How to Get Out and Stay Out of Debt
Part 7–Red Circles and Blue Circles

Peel ItOkay! Maybe my capacity for frugality is greater than most people’s. Maybe it’s true that I lack the gene that makes people want to own things. But perhaps more true is that I was brought up that way.

When I was a kid, the federal government gave mothers a universal monthly per-child “family allowance.” I believe it was around $26 per month by the time I reached 18, by which point my mom wasn’t eligible for it anymore.

Until I reached my teens, she gave me $5 of it as my personal spending money and I wasn’t allowed to ask for any more for the rest of the month. Of course, $5 went a lot further in the 1970s than it does now. She increased my allowance to $10 by the time I became a teen and, when I started high school, she gave me the whole amount. But that was it!

Thus I learned to start saving my monthly $5 from September onwards so that I could buy Christmas gifts. I don’t remember specifically but I’m pretty sure as I look back as an adult that she “subsidized” the gifts that passed as being from me. However, she still took the $20 I’d saved up by December as my contribution for those gifts she purchased in my name and, in so doing, she taught me not only the value of money but the virtue and positive outcomes of saving. Indeed, because I had saved, I could buy my siblings and grandfather some Christmas gifts.

My siblings and I never felt needy because my mother, especially, had a knack for stretching every dollar as well as a kind of stubbornness that brought her to try her hand at anything and everything before throwing in the towel. I think I was 13 or 14 by the time I had my first pair of jeans because Mom made a lot of my clothes. She cut my hair without a soup bowl in sight until I was well into high school. But she was a very proud woman and would give in when she knew she’d reached the limit of her considerable abilities, for appearances also meant a lot to her. I guess you could say that she fell victim to the syndrome of keeping up with the Jones, but she did so with ingenuity rather than by spending money she didn’t have.

That’s how she taught us about money in the sense that it’s all about making choices. Sometimes it’s better to pay a bit more for something because the quality of that thing is measurably greater than the difference in price compared to its cheaper equivalent. Other times, however, there’s little or no difference or the difference is so small that you can live with it. In other words, she taught us that a higher price tag didn’t necessarily translate to higher quality, but if it does, you can take what you didn’t spend on other things and use it where it matters.

Sure, I still managed to get into financial trouble once I became an adult but, whenever I did have a steady income, my instinct was to apply in my own way what she had taught me. I remember coming up with my first electronic budget in the early ’90s with some DOS-based application whose name I forget. Interestingly, there are tiny echoes of that first budget in the way I budget today. My second serious attempt lasted about 18 months from March 2006 during which time I cleared over $20K in debt, and then I got back on the wagon in late-October 2011 and haven’t stopped since. So when I announced to my mother on October 17, 2013 that I had reached debt-free status, I wasn’t just telling my mother: I was telling my mentor and I think that’s the reason why she was so pleased to hear the news.

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Tough but Valid Questions
Part 3 of this series was all about listing in detail your outputs (spending) and inputs (income). But my fixed amounts per category that I showed you in Part 4 became firm only after I looked at each line and asked myself:

  • Do I really need this AND that or is just this enough? (If I figure out that I can afford cable TV, is having a package with 30 extra stations going to make my life that much better than settling for the 20-station package, even if the former is only $5 more per month?)
  • What’s the lowest I can bring a given needed expense, assuming I can bring it lower at all, and is it worth the trouble of going as low as I can go? (For example, is saving 50 percent on something that costs you about $500 a year going to make that much difference?)
  • If I reduce something to just what I need, would I feel more miserable than the cut is worth if I can actually afford the present level of spending on that thing? (Recall my haircut example in Part 3.)
  • Do I have needs I long neglected by dismissing them as wants simply because I wasn’t able to afford them at one time? (Example: That sofa is ugly as sin and isn’t even comfortable, but I can’t afford new furniture right now.)
  • Have some wants become needs because I’ve put them off for so long? (For example, I have only one pair of jeans I can wear outside the house and even they are starting to wear out!)

Yes, I did reach points in my ultra-low-income days and then my high-debt days where those were valid questions and I had no choice but to make due with what I had.

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The Red and Blue Circles
Some expenses glared at me after I listed all my “Necessary Outputs” per Part 3 of this series, and a lot of them were there simply because I’d never bothered questioning them from one year to the next. So I decided to trace a red circle around expenses that could be eliminated entirely and a blue circle around those that could probably be reduced.

When I lived in Halifax until 2008, I got my Internet connection with my telephone landline and I didn’t have cable TV. I wanted to replicate in Montréal what I had in Halifax, but dealing with the equivalent phone company here (Bell) turned out to be so utterly disastrous than I resorted to getting my Internet connection from the local cable company, but no cable TV. However, when I discovered after a few months that the cable company was charging me for basic cable TV, I asked that they come hook it up. To their credit, they reimbursed me (at their insistence) for the months I paid for cable TV but hadn’t actually used it.

Three years later, when I found myself listing all my expenses, I noticed that I was paying as much per year for my phone line as I was for Internet and cable TV, yet I nearly never used my phone line because, even by then, I’d often call my mom through Skype. It was also around that time that I discovered MagicJack — a VoIP device — that would, over three years, reduce my cost for a quasi-landline by over 90 percent. So, realizing I had a cell phone (as well as my work-paid landline) in case of emergencies even if my Internet connection were down, I drew a big red circle over my landline expense, tested out MagicJack’s reliability over the next two or three months, and finally got rid of an expense of over $1,000 per year. When my MagicJack broke some three years later, I decided to replace my dumb cell phone with a smart phone and gave up on any kind of landline entirely.

I then drew a blue circle around how much I paid for web hosting. By that point, I’d essentially gotten out of that business but had neglected closing several accounts. I finally pulled the plug on them, keeping only one that wasn’t technically mine, and my web hosting bill dropped by nearly half — just for doing some cleaning up I’d neglected for far too long. Then I drew a red circle around my web hosting at another company that I had as an emergency backup, which was essential when I was in the biz but served no real purpose anymore.

I’ve never gone without apartment insurance in the 30 years or so I’ve lived on my own — I strongly advise you against NOT having home insurance — and when I got my first car in 1991 and had to have some coverage on it, I got a discount for pairing up my car and home insurance. But aside from switching to another insurance company in the mid- or late-1990s, I just glided along and let it renew automatically from year to year. As much as my insurer had always been there for me when I needed it, it occurred to me that I might be able to get a better deal with my work-based insurance. I did the research and the difference was about 1 or 2 percent less, so I didn’t bother. I did the research again in 2016 and it would have cost me about 5 percent more. So, while I questioned this expense initially by tracing a blue circle around it, I ended up keeping what I have had for 20 years because it’s still the better deal.

In October 2011, I not only had to come up with an effective debt repayment plan but I also needed to pay interest on my line of credit (LoC) on which I had transferred all my debt, and that came out automatically from my main chequing account every month. This line alone represented about $840 per year, so the faster I could reduce my debt, the faster that monthly amount would go down until finally disappearing, which it did after two years. I would also move any expense I had to put on my credit card within 21 days or less to my LoC, for the interest rate on that card was more than twice the rate on my LoC. It’s been more than five years since I’ve paid a penny of interest on a credit card, for today my attitude is, “If I can’t pay for it right now, I’m not getting it right now.”

Only once I had peeled away as much as I could did I run the tally again to figure out two numbers: how much should I give myself for food and life’s incidentals every pay day and how much should I pitch at the debt (and eventually savings). The latter figure can vary for one paycheque to the next and sometimes it’s only a theoretical figure: I offically put it aside on the spreadsheet but I immediately dig into it if I need to cover “unscheduled” expenses. If I overspend the former figure in a period, I can either reduce that figure by as much in the next period or bring down the latter figure by as much, but if I underspend the former figure, the latter figure definitely goes up by as much the next period.

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Ain’t That a Lot of Work?
Yes, this all makes for a lot of arithmetic and I probably saved a few bucks here and there over the last five years by virtue of not going out because I was too busy (and obsessed) with working the numbers. However, now that I mapped everything out until the end of 2025, I just have a bit of maintenance to do as I go. The most time-consuming event is when the price for a need changes, for I have to change all the amounts on my reserve account spreadsheet in the affected need‘s column, but then I eventually came up with a set of formulas that automatically ajusted (plus or minus) the new per-period savings amount from that point onwards.

For example, recently I managed to get a $20/month reduction on my garage rental in exchange of taking on the responsibility for snow removal. That translates to a $9.23 per period less to put on reserve for that rental and an equivalent amount per period of extra savings, which I’ll probably end up spending on the said snow removal. If I didn’t bother doing the math and treated the $20/month as new money to spend however I wished, I would feel that the new responsibility I accepted is yet another financial burden. The snow removal might end up costing me more than $240/year, but at least I have that much covered, if only in my mind (and on my spreadsheet). Similarly, an increase of $20 or $25 per month, as was the case with my car insurance last year, wasn’t so bad once I ran it through this arithmetic grinder.

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Generic Versus Brand Name
I probably won’t shock you when I tell you that if you were to go through my cupboards or my fridge, you’d find very few brand-name products. This is a legacy of my poverty days but even now when I could afford brand-name products, I don’t bother with them because I rarely notice a difference. Only when I notice a substantial difference do I get brand-name products — like when I discovered that I get a rash when I wear clothes on which I used the generic fabric softener, or a certain generic store-branded toilet paper was thin as hell and only marginally better than sand paper.

So there are definitely times when a brand-name product is measurably better — and by “measurably,” I mean you have to take out any subjectivity in your assessment. However, brand loyalty for some people clouds their assessment: it has to be Kraft macaroni and cheese or peanut butter; it has to be Heinz ketchup. But after comparing a lot of both, I’ve rarely detected a difference that justified the higher price tag. That said, especially in the grocery store, it’s definitely worth looking at the price per unit. If the difference in the per-unit price is so small and you honest-to-god prefer by a lot more the brand-name product, why bother with the generic brand?

That’s one of the many things my mom taught me: sometimes the quality justifies the higher price. But for me, Québon or Beatrice homogenized milk that goes for $3.65 per 2-litre container tastes the same as Lactancia that costs at least a dollar more for the same format. Same thing with butter and cheddar cheese. But going back to my fabric softener and toilet paper examples, there are times when there is a negative correlation between (lower) price and quality. The trick is NOT to assume that a higher price tag is always a sign of higher quality.

By the way, you can also apply this to wine. Yes, I’ve tried some of the cheap stuff and, yeah, it’s pretty bad. It’s plonk; it’ll get you drunk and that’s about it. But you’d be surprised what you can get here in Québec without spending more than $15 on a bottle — often less.

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Buying Versus Renting
One thing I pondered at length as early as 2011 is whether or not I should eventually buy a condo and get out of renting once I’d clear my debt. The difficulty for me soon became apparent: How long would it take me after debt repayment to have a down payment for a condo?

I came to this pondering too late and at the wrong time. Even in Montréal where housing prices haven’t gone into the stratosphere as they have in Vancouver or Toronto, home prices have more than doubled in 15 years. Even though at the time I was still thinking I would have to work until I reached 65, I couldn’t make the numbers work so that I would have the mortgage paid off by the time I retired. And speaking of retirement, while I will get an okay pension from work plus a government pension I’ve paid into all my working life, the projection on that front would have me, upon retirement, go well below the recommended 70 percent of net earnings when working. Because I started my current job at age 40, my pension from work paled in comparison with my colleagues’ whose career will have spanned 30 to 35 years compared to my 25. So I might have a nearly “free” roof over my head if by some mean feat I managed to pay off my mortgage by age 65, but I’d be stuck under that roof unable to afford anything beyond subsistance.

The received wisdom for several decades has been that owning one’s home is always better than renting for life. However, given where the housing market has gone in Canada since the beginning of this century, that isn’t necessarily true anymore for some GenXers like me who’ve had a checkered career and it’s probably not true anymore for Millennials. The risk of being house poor while paying off a mortgage and then house poor at retirement is greater than it has ever been. You can’t eat a house.

Besides, who wants to work only to pay off a mortgage and get in debt because you need vacations you can’t afford because of the stress from work and that mortgage? And if, by the grace of Dog, you do get to reach retirement age, what do you hope to do then? Sit back in a rocker in that nice home that may have outgrown you by then?

Now I’m NOT saying that buying a home is not a good choice. Perhaps my method will help you demonstrate that you have the means to buy one, have a comfortable retirement, and have a life while you’re working. If so, go for it! But what I AM saying is that you shouldn’t assume that owning a home is the given that it used to be.

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On the Other Hand, There Are Five Fingers
Once I figured that I, at least, couldn’t do both — own my home and have a comfortable retirement — I switched gears and focused on living well while still working and making sure I could live well for 30 years of retirement. I went even further and crunched the numbers to see if I really would need to work until 65 as I always assumed or if I could retire sooner.

It turned out that, despite my aversion for risky investments but because of my inherent frugality, I could very realistically plan on retiring at 60. Lately, I’ve fantasized about retiring as early as 55, but those five extra years will make the difference between a pauper’s retirement and a comfortable one. So, unless I win the lottery, which is unlikely since I don’t buy lottery tickets, and even if I decided to go for a promotion at work, in which I have no interest, my last day at my job should be December 22, 2025.

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