So Sick of Debt

Well, it has been a big couple of days. I was working at the emergency department last night (on a student rotation) when my brother was brought in by ambulance with recurrent seizures. He has epilepsy and though it’s not uncommon for him to have a seizure, in this case they would not stop and he had 5 in an hour.

Unfortunately, in the chaos he was given a little too much medication, causing him to become unresponsive to the paramedics. Hence, when the paramedics radioed ED staff, they started preparing for a resuscitation situation. I was packed off into a relatives room and they started gowning up and readying the equipment. Luckily by the time he arrived, he had stopped seizing and was able to go to a regular bed.

I have to say it was much worse waiting for his arrival with limited information than it ever has been when I have accompanied him to the hospital. I started to get quite scared and shivery. When mum arrived she said I looked like I was in shock. In any case, he woke up after a few hours and went home later that night. Apparently he appears okay this morning. We are all a bit shaken up though.

Mum rang me this morning and we talked about it and she cried a bit. It’s okay at the time (when the adrenaline is pumping) but in the aftermath you start thinking about the future. My brother’s disability makes it harder to treat his epilepsy, and though he has seen neurologists in the past, he is often a bit too hard to do anything for. So no progress ever gets made.

Anyway, on a slightly more financial note: When mum rang this morning and had recovered sufficiently from our chat, she mentioned how she wants to get her finances in order. This is great news. I have sketchy details (from what she’s said and I’ve seen) that she owes the tax office some money, and has money owing on a few credit cards. She recently sold her house and downsized to an apartment, so she has a reasonable chunk of money from the house sale. She doesn’t know whether to pay off the tax and credit cards, or pay down her mortgage to almost zilch. So she’s asked me go go through some of the details with her. I think it’s great that she is starting to think about all this! She is on a good wage with a car thrown in, so right now she has her best opportunity to get debt free before she retires. She knows she lets money slip through her fingers, and using credit cards for everything is a big part of that. She freely admits that if she sees something she likes, she just buys it. I’m going to have to be careful and not scare her off by suggesting some radical program where she has no money left over after the bills and debts are paid. In fact, she first mentioned this a couple of weeks ago (asking me to help her) and I said I would but I left it at that and didn’t pester her - I didn’t want her to say that to me on a whim and then regret it or not be serious about it.

But she’s mentioned it twice more and so now I’m going to work with her to develop a realistic budget, with plenty of cash left over for fun. Then, having gotten a plan in place (better than none at all) she can see what she is achieving and hopefully get excited enough by her progress to tighten the budget herself in a few months’ time.

Well I’ve recovered from my spend-up and am ready to tackle debt reduction again. It’s payday again today, and in updating my totals in the sidebar on the right, it got me thinking: We have come so far in just a few short months (both economically and personally).

I update my NetWorth at NetWorthIQ too, and I was amazed to see today that our net worth is more than $10,000 better than it was in June. We have received quite a few payouts in this time, which means over the next few months our debt reduction will slow down drastically, but this is still an amazing motivator. I showed the figure to my husband who was mightily impressed (though he was a little disappointed to see our life’s work reduced to a relatively small number!). I told him that things would only get better from here … and they will.

 Also, as a couple I feel we have found a new level of cooperation. I think this has brought us closer together. I always try to find a way for my husband to get what he wants (and for me to get what I want, for that matter!), and I appreciate that he doesn’t pressure me to find more room in the budget for extras. This has also made us really think about what we want to purchase, instead of buying on a whim. While I didn’t originally think of this process as being frugal as such, we have gotten rid of so much stuff we don’t use, and we aren’t accumulating stuff like we were before. Our home looks tidier and roomier somehow.  And we seem to enjoy simpler meals without a lot of expensive extras. Cutting out the junk in our grocery bill might even be helping our waistlines.

While I’m in a reflective mood, this seems to be a good time to thank my loyal following of readers. I have seen (on Sitemeter) that though many of you are from the US, there are others in Israel, Malaysia and Singapore, as well as the UK (plus other places). Though I don’t have a huge following by any means, it is great of you guys to come back visiting regularly. I really appreciate the support. It keeps me posting and keeps me motivated, that’s for sure!

PS: I thought I’d also clarify for US and other overseas readers: as you probably know, our summer in Australia is December to January, so the work we will be doing for my father-in-law - in lieu of part of our debt - will be worked off from October-November. Some of you may have thought it was further away than it actually is!

Following on from yesterday’s post about how my parents bought a home, I thought I’d share some of the attitudes to money that have shaped me and the financial position I am in today.

Basically, both of my parents are pretty cautious people. That is to say: they don’t smoke, they drink socially but never have alcohol in the house and we kids always had a stable home. As I said yesterday, my dad wasn’t a big earner when I was a kid, but they found ways to ensure they bought their own home and gave us pretty much anything we needed.

Note that above I said `needed’. We kids had heaps of toys and `stuff’ (more than we needed) but probably not heaps when you compared it to friends of ours. We didn’t have a pool or a computer, or a lot of dolls. I’m not complaining now and I didn’t then. If I wanted to play with any of those things, I just went to my friends’ homes. At the same time, my parents would buy me special things now and again, often for no specific reason. While birthday gifts were nice, they weren’t overly expensive. But, as an example, they made sure I went to see the World Expo in our capital city. I flew down as a lone child passenger and stayed with extended family. Another example was that when I was about 17, Michael Jackson came to Australia and my parents bought me gold seats and paid for my air ticket to see his concert … just out of the blue because they knew I was such a big fan. So you can see, I was hardly deprived. And remember, my parents had been separated for more than a decade when this occurred!

Part of the reason they could do stuff like this was that they actually maintained low credit levels, and didn’t splash out very often. At first, when they were in their 20s, it was because they had to (at mortgage rates of 16%, everybody had to). But over time, this didn’t change. They bought older cars, and usually with cash. My dad had a credit card limit of $500 until he got it raised this year! (By comparison, note how much I owe!)

Mum is a little looser with cash and credit, in that she will trust her instinct on things. For example, she bought a duplex at a good time, and has made improvements to it slowly. She views that as her superannuation (as well as the compulsory retirement savings system we have her in Australia). She has also done things to improve our lives through her investments. For exmaple, she let my husband and I live in one side of the duplex for a very low rent for several years. She always sees investments as things that needs to meet the needs of her family now and in the future.

Mostly, my parents taught me I could do whatever I wanted and achieve whatever I wanted … but it was always up to me. They never said that, but there wasn’t a lot of spare cash around. So at 15 I started working in a restaurant 3-4 nights a week while at school. They taught me to work hard, that people weren’t paying me to be lazy (not that they even had to say that, I just knew it from the way they raised me).

In my final year of high school we were offered the chance to go to the USA for 3.5 weeks, partly for an exchange (two weeks with a family) and to see the sites of LA. I signed up and `paid off’ my trip in instalments. However, when I made a bad purchase in Tijuana at the start of my trip (a leather jacket I’ve never worn in sunny Australia!), mum wired me some more cash and without giving me the slightest hard time about it. In a way, while it would have been easier to have parents who could just pay for the trip, it meant more to me because I financed it and achieved it for myself. Meanwhile I was also paying for my school lunches and buying most other things I needed, such as clothes.

I didn’t have my finances all figured out though. When it came to car buying, I found a great car for $4000. The problem was that I didn’t think ahead to save for a car, did I? Luckily, dad was enthusiastic. He lent me the $4000 and I paid him back at the rate of $50 a week, then $100 a week when I finished school. I was responsible for putting the cash in his account myself. I fell of the wagon for a while and wasn’t paying. Eventually he got angry with me about it, so I made sure I paid him off quickly and in full. Thanks to dad, my first really big purchase was interest-free. 

When I got my own credit card (after purchasing a stereo that I paid off interest-free in the first few months), my parents were concerned. That was only because they didn’t trust my boyfriend at the time not to encourage me to spend up on it. In the end they were half right (he liked to spend, but so did I).

Over time my credit card limit has slowly increased, but I don’t think I was totally irresponsible. I never saw a need to have more than one card. I always paid more than the minimum balance. And I was never tempted by store cards.

But I have always been a person who carries a balance on her card. As I’ve said in a previous post, I actually successfully cleared my credit card down to under $500 (from abut $3000) once before, but suddenly had a brain explosion and spent up big-time on a holiday. I think it was a reaction to excessive frugality that went beyond healthy debt reduction. However, I wish I’d thought about it a lot more before I went ahead with it. I have found that saving and paying off debt works better for me than putting every dollar into debt reduction because I always feel poor. It probably doesn’t make sense to others, but this is the first time I have felt on top of my debt reduction efforts.

Basically, my parents are cautious, and they’ve taught me to be a little bit cautious too. Here are probably the biggest tips I’ve gained from them:

1) Generally, don’t let other people drive your car unless you can afford to lose it (they didn’t even let me drive theirs!). This was probably more relevant when I was a teenager, but I always think twice before I let someone drive my car.

2) You can’t afford a car if you can’t insure it (ditto for other major assets).

3) Credit is okay but don’t let it get on top of you (this part I wasn’t really listening to before, however this attitude might have stopped me from getting further into debt than I already am!).

My parents are great, and I’m glad I learnt what I have from them.

I thought, since I haven’t posted anything substantial in a while, I would share some of the ways my family taught me to think creatively to get what you need in a home. This may be less relevant to home buyers in the States, where I hear house prices have fallen and perhaps those trying to get into the market are in a relatively better position. Over here in Oz, house prices are climbing almost out of reach of first-home buyers, and it has made me think of ways to figure out how we will afford our first home.

My parents are not wealthy, though they have always been creative about making ends meet and willing to take a risk where necessary. My parents aren’t together anymore, but they remain good friends. This extends to the point where Dad drives around the car mum owns because she has a much nicer work vehicle. This is pretty amazing when you consider they have been separated since I was about 6.  Though they aren’t in love, they are still good friends (which is great for us kids!).

Anyway, even thought they were lower working class, mum and dad managed to buy their own home. They did this initially by buying on the outer suburbs of town (a common way of getting into the market, I guess). They bought land first, and paid off a chunk of it before extending the loan to build their home. This was at a time when my dad was earning very little and interest rates were at 17%. I think the basis for doing this was this: though they had to pay off the land AND pay rent, it was worth it to prove to the bank they were responsible enough to pay off a larger loan. At this time, you had to wear a shirt and tie and plead with the bank manager to give you a loan (not like now!).

After a time, my grandmother moved in with my parents because she had a back injury and needed some short-term support. I guess this helped cover expenses to some degree and I think they must have gotten on pretty well because after about 5 years at that house (and maybe two with Nana living there), mum and dad moved closer into town and built a new home.

Again they involved the family to make things meet. They bought from a kit home company, but managed to individualise the plan so that the home was essentially like two units (with a wall in the centre and identical facilities on each side). Nana lived in one side (two bedrooms) and we lived in the other (three bedrooms). There was also a large granny flat out the back, which was for my mum’s uncle (he paid for its construction). So essentially my parents managed to buy a nice three-bedrooom `house’ with a little help from their extended family.

Needless to say, having a lot of elderly adults in the family would have been stressful for my parents at times. However, there were also huge advantages. Nana cooked our dinner most nights, which obviously allowed mum to work part-time. Also, Nana and my great uncle put in for the food and utilities, which saved them a fair bit in expenses. Also, we kids had easy access to our grandmother (which we loved!) and my parents had built-in childcare. This meant they were able to go out at night whenever they wanted.

Eventually, the family structure started to change, and the house was altered to suit this. My great uncle passed away, and he left his part of the home to my parents (he had no children). Mum and dad had also separated by this time, so mum bought dad out. Also, as my grandmother got older, she realised her needs had changed.  Mum bought out Nana for a fair sum and this gave nana some `free cash’ - something she’d never had, as she became a widowed pensioner with two children at the age of 35.  This free cash was also going to allow Nana to leave a cash inheritance for both daughters, and pay for her own funeral (don’t ask - she’s focused on these kinds of things!). Mum `opened up’ the home by knocking down the central wall and did a few renovations so that my grandmother could keep her large room and gain an ensuite. This made it easier to care for my grandmother in her old age, and it suited her because she no longer needed or wanted so much space.

Though it took a few extra dollars along the way, Mum now owns a 5-bedroom house with 2 bathrooms and an apartment out the back - this would have been unthinkable when she started all those years ago. Having the equity in this house also allowed her to buy a duplex a few years ago before the boom, and it is now worth triple what she paid for it then. Being able to think laterally - and tolerate her relatives - paid off, so that she is perhaps in a better financial position than many of her friends who made more money along the way.

By the way, though it might sound cheap to buy a `kit home’, my mum has great taste and everyone who enters comments on the house’s high ceilings and open-plan layout (one time my brother was having an epileptic seizure and the paramedics were momentarily focused more on the home than on him!). Mum is about to put her home on the market and it’s likely she will get a higher price than most homes nearby because it is so unique.  Apart from the fact it was well designed and constructed, the fact it is a little different to the average house seems to be part of the appeal.

I guess I’m not advocating any particular plan to achieve home ownership. I’m just saying it doesn’t hurt to `think outside the box’ occasionally when trying to figure out how you can achieve it.

Tomorrow I plan to talk a little about how my parents’ attitude to money affected my own choices in money management (for the good and bad elements!).