want. I mean, despite appearances, I feel I’ve done quite a lot of that since 2006, at least by my standards. But just like a diet will fail if you’re depriving yourself to the point of always feeling hungry, an aggressive approach to debt elimination as the one I adopted is doomed if it makes you feel resentful for depriving yourself so much when you know there’s in fact enough income coming in that you shouldn’t be feeling deprived.

At any rate, now that my debt is finally at zero, I still have about two months left for my plan to be finalized, for now I have to refill the virtual “jars” from which I borrowed to get out of debt faster than anticipated. However, by New Year’s Day, I’ll have a few Ks of savings with which I can do whatever I want, which brings me to the dog chasing the hubcap. I know what’s first on my list: buying an extra week’s vacation for 2014, assuming my boss allows me to do so. As for the rest, well …that’s a topic for my next blog entry.