The Referee & I had to sit down and have another financial brainstorming session recently. We appear to be leaking funds, which was straining our budget. We wanted to find the source of the problem and mend it. It has been just over 3 months since we started getting extremely serious about our budget. We shredded the credit cards the end of July, breaking the debt cycle completely. No new debt. We made the commitment to live entirely within our means.
Obviously, we would not be in the financial mess we are in, if we had applied any number of common sense principles to our money from the start. Since we lacked that common sense, we chose to listen to and study the principles laid out in the Crown Money Map, and Dave Ramsey's Total Money Makeover. We were convinced by their logic that it was in our best interest to lower our standard of living and work hard to get out of debt. And, that is just what we have been trying to do.
The first step to breaking the debt cycle was to set up an emergency fund of $1000 in a savings account. It seems that the vast majority of unexpected expenses cost less than $1000. That has held pretty true for us. We have certainly had a series of unexpected expenses too.....the death of a dog, car repairs, plumbing, more car repairs, dental work, etc. Our emergency fund has served us well to enable us to pay cash for these expenses, instead of adding credit card debt. Looking back over the past quarter, I'd say that this emergency fund step has proven successful.
The second step is to apply every extra penny we can squeeze out of our budget, to the existing credit card debt. This was the step that I was so very anxious to tackle, at the time that we shredded those cards. I could not wait to knock off those debts and be rid of them. We brainstormed a list of ideas for how to build a "snowball" of money to put towards the debt. We sold things in a yard sale, on Craig's List, and on Ebay. We lowered our food and gas expenses, cut out some activities, and made a series of lifestyle changes to reduce costs.
Our intensity was good. But, it did not have the effect that I was hoping. It has been a much slower process than I'd prefer. Coincidentally, at this very time that we were cutting costs to add money to the debt payments, those very debt payments were increasing due to various credit card company games (increased interest rates, increased minimum payments, etc). Thankfully, our efforts were enough to allow us to remain current with all of our creditors....and to have a tiny bit of extra to pay on the principle. I do not know how other debtors are handling this credit card madness right now! Every time we have to dip into our emergency fund, we divert the "extra" funds away from our debt snowball, until our emergency fund is fully funded once again. Even though I know this system works, it still frustrates me that the debt is just not going down faster!
Lately, it seems to be a challenge just to keep our emergency fund fully funded. That is what inspired a new brainstorming session. Surely we must be doing something wrong, if we are dipping into our emergency fund so frequently. What am I missing?
Medical.
We found the answer--medical expenses. We have been bombarded with doctor-related expenses and dentist-related expenses lately. That assault is not going to ease up anytime soon (and I won't even start stressing about how negatively we are going to be hit by the health care legislation the government is currently pushing). Our week of family flu cost us $100, just in office visit copays and prescriptions. We have fairly decent insurance coverage, compared to what's currently available. Even so, the 10% we pay for medical procedures really adds up when we are talking about the field of cardiology. The 20% we pay for dental work really adds up when two kids need work on at least 2 teeth each. I have not yet figured out the math on prescriptions. (My experience has been that if we have the funds, our copay on prescriptions is small. If we are low on funds, those prescription copays are huge!)
I've paid at least $600 in dental bills last month, with a possibility of more to be billed soon (after we see what the insurance is willing to pay). The compilation of bills that have arrived from the 1 cardiology check-up in August, has tallied over $300 already. (I flinch at the thought of what the bills will look like from that MRI procedure last month....those bills have not started pouring in yet). Add that to the $100 flu, and $40 in copays for well-child visits, and I literally wrote checks to cover over $1000 worth of medical bills in one month!
It is easy for me to see where our monthly budget plan is falling short. I budgeted $80. I spent $1040. Um, yeah, that math does not equate!
It was easy for the Referee to see how we've gotten into so much debt. He was thinking eating out and impulse buying can only get us so far.....especially considering we've been steadily cutting down on those behaviors over time. In the past, before we established an emergency fund, we would simply charge the credit cards with all of those "extra" medical expenses that did not fit into our budget.
Ouch! That really adds up. $20 copays every time we visit the doctor. A $600 annual deductible that we meet faithfully every year, before the insurance will kick in and pay its portion of the expenses. 10% of all medical expenses. 20-50% of all dental expenses. 10-30% of prescription costs. All that on top of our portion of the insurance premiums that the employer takes out before the paycheck arrives.
For the average, healthy family, these percentages would not be so expensive. For us, these percentages are a blessing, especially considering our complete lack of alternative insurance options. The Referee has been willing to deny himself certain career options in order to work for companies who can offer us this insurance. Our budget looks at these percentages and screams CARDIOLOGY IS EXPENSIVE! We have been willing to pay higher percentages, in order to receive a certain quality of care for our children. Investing in our family's health like this, carries a large price tag.
Somehow, we need to find a way to fit that price into our budget. With a heart surgery looming in our future, the numbers are going to go up for a while, before they can come down again. That is our reality, and there is no sense in whining about it.
During our brainstorming session, The Referee and I approached the situation from 2 very different directions. I took the emotional route, and advertised our need to back off from being disappointed that the debt is not reducing fast enough.....and replace that with praise for the debt still decreasing slowly, when our circumstances would suggest it should increase. I realize now that I need to keep cheering us on for breaking the debt cycle, and staying committed to that!
The Referee took a more calculated approach and declared that we need more income in the short term.....and we need to consider looking for a way to get better medical coverage in the long term. Since the long term ideas involve job change and possible relocation, those are on hold until surgery is complete, and the impact of the government's actions are known. For the short term goal, we are seeking additional employment, tightening the purse strings even more, and looking for more junk to sell off.
We must increase the medical line item in our budget.
Obviously, we would not be in the financial mess we are in, if we had applied any number of common sense principles to our money from the start. Since we lacked that common sense, we chose to listen to and study the principles laid out in the Crown Money Map, and Dave Ramsey's Total Money Makeover. We were convinced by their logic that it was in our best interest to lower our standard of living and work hard to get out of debt. And, that is just what we have been trying to do.
The first step to breaking the debt cycle was to set up an emergency fund of $1000 in a savings account. It seems that the vast majority of unexpected expenses cost less than $1000. That has held pretty true for us. We have certainly had a series of unexpected expenses too.....the death of a dog, car repairs, plumbing, more car repairs, dental work, etc. Our emergency fund has served us well to enable us to pay cash for these expenses, instead of adding credit card debt. Looking back over the past quarter, I'd say that this emergency fund step has proven successful.
The second step is to apply every extra penny we can squeeze out of our budget, to the existing credit card debt. This was the step that I was so very anxious to tackle, at the time that we shredded those cards. I could not wait to knock off those debts and be rid of them. We brainstormed a list of ideas for how to build a "snowball" of money to put towards the debt. We sold things in a yard sale, on Craig's List, and on Ebay. We lowered our food and gas expenses, cut out some activities, and made a series of lifestyle changes to reduce costs.
Our intensity was good. But, it did not have the effect that I was hoping. It has been a much slower process than I'd prefer. Coincidentally, at this very time that we were cutting costs to add money to the debt payments, those very debt payments were increasing due to various credit card company games (increased interest rates, increased minimum payments, etc). Thankfully, our efforts were enough to allow us to remain current with all of our creditors....and to have a tiny bit of extra to pay on the principle. I do not know how other debtors are handling this credit card madness right now! Every time we have to dip into our emergency fund, we divert the "extra" funds away from our debt snowball, until our emergency fund is fully funded once again. Even though I know this system works, it still frustrates me that the debt is just not going down faster!
Lately, it seems to be a challenge just to keep our emergency fund fully funded. That is what inspired a new brainstorming session. Surely we must be doing something wrong, if we are dipping into our emergency fund so frequently. What am I missing?
Medical.
We found the answer--medical expenses. We have been bombarded with doctor-related expenses and dentist-related expenses lately. That assault is not going to ease up anytime soon (and I won't even start stressing about how negatively we are going to be hit by the health care legislation the government is currently pushing). Our week of family flu cost us $100, just in office visit copays and prescriptions. We have fairly decent insurance coverage, compared to what's currently available. Even so, the 10% we pay for medical procedures really adds up when we are talking about the field of cardiology. The 20% we pay for dental work really adds up when two kids need work on at least 2 teeth each. I have not yet figured out the math on prescriptions. (My experience has been that if we have the funds, our copay on prescriptions is small. If we are low on funds, those prescription copays are huge!)
I've paid at least $600 in dental bills last month, with a possibility of more to be billed soon (after we see what the insurance is willing to pay). The compilation of bills that have arrived from the 1 cardiology check-up in August, has tallied over $300 already. (I flinch at the thought of what the bills will look like from that MRI procedure last month....those bills have not started pouring in yet). Add that to the $100 flu, and $40 in copays for well-child visits, and I literally wrote checks to cover over $1000 worth of medical bills in one month!
It is easy for me to see where our monthly budget plan is falling short. I budgeted $80. I spent $1040. Um, yeah, that math does not equate!
It was easy for the Referee to see how we've gotten into so much debt. He was thinking eating out and impulse buying can only get us so far.....especially considering we've been steadily cutting down on those behaviors over time. In the past, before we established an emergency fund, we would simply charge the credit cards with all of those "extra" medical expenses that did not fit into our budget.
Ouch! That really adds up. $20 copays every time we visit the doctor. A $600 annual deductible that we meet faithfully every year, before the insurance will kick in and pay its portion of the expenses. 10% of all medical expenses. 20-50% of all dental expenses. 10-30% of prescription costs. All that on top of our portion of the insurance premiums that the employer takes out before the paycheck arrives.
For the average, healthy family, these percentages would not be so expensive. For us, these percentages are a blessing, especially considering our complete lack of alternative insurance options. The Referee has been willing to deny himself certain career options in order to work for companies who can offer us this insurance. Our budget looks at these percentages and screams CARDIOLOGY IS EXPENSIVE! We have been willing to pay higher percentages, in order to receive a certain quality of care for our children. Investing in our family's health like this, carries a large price tag.
Somehow, we need to find a way to fit that price into our budget. With a heart surgery looming in our future, the numbers are going to go up for a while, before they can come down again. That is our reality, and there is no sense in whining about it.
During our brainstorming session, The Referee and I approached the situation from 2 very different directions. I took the emotional route, and advertised our need to back off from being disappointed that the debt is not reducing fast enough.....and replace that with praise for the debt still decreasing slowly, when our circumstances would suggest it should increase. I realize now that I need to keep cheering us on for breaking the debt cycle, and staying committed to that!
The Referee took a more calculated approach and declared that we need more income in the short term.....and we need to consider looking for a way to get better medical coverage in the long term. Since the long term ideas involve job change and possible relocation, those are on hold until surgery is complete, and the impact of the government's actions are known. For the short term goal, we are seeking additional employment, tightening the purse strings even more, and looking for more junk to sell off.
We must increase the medical line item in our budget.
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