My Financial Tipping Point.

3:00 A.M. Sunday night – no, Monday morning!

It was 3:00 A.M. Monday morning, and I was wide awake with financial terror.

My mind was busily doing laps on that mental hamster wheel so common in the hours between midnight and dawn. You know the one. Everyone has taken a turn on the wheel. It’s the one where you become fixated on a single thought almost to the exclusion of all else. One thought that you keep telling yourself, “I have to stop thinking about this and get some sleep.”

This thought, of course, leads to the only other line of thinking that can coexist with it: “It’s 3:00 A.M. and I have to get up in 3 hours to work tomorrow. I can’t work with only 5 hours of sleep. I need these next 3 hours of sleep! I need to stop thinking about this. Why can’t I stop thinking about this? If I don’t stop thinking about this I’m going to be useless tomorrow…” and so on.

So what was this single all consuming thought? It was simply this:

How did we let it get this bad?

The problem was our finances.

Free From Broke asks the question: What is your personal finance tipping point?

He believes there are two financial tipping points in a person’s life, and describes them as such:

“The first is when you finally admit to yourself how bad your finances are and you resolve to do something about it (and you actually start to do something about it). The second is that point when everything comes together; all of your saving and paying off debt come to a point where you can finally say you have a positive net worth and you can see when your debt will end.”

I think he’s on to something here. I had two tipping points myself. Here’s how it went.

Tipping Point One.

My first tipping point was that Monday morning at 3:00. My wife and I had gone away to her parent’s for the weekend with our 3 month old daughter. The day we were leaving, our cat came down with some weird illness. She was lethargic, and had lost her appetite. When she tried to stand or walk, her legs would start to shake so much that she had to lie down.

We had no idea what was wrong with her, but we couldn’t just leave here alone for the weekend. We also couldn’t cancel our trip, so we called the vet. Of course, it was a weekend and the vet was closed. We had to take her to an emergency vet (read: Cha-ching $$).

After a very long weekend of constant phone updates on her status and a $495 vet bill for who knows what (they never found a cause for her symptoms, and basically gave her “bed rest” and I.V. fluids) we had reached the breaking point: $7,320 in credit card debt.

Of course, it wasn’t just the vet bill. It was obvious that this was the result of a long term behavioral pattern. A chronic apathy toward saving and budgeting, and complete lack of planning on our part. The $7,320 in credit card debt was not from any one thing. It was lots of little things that pilled up over time, and high interest rates did the rest.

The major part of this tipping point was the realization that we were a family of 3, with an infant daughter, on a single income. If I lost my job, we would be in for some serious hardship.

After that 3 A.M. hamster wheel episode, I resolved to come up with a plan.

I went back and studied how we got to where we were. I analyzed our expenses and developed a plan of attack to both cut unnecessary spending and pay down our debt.

Tipping Point Two.

Friends will tell you my stubborn streak is legendary. I come from a long line of Germans, and when we get an idea in our heads, we don’t often let go.

After I tackled our credit card debt, I realized that we had other mistakes of the past we were still paying for. Mostly one big mistake. Our car that we bought new in 1998 for $24,000.

That car is very symbolic to me. First, it represents not only our own early financial mistakes (we bought when we first got married), but the financial mistakes of so many young people. We bought it new because we thought, “we’re young and just starting out. We’re going to be making more in the next two years than we are today, so we can afford it.”

The fallacy of that thinking was driven home to me in the months to come after Tipping Point One. It was 5 years after we purchased the car and we had refinanced (to save $50 a month on the payment) so we were still looking at over $8,700 to pay in the next 2 years!

Part of my resolution after the first tipping point was to educate myself. I read everything I could that was even remotely related to finances and money. It was then that I realized how much money we would have today if we had bought a used car for a third of the price, and invested the money we saved. That single purchase because we felt entitled to a new car out of college cost us $30-40,000 easily.

I’m happy to say that our cost cutting measures, and aggressive debt payments got us out of that hole in just about 2 years time. But I didn’t stop there. I wanted to finish the job and make sure we never found our selves in a situation like that again. I opened up an ING Direct Savings Account and set up an automatic savings plan.

We started small. We set a goal to have a cushion of cash set aside just for the small emergencies so we wouldn’t need our credit card. After we paid off our debts, our savings really took off.

That was 4 years ago and we’ve gone from $16,020 in the red to an emergency savings large enough to cover 3 months of our expenses, should I lose my job. It’s not a big as I would like, but it’s a world apart from where we started on that dark and scary morning 4 years ago.

Photo by babblingdweeb

Technorati Tags: Debt, Getting out of debt, Saving, Money

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