Revisiting Expenses

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When I was first getting out of debt, I found many little ways to save bits of money here and there to put towards my debt payoff. At the time, I needed every extra cent. Frugality was the name of the game. Now, my perspective has shifted. I’m not desperate anymore, because I’m out from under my debt! I no longer feel like I struggle for every dollar, because we’re ahead on our bills.

However, I’m not ok with feeling this way. The truth is, I got into debt a few dollars at a time, and if I don’t watch out, it will happen again. So, I’m going to rededicate myself to getting rid of the extra expenses to keep our budget lean!

There were some obvious cuts to be made initially. We budget $50 for household decor/furniture, because we’ve been setting up a new (rental) house since we married in June. However, we’re pretty much set on furniture and decor for now, so cutting this to $10 will be enough for the occasional picture frame, and to build up some savings for larger things later. Next went World of Warcraft, which I simply don’t play anymore. As a substitute, I’m going old school with a text-based MUD. Just as fun, but totally free!

After these obvious trimmings, I dug a bit deeper. I’ve been spending $35/month for my own virtual private server, which is indeed a good deal. However, I’ve been using the free Heroku plan for hosting the occasional small development application, and thus the only things left on my server are this blog, a few other miscellaneous blogs, and a few sites I used to host for a friend. I’m no longer getting my money’s worth, and even worse I don’t have the time to administer the server and keep it secure. So, I’ve switched to DreamHost, which costs less than $10/month, and is a pretty awesome hosting service. I’m totally happy with it thus far!

Then, I reduced our dining out budget by $10. We probably won’t even notice this decrease. I reduced the grocery budget by $20, which we also likely won’t notice. Tomorrow I plan to call the cable company to put us on a plan to save a few bucks each month but with better service. I reduced our entertainment budget to basically allow us to do Netflix and then a movie theater trip every other month. Finally, I called to see where my student loan consolidation was, and realized they were waiting on one company. So I called them to get the ball rolling for the consolidation, which will save me $150 per month in costs.

Overall, these changes amount to about $300 or so per month! Those little charges do add up! And even though you think some may not be changeable, you may be surprised when you try to cut costs. It’s particularly effective if you do it in a way where you won’t notice (cutting the dining budget by $10), or where you have a good alternative (MUD instead of WoW). The key is feeling like you just won extra money without sacrificing at all.

So, the lesson here is to always revisit your expenses, and never let your budget stagnate. Things change, and you have to be able to roll with it. And rolling with it in order to salvage 10% of the budget is always a positive thing!

Weak Dollar = Debt Payoff?

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Recently I have seen quite a few searches related to the weak dollar and debt payoff. I hope to give my perspective on this, and maybe a few more searchers will have what they are really looking for.

For those new to economics, a weak dollar is what it sounds like – weak. As a quick example, buying a Euro half a decade ago was cheaper than it is now. Almost half cheaper, in fact. This is partly due to inflation, and partly due to trade and budget deficits. Most people agree that a weak dollar is a bad thing if you are a consumer, and a good thing if you are producer. As an example, my business is getting a lot of attention from international clients, because our products are cheaper here than they are in their home country. On the flip side, if you travel to Europe, expect to pay twice as much for everything.

So, basically, if you had a total debt of $20,000 five years ago, that amount does not change with the dollar (unless it is in overseas currency). Meaning that you would technically be paying less for it now, even though the amount is the same.

However, this is not true, for the most part. If you had traded your money for Euros five years ago, yes, they would now be worth twice as much. But since you kept your money in US dollars, then you have the same amount as you did then. Your debt and savings both weakened at the same time and to the same degree. It is no better to pay off debt now than it was at the time you built it up. In fact, since your debt likely carries an interest penalty, your debt actually weakened LESS than your savings, meaning you now owe more than you did back then, unless you’ve been trying to pay it off.

Since your debt is worth the same it was back then, relative to your savings, then it will be the same thing when it bounces back. $20k ten years ago = $20k right now = $20k ten years from now, when you only consider a strong or weak dollar. It only becomes worth more or less when you invest in international currency. When the dollar is particularly strong, you may consider trading it for a currency that is particularly weak. And then, when the situation reverses, you will have extra money. However, when you factor in a typical inflation rate, this is not a sound investment strategy; you almost always lose in the long run, and it requires a long run to see a gain. Of course, there are always higher risk currencies (if a country is about to crash and you believe they will bounce back), but most of the time you will lose on long term gains.

So, then, what is the right time to pay off debt? Put simply, the right time is NOW. With interest rates rising, that $20k right now will become $30k before you know it. If you’re waiting for the “right time”, then your money is sitting there gaining interest by the minute. In general, paying off debt is almost always smarter to do immediately, rather than waiting for some magic moment. The monetary benefit is eclipsed by the psychological benefit – imagine being free of the weight of that debt! Imagine if you owed nobody but yourself, what you could do with that paycheck every month.

So, start now! Create a strategy, maybe review this blog and some other ones for support, and get started today. List your debts, create a budget, and put as much money as possible towards it to get it paid off soon! In a bad economy, the one thing that makes it worse is debt. Losing your job is terrible no matter what, but imagine losing it and not having to really pay any bills but the necessities… it would be great, right? So, the best way to prepare for the worst is to get out of the red. It’s a difficult road, for sure, but it’s rewarding in so many ways.