Financial Literacy Awareness Carnival-My Financial Aha Moment

I’m very happy to be participating with an excellent lineup of bloggers for this year’s Financial Literacy Awareness Carnival by sharing my Financial Aha Moment. You can head over to The Heavy Purse to see all the posts today. I bet you’ll learn lots!

The American Dream

If you have been reading for a while, you know that my family used to have some serious debt. At the beginning of 2011, we owed over $30,000 to credit card companies and had over $70,000 in student loans. We also were a family who traded our cars for new ones every three or four years and bought things whenever we felt the urge. We had good income, made our payments on time (even if they were often only the minimums), and almost always got approved for new credit whenever we wanted something. We were living the American dream, right?

Well, if the dream includes constant worry about having no money at the end of the month and having to work all the time to make sure you can hit every payment, then I guess we were there. It actually sounds more like a nightmare that I’m afraid way too many people lose sleep over each night.

The Aha Financial Moment

After our daughter was born in 2007, I knew in my heart we needed to make a change. I didn’t want her to grow up in daycare because we could never afford to take time off work. I also didn’t want her to learn the credit card and minimum payment way of life. If you think your kids don’t know what goes on behind the scenes, think again. We started and failed at several attempts to remain debt free, mainly because we never really decided on a plan for the future.

In 2011, we watched some close family members go through a foreclosure. It was devastating for all parties involved.The thing that really woke us up was that we were really not living any differently from them.

The foreclosure happened because of many factors. If you made a list of why our family members lost their house and compared it to our financial situation, this is what it looked like.

Lots of credit card debt-Check

Frivolous spending– Check

Several previous years of high income-Check

Head buried in the sand about amount of debt owed-Check

Little savings-Check

No financial plans or goals-Check

Loss of two jobs during the recession-That’s the only thing we didn’t have on our list.

AHA! When I looked at the amount of our monthly payments and how much savings we had, we would not have made it through one month if we lost my paycheck. Even if we drained our retirement, it would have only lasted a few months if the income wasn’t replaced.

It Won’t Happen To Me

I think it’s easy to hear stories about people who lose everything because of debt and/or losing a job. It’s really easy to think it won’t happen to you. After seeing it happen to people we love, real and up close, it somehow lit a fire under us to do better for our daughter, for our future, for us.

What Can I Do To Become Financially Literate?

I don’t think anyone enjoys being in debt or living paycheck to paycheck, but somehow we get stuck. It’s really, really hard to change. Change could mean  giving up things you are comfortable with or risking alienation or even scorn from friends and relatives. If everyone you know is kind of floating along in the same boat, it really upsets the balance when someone jumps out and decides to swim.

You can read what we did to pay off our debts if you’re curious, but really the steps are the same regardless of your situation.

1) Decide what you want. Is is debt freedom and possible financial independence or more things and more debt? If you aren’t single, your significant other has to be on the same page. It will never work if you don’t want the same thing.

2) If you decided the former, then make a list of all income coming in and money going out. If you have no idea where your money goes, it’s hard to hang onto it.

3)Look at all the things you own and decide if they add value to your life or if they are necessary to what you decided in step 1. Get rid of stuff that doesn’t qualify and stop adding to the pile. This includes clothes, toys, electronics, whether you turn the air conditioner to 65 in the summer, and even food. There are ways to cut back on almost every expense.

4)Make more money. You can only cut back so much. If you want to really make change, you have to earn more money. I believe anyone can earn at least an extra $500 a month.

5)No excuses allowed. Yes, it’s hard. You will want to stop. You’ll miss things at first like a new dieter misses bread. You will have setbacks and months where you feel like you are barely treading water, but after being consumer debt free for almost a year and a half, I can tell you that the end game is worth every struggle and second thought. You do only live once, so don’t let debt and lack of a plan determine what you can and cannot achieve.

6) Reward yourself. This one may seem counter-intuitive, but it’s a lonely place out there in debt payoff land. After every milestone you hit, like paying off a certain credit card or saving your first $1000, then reward yourself within reason. Go out to eat or to a movie. You’ll enjoy things like that so much more than when you did it all the time without thought.

I’m really sorry that we had to see our family go through such hard times, but I’m eternally grateful for the financial aha moment, and I’m actually thankful for our debt. Without having to dig deep to pay it off, I’m not sure we would have the confidence that we now possess in regards to financial freedom. You don’t gain financial literacy overnight, but once you do, it’s certainly worth it. 

Has anything ever scared you into financial literacy?  

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