Step 25: let the hubs re-evaluate the budget

Today, you are most likely recovering from your spending hangover and realizing that something drastic needs to change in order for you to maintain a decent life while still attacking your debt. If you are single, this may be the time to call in re-enforcements. The fresh eyes of a  trusted parent, close friend or lover might revive your budget and encourage your spirit. For the married folks, this is the perfect time to allow the more logic-oriented partner to insert their expertise.

In my case, today was the day that the Hubs wrangled our plan back from the heights of fantasy and grounded it in the stable soils of reality. In other words, living on $200 a week may kill our debt quickly, but jumping in cold turkey only set us up for failure. After much soothing and patient reasoning, I reconciled myself to the fact that having a larger spending budget (we are upping the ante to $250 a week) will actually help us maintain our goal. Though our loan payments may not be as large as I fantasized, we will at least be able to function like normal human beings.

Moral: to avoid spending hangovers, defer to logic and make a modest budget that allows for an enjoyable life.

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Step 24: spend like a drunken sailor

Starting a strict budget and becoming a responsible adult is exhausting. You are more than likely going to snap. When you do, you are going to yell “EFF the world! I don’t care if we’re in debt until we’re 70, we’re going to live like a normal, civilized American!!!” and proceed to wreck your entire budget by throwing cash around like a drunk sailor finally arriving at a port of call.  If this happens (which it most likely will), IT’S OKAY. To get through this period of the journey, take some advice: as long as you’re spending like a drunken sailor, you might as well drink like one too.

Step 23: HSAs, FSAs, and Healthcare

Until recently, every time I’ve entered a new job, I’ve called my father, read him the summary of all healthcare and insurance options, and dutifully waited for him to tell me which to sign up for. I’ve never understood, nor cared to understand, my options.

Once married, it’s a little babyish to ask your dad to make important decisions for you and your husband.

Therefore, the Hubs and I strapped on our thinking caps and tackled the foreign world of healthcare acronyms. Here is what we learned:

1) An HSA and an HRA are two very different things.

Health savings account

Health savings accounts are similar to a 401(k) retirement account for medical expenses. You can only have an HSA if you enroll in a high-deductible insurance plan. Here are other things you should know about an HSA:

  • You own the account.
  • Anyone can put money into the account.
  • Money taken out of your paycheck by your employer for the account isn’t taxed.
  • Money put into the account that’s already been taxed (for example, money that was a gift), is tax deductible.
  • Money in the account can roll over from year to year.
  • You can invest the money.

Health reimbursement arrangement

health reimbursement arrangement is a benefit set up by your employer. It’s a fund that pays for medical expenses not covered by your health plan, such as deductibles, coinsurances or both. Other features of an HRA:

  • The fund is owned by your employer.
  • Your employer decides which expenses are covered by the HRA.
  • Money given to you for medical expenses is tax deductible for your employer.
  • You don’t have to pay taxes on money you get from an HRA used for qualified medical expenses.
  • Your employer decides whether leftover money in your HRA can roll over to the next year.
  • The money in an HRA can’t be invested.

 

2) An FSA is also different from the above.

Flexible spending account

An FSA is set up by your employer. They own the account, but you get to decide what qualified medical expenses to pay from your FSA. What makes it flexible? It works with most of our employer-sponsored health plans. Here are more facts about an FSA.

  • Only you and your employer can put money into the account.
  • You can only deposit money into your FSA through payroll deduction. That money isn’t taxed.
  • Some employers let you carry up to $500 into the next year. Otherwise, any money left in the account at the end of the year goes back to your employer.
  • You can’t invest the money.
3) Educating yourself on your healthcare and account options can help your budget.
By setting up an FSA with our employer and choosing an HRA plan, the Hubs and I are able to budget for medical expenses tax free. Because our employers own the accounts, we are never tempted to dip into them for other purposes. The money remains “out of sight, out of mind.” When an unexpected medical bill arises, we use our accounts to cover it instead of putting stress on our budget.
PLEASE NOTE: These fabulous account facts  were taken from the well-spoken educators at Blue Cross/Blue Shield: http://www.bcbsm.com/index/health-insurance-help/faqs/plan-types/health-spending-accounts/differences-between-an-hsa-hra-fsa.html

Step 13: refuse new debt

Now that those pesky cards are paid off, we need to make a promise. A refusal promise.  A promise to refuse all new debt. That’s right, if it’s not in the budget, it’s not going in the cart!

But what about emergencies?! Start an emergency savings account. Your card is retired.

Repeat after me:

I [insert your name here]

solemnly pledge

to leave my credit card zipped away in a hidden compartment of my purse

and if I can’t handle that

I will lock it away in the fire safe hidden somewhere in the apartment

I promise to refuse all new debt

and only purchase items I can afford.

Now go shake hands with your hubs and make it official!

Step 6: learn to shop with a calculator

When I was growing up, my mom would always bring a calculator with her to the grocery store. I never knew why. I never asked why. The free samples kept me distracted.

Today, I learned why.

SHE WAS ON A BUDGET!!!

Now that I myself am on a budget, I’ve learned I can no longer just zip into the store and mindlessly toss the items I need into my cart. I need to save every penny I can.

How do I do this?

A calculator.

Example:

We need toilet paper. Grab the 6-pack for $3.99. We’re poor, right? We need to save money by only paying $4 for toilet paper, right?

WRONG!

If you whip out your handy-dandy phone calculator you will discover that the “cheaper” $4 6-pack is actually costing you 67 cents per roll.

You will actually save money, and trips to the store, by spending $13.99 on the 36-pack. (38 cents per roll!)

**NOTE: many grocery stores list price per unit right on the shelf tag. Always check here first before busting out the calc.**

And to think, if I hadn’t been mesmerized by the allure of free samples, I could have learned this at age 7.

Step 5: get a money-tracking app

To help with our new budget, I downloaded a money-tracking app.

(I never, ever go online to check my bank statement)

Because we are now paupers, I downloaded one for 99 cents.

It’s called CashStrapped.

I enter our budget and it tells me how much we can spend each week.

Every time I shop, I must enter how much I spent.

CashStrapped deducts that amount and I watch in horror as our piddly $200 a week allowance gets spent in the first 3 days.

Step 4: meet with your local banker

Since it is no longer 1982, we need to modernize the envelope system.

Most of us have direct deposit. So going to the bank to withdraw money and then sorting it into its respective envelope is primal to us. (Unless you are my father. In which case, Dad – You ROCK!)

Solution? Create electronic envelopes!

How do you do this? Go to your bank and make friends with a banker. If you are recently married (like ME) you have a great excuse to go in (name change!).

While there, ask about free checking. Usually, not ALWAYS, but usually there will be a promotion going to get you a good deal. We signed up for the bank’s credit card. Result? 2 free checking accounts!

Our electronic envelopes (bank accounts) look like this:

1.  Do Not Touch This Money Unless You Are About To Be Homeless Account (savings)

2.  Pay Your Bills Account (checking)

3. Food-Gas-Fun Account (this is where our measly $400 goes) (checking)

4. Pay Your Loans Account (checking)

5. We Desperately Need ________ Account (checking account we use as savings)

This way, when we run out of money in account #3 we are out of money. Period. We are forced to stick to our budget.

Because let’s be honest – if I had all this money in 1 account, I’d keep swiping that card until they shut off my electric.