Personal Debt, Low Interest Rates, and Mark Carney’s Advice

   Prophet without honour . . . 

           “Now Jesus himself had pointed out that a prophet has no honour in his own country” (John 4:44).  I think that goes double when the country in question is Canada.  We Canadians tend to overlook the stars among us until they make it big on the international stage – at which point we’re very eager to point out that they’re Canadian.
One such bright light is Mark Carney.  He became governor of the Bank of Canada in February of 2008.  At that time, I had my head deeply buried in the sand when it came to all matters financial – whether personal, national, or international – so I couldn’t even have told you who Carney was when he took on the post.  Since I’ve been on a focused path to debt reduction, however, my awareness of the financial landscape has developed significantly.   So Carney has my attention.  Canada has done well, relative to other nations, in the face of the economic crisis of the past several years.  And while we can’t give Carney all of the credit for this fact, the general consensus is that he’s entitled to a great deal of it.

Prepare for a “brutal reckoning”

For years, Mark Carney has advised Canadians to rein in our personal debt.  He has cautioned us not to get sucked into the temptation to borrow more simply because interest rates are low.  “Low rates today do not necessarily mean low rates tomorrow,” he said just over two years ago.  “Risk reversals . . . can be fierce:  the greater the complacency, the more brutal the reckoning” (Alini).  Despite the warning, Canadians have continued to borrow more and more, our average debt-to-income ratio reaching a record high of 164.6 % by the end of 2012 (Beltrame).
But now, Carney has been recognized on the international stage.  This year, he will leave Canada to become “the first non-Brit to be named governor of the Bank of England in the storied institution’s 318-year history. Chancellor of the Exchequer George Osborne called the Canadian the ‘outstanding central banker of his generation’” (Beltrame).  With Carney’s international status as a financial rock star established, will Canadians start to listen to him?

Low interest rates → spending?

I’m not sure.  An article appeared in the Ottawa Citizen just last week entitled “Spend, Baby, Spend:  Policymakers Want Us To Cut Debt, Yet Make It Too Good Not To Borrow”.  In it, Terence Corcoran writes, with regards to Canadians’ record high levels of debt, “The official answer, from Bank of Canada governor Mark Carney on down, is Canadians need to start thinking about paying down that debt . . . Carney is essentially instructing Canadians to behave irrationally in the face of market signals, especially the 1% interest rate signal the Bank of Canada has sent since 2010.”  In other words, interest rates are still low, so of course we will keep borrowing, no matter what Carney advises.

Low interest rates → great debt-reduction opportunity

For those who see low interest rates as rationally leading to more borrowing, here’s an alternative thought:  Low interest rates make it relatively easy to pay down debt.  Yes, on their own, low interest rates do invite borrowing, but we have record levels of personal debt added to the mix, as well as a warning from our financial superstar that interest rates will go up.  I don’t like to believe that people are automatons – that we are programmed if interest rates are low, automatically to borrow.  I believe we are capable of taking in all aspects of our situation – to balance against current low rates the unprecedented size of our debts and the fact that the rates won’t last.  We have to consider what will happen when they rise by one or two percentage points.  How many hundreds of dollars per month will it add to each of our regular debt repayments?  Carney has warned us against complacency.  It makes sense to use the low interest rates of today to tackle our mammoth debts so that higher rates won’t become the instruments of a brutal reckoning tomorrow.
Canadians will be saying good-bye to Mark Carney in a few months, and Canada’s loss will be England’s gain.  Given his record and his status, his advice is worth heeding.  Don’t wait for Carney to save Britain’s economy before we listen to him.  Let’s benefit from the advice of our financial prophet while he’s still in his own country. 

Alini, Erica. “Econowatch.” Macleans.ca Household Debt and the Bank of Canada’s Anxiety
Levels in a Graph Comments.  11 Apr. 2012. Web. 15 Feb. 2013.  http://www2.macleans.
ca/2012/04/11/household-debt-and-the-bank-of-canadas-anxiety-levels-in-a-graph/
Beltrame, Julian. “A Year in the Spotlight for Mark Carney.” The Calgary Herald. 2 Jan. 2013.
Web. 11 Feb. 2013. <http://www.calgaryherald.com/business/year+spotlight+Mark +Carney/7764641/story.html>.
Corcoran, Terence. “Spend, Baby, Spend: Policymakers Want Us To Cut Debt, Yet Make It Too
Good Not To Borrow.” Www.ottawacitizen.com.  5 Feb. 2013. Web. 15 Feb. 2013.
<http://www.ottawacitizen.com/business/Spend Baby Spend/7917865/story.html>.

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Debt Reduction: Keeping Smugness at Bay

DH = Dear Husband

Mortgage-free but smug and uninspiring

            I remember about twelve years ago, going to the home of a couple who had recently paid off their mortgage.  They were in their mid-thirties, so it was a rare and impressive thing.  A few people were gathered together for some reason or other, and many of us offered congratulations to our newly mortgage-free hosts.  It wasn’t a status to which I particularly aspired at the time, but I was happy for the pair because they were clearly pleased at having achieved a goal.  Then the husband, avoiding direct eye contact, shrugged his shoulders, raised his hands and said, “If we can do it, anyone can.” He didn’t say it as an encouraging, “You can do it too!”  His message was a judgemental  “There’s no excuse for you if you haven’t paid off your mortgage like we have.”  The good will I’d felt towards them faded to a blank.
            Smugness is such an unfortunate characteristic.  It takes the shine off accomplishment, and it obliterates the possibility of inspiration.  Judgement brings on defensiveness, so the walls go up.  And when we defend our position and keep barriers against outside influence, change is less likely than ever to happen.  I know for myself, with regards to money management, that for many years I felt out of control and overwhelmed by the details.  Financial balance, the necessary starting point for any financial planning, eluded me.  Instead, there was a chaos of numbers and accounts and bills and unexpected expenses.  I was bewildered, and I felt the shame of incompetence.  But judgmental comments from people with money sense only entrenched me in my losing position.   Even purely sensible comments came off as nagging to me – something I’d block out.

Debtors & our resistance

Those of us with bad money management and big debt need to take the walls down if we’re going to change.  We have to open up to outside influence, but we’re not likely to invite arrogant know-it-alls to help us move forward.  DH and I became completely psyched by the possibility of debt freedom after reading Dave Ramsey’s book The Total Money Makeover.  Ramsey doesn’t nag or judge.  He presents a vision and offers a strategy.  Very wisely, he shares his own experience of financial failure.  In his mid-twenties, married and with two small children, he had to file for bankruptcy.  It was a devastating time, but from the ashes of his failure, he grew to enormous success.  And because he is transparent about this failure, I for one had no inclination to get defensive or put up barriers.  I was open to change.

Discovery of my inner-smug

So I have to watch myself now that I’m solidly on the road to debt reduction.  I was recently chatting with a young teacher who was excited about the house he had just bought.  He explained that it was a bit of a stretch because he was single.  And he was paying off student loans.  And he had big payments to make for the expensive car he’d bought two years ago.  I tried to stay pleasant and non-judgemental while everything in me screamed, Why did you take on a mortgage when you’ve already got so much debt?  I allowed myself to ask, “Would you consider selling your car and driving a junker?” but the look of incredulous horror on his face made his answer clear.  People are ready to change when they’re ready to change, and there’s no point in offering unwelcome advice.  I just have to learn how to deal with the new discernment I’ve developed for financial self-entrapment.  I don’t want it to lead me to nagging, judgemental arrogance.  I’ll aim for pleasant grace combined with honest but silent knowing.
            By the time DH and I pay off the mortgage, it won’t be quite so impressive a moment of accomplishment as it was for that younger couple of twelve years ago.  If we play it right though, it might be a moment of inspiration for someone else who sees debt-freedom as an elusive concept.  And to play it right, we’ll have to keep smugness at bay.

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Debt Reduction, Envy, and Consolation Prize: 2nd Slice Out Of Debt #3

DH = Dear Husband
DD2 = Dear Second Daughter
DFF = Debt-Free Friend

Others’ travel → my envy

            One of my sisters told me that she, her husband, and their three children were going to go out west for a ski vacation in February.  I found myself stifling a surge of envy.  Ashamed of it, I forced a pleasant response and asked about details of the planned trip.  It seems that everyone I know is traveling!  A friend from work spent Christmas with her husband’s family in County Cork, Ireland.  She brought back a tea towel for me.  It serves as a reminder that my children have never seen the farm in County Cavin, Ireland from which my paternal grandfather, aged sixteen, moved to Canada over 100 years ago.  My new Irish tea towel sits in the same kitchen drawer as a tea towel from Australia given to me by another friend.  It reminds me that I’ve never been to Australia. 

Winter blues

            I don’t usually feel envious when people do things or buy things that I long for.  At such times I generally feel an “It can be done!” encouragement – an inspiration by example.  But I’m finding it hard to muster up encouragement and inspiration these days.  A small step back gives some perspective.  It’s the dead of winter; the days are short; and these past few weeks, it’s a season short on charm.  We’ve gone from extreme cold snap to bizarre, rainy warm spell – with nothing in between.  Both extremes leave the ski hills and skating venues inaccessible.  And the powdery snow that made our city an idyllic Christmas card in December has melted and frozen over, transforming everything into a treacherous wasteland of slush and ice.  Add to this the ongoing labour situation in which I am caught up as a teacher.  Add to that the aggressive flu strains that have invaded most households this winter – including ours.  It’s just not a really chipper time.
            So the idea of escape is very appealing.  DFF, the debt-free friend who inspired our journey out of debt last spring (see post “Closing In On Debt #1), is now in Florida with her four children, soaking up the sun.  She is financing the trip with money she has saved, of course.  When we make our first big family trip, it will be when we are debt-free and when we are able to finance it with money we have saved.  It just seems a very, very long way off at this point.  In the meantime, we’ll keep on keeping on.  I started a gratitude journal this week, probably as an attempted antidote to these winter blues, and of course there are plenty of things to write in it.  DD2, for instance, is doing so well in her sport.  She recently found out that she is to be the recipient of a generous bursary for promising young athletes.  And she is getting a little taste of travel herself – competing in New York City this week-end.  I’ll let her adventure be my escape. 

2nd slice out of Debt #3

My brother, his wife, and three children smile at me from a photo on our fridge, the Rocky Mountains rising up behind them on a clear day that was part of their trip to the west coast last summer.  I will do my best to be happy for friends and family who travel.  And I will try to remain committed to and satisfied with the choices we are making to pay down our debt.  DH had a strong start to 2013 with his business in January.  Our second slice out of Debt #3 was $4,500.  That kind of money could finance a nice little trip – but instead, we’re using it to bring down the business debt.  It sat at $80,800 two months ago, and it’s already down to $66,300.  We’re on the right path, and although it’s a path that won’t bring us to a get-away location any time soon, it’s ushering us to a position from which we’ll have lots of freedom to travel.  And when we do, there will be tea towels for everyone.  
           

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“women and debt”

RC = Retired Colleague
DH = Dear Husband

Impossible financial situations

I was recently driving to work, listening to the radio, when a segment about a food bank was aired.  Featured was a twenty-eight year old single mom with a student loan to repay.  She worked for a low wage as a receptionist, and the numbers just weren’t adding up.  I found myself thinking, It is so hard for some people – for some women.
When I Google “women and debt” the links tell a story of their own:  “The Student Loan Debt Crisis is A Woman’s Issue:  Here’s Why . . .” ; “The generation of young women drowning in debt . . .”; “Women drowning in debt?  You can’t blame it all on expensive shoes”; “Helping Women in Debt Program” ; “Debt Divas/Women in Debt . . .”  Intrigued by “Debt Divas”, I clicked on the link.  A quick glance through the forum options brought my attention to “My Diary as a Bankrupt Single Mom . . . So Far” (http://www.debtdivas.co.uk/).  Abusive ex-husband; manipulative power games leading to bankruptcy; children to care for and protect; onset of depression and anxiety . . .  The obstacles faced by some women are staggering.
When it comes to discussions about debt, I usually find I can put forth a strong argument if one is called for, but I was rendered speechless when I first talked with RC about her debt.  RC (“Retired Colleague”) has had a hugely successful teaching career.  I always knew her as a hard worker who, on top of her day job teaching high school, worked at Saturday schools, summer schools, night schools, and with a local university.  I thought, Wow!  The energy some people have!  It wasn’t about energy though.  It was about need.  RC, a single mother, was the sole supporter of her two children.  In her mid-fifties, she became exhausted and developed chronic pain, so she retired earlier than she had planned.  Still, I was surprised to find out that retirement posed a financial challenge for her, and that she would have to continue working part-time.  I was surprised to learn that she was deeply in debt.   
Not only has RC been a single mom and sole supporter; she has a child with high needs.  When he was in his teens, RC’s eldest son experienced a mental illness which, when wrongly treated, flared into something debilitating.  Through the first years of his early adulthood, he was in all ways dependent upon her.  He couldn’t go to school; he couldn’t hold a job; he phoned her frequently through the day.  Her life centred almost completely around him.  There was some progress as he got older.  He started working minimum-wage jobs.  He started looking into school.  But it was a bumpy road, marked by several job changes, a few false starts in post-secondary courses of study, as well as plenty of demoralizing scenes at home. Eventually, tensions built to the point where he had to move out.   But how was he to pay for his apartment?  How was he to pay for his car?  His low, unsteady earning power wasn’t going to do it.  RC paid the bills. 
“How much do you spend on your son each month?” I asked her several months ago.
She took a deep breath and hesitated, but she knew the answer well because she is very much on top of her finances.  Let’s just say it was a whole lot – way more than the mortgage payments that DH and I make each month.  “But what can I do?  I’ve looked at it over and over again.  There’s nothing I can cut.”  She lived in fear that if she didn’t cover his expenses, her son’s struggles with mental illness would get the better of him and lead him to self-harm.  I couldn’t say anything.  I could only see the insurmountable obstacle she faced.
Among the people I know, four are women who live this reality.  Each has a mentally ill adult son.  All four have gone through divorce.  And I believe that all four of the young men involved are alive today because of the sacrifices of their mothers.  These are sacrifices that most of us are never called upon to make, and they are sacrifices that often involve debt.  I certainly don’t feel inclined to champion the cause of debt-freedom with RC, but she’s a regular reader of my blog, and she is keen to get out of debt.  She is open to discussion, so we discuss.

 Open attitude, intense focus, encouraging progress

And there’s something marvelous that can happen when people focus on a goal despite their circumstances.  When we face the obstacle and acknowledge, This is too big for me to overcome – not whining, but as a pure matter of fact – and keep our hope fixed anyway.  The obstacle starts to melt.  At least it has for RC.  I saw her not too long ago, and things have changed.  She has discussed her situation with her son, and he understands.  He doesn’t want to drain her.  He’s starting to take on more of his own financial needs. Trimming here; adjusting there.  I asked her if she’s still devoting that huge monthly sum towards his expenses, and she said, “No.”  It’s down by half now.  Is it still too much for a retired single woman, trying to become debt-free, to spend on her adult son?  Yes.  But it’s a whole lot better than it was before.
RC’s goal is to become debt-free in three years.   I believe she’s going to succeed.  She’s facing daunting challenges, but as she opens up and shares and listens and engages and questions, her situation is morphing into something better.  And what about “Bankrupt Single Mom”, or the single mom at the food bank?  What about all the women who deal with limited income, failed and sometimes hostile relationships, needs of the children they love, and impossible debt?  All I can do is point to RC.  Open up.  Share.  Listen.  Engage.  Question.  Seek out allies and support.  Keep fixated on the goal.  Most barriers can’t withstand the heat of such patient, focused, persistence.  Like the obstacles faced by RC, they melt.  
    

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Affirming Heroics in Debt-Reduction

DH = Dear Husband
IC = Italian Colleague

My “mangiacake” deficiencies

            I work closely with an Italian colleague (I’ll call her IC) who likes to tease me for being a mangiacake.  A mangiacake is someone who is white and not Italian.  Our principal sin is that we only know how to bake cakes.  Inherent in this deficiency are a string of other failings such as the inability to cook proper pasta meals and the practice of hosting pot-lucks.  I wear the mangiacake label with pride as a friendly rebuttal.  For instance, I brought Christmas baking into work and made sure to inform IC of the pot-luck gatherings that I hosted over the holidays. 

 IC on housework

Last year, she was appalled at the fact that we hired cleaners every two weeks to the tune of $100.  “How can you let strangers into your house?”  “You have three daughters.  Why not get them to help you clean?”  (Note:  No mention of getting my husband to help.)  “Think of the money you’d save!”  The cleaners quit just about the time DH and I began our journey out of debt, and we decided not to hire anyone else.  IC was pleased with this decision, and eagerly impressed upon me the virtues of bleach as I prepared our family for the task ahead.  When I returned to work one Monday, after spending hours cleaning house over the week-end, I proudly told IC of my accomplishment.  Eyebrows raised in sarcasm, neck moving with attitude from side to side, she said, “So, you cleaned your own house.  Good for you.”  You’d think at least she’d give me a high-five!
            When I talk to people about what I have done to reduce our debt, if anything impresses them, it’s the fact that I taught summer school last July or that I didn’t travel to the U.S. with DH for his annual convention.  But I know that for me personally, these have not been the most heroic of my efforts.  It’s the house cleaning that makes me a debt-reducing superhero.  I hate cleaning.  Most people don’t like cleaning, but what I’m talking about goes way beyond the general dislike.  It’s a uniquely fierce loathing.  I’m able to discern it in others when they have it, and I feel an automatic bond with them.  But most people don’t understand.  They have a “suck it up, Princess” attitude to any whining, so I pick my audience carefully when the need to vent arises.

 Heroism is in the eye of the beholder

            The other aspect of our debt reduction that is particularly heroic is the discipline we are exercising in setting aside that $100 that we are not spending on house cleaners every two weeks.  For the first several months of our journey out of debt, this money went to remedy the abysmal state of my discretionary fund (see former post “Discretionary Money:  His and Hers”).  In the last few months, we have been putting it aside for a sectional sofa and flat-screen TV.  It used to be that if we wanted to make a big purchase, I would say, “Let’s get it,” with the perfectly comfortable understanding that it would go on our credit card.  DH would put off the purchase, worry about it, and then buy it.  With the credit card.  Our measured, intentional saving is new to us.  And even in terms of debt repayment, it signals the fact we’ve reached a new level.  With our goal of debt reduction, I was at first inclined to use every spare cent against debt.  But I realized that we’d burn out and give up if we never devoted any income to wants.  Do we need a new sofa?  No.  Do we need a flat-screen TV?  No.  So on the one hand, we’re allowing ourselves to want them, and on the other hand, we’ve set up a system which requires us to wait and which denies us the use of our VISA to make the purchase.  Such fine tuning, for us, is nothing short of heroic. 

 A well-earned high-5!

            I’m sure that most people who are trying to get out of debt have their stumbling blocks that others don’t appreciate.  Some hate to pack a lunch.  Others can’t stand the idea of tracking where their money is spent.  For some, giving up that daily coffee and muffin is a heart-breaking loss.  Others feel terribly constrained when denying themselves spontaneous purchases on credit.  Everyone who is reducing debt has to make cuts that we don’t want to make and to devote energy to budgetary details that we’d rather ignore.  And I bet that for most of us, a particular cut-back or a particular aspect of budgeting is extremely difficult.  But who is there to cheer you on when you do it anyway?  I am.  I understand that seemingly small efforts can be huge.  I hereby give you a high-five and dub you Debt-Reducing Superhero!
          

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Debt And Middle-Class Identity

DH = Dear Husband

 “People in my class borrow . . . “           

              This past November, when it became clear that we’d soon pay off Debt #2, I wrote about the odd fact that our success made me feel uneasy.  My discomfort was rooted in an unhealthy money-guilt, and I’m sure I haven’t seen the last of it.  (See post “Debt Reduction and Guilt . . .”)  Like me, DH felt off-kilter with our good fortune.  “I don’t know if I’m going to be comfortable not having any debt,” he said at the time.  When I asked him why, he struggled to pinpoint the reason, but he came out with, “People in my class don’t have money to buy things.  They borrow money to buy things.”  It was the first time I had ever heard DH refer to “my class.”
            And he was right.  “Pay up or get out:  The middle-class life has been built on debt . . .  Now that bill is due.”  Jason Kirby’s article for Maclean’s magazine from March 19, 2009 supports DH’s self-identification with middle-class debt.  For most of the last century, debt was a dirty word in Canada . . . [Starting] in the 1990s our attitude to debt changed . . . [and] our nation of savers became a nation of borrowers.  Debt emerged as the great enabler, the ticket to the trappings of a better life, to flat screen TVs and shiny new SUVs” (Kirby).  In Katherine Porter’s book Broke:  How Debt Bankrupts the Middle Class (2012), she introduces Kevin Leicht’s analysis of the same growth in household borrowing in the U.S.  “. . . [The] debt burdens of today’s families would have been unthinkable in the prior generation.  Leicht describes how debt is used as a tool to simulate social class.  He conceptualizes debt as a buoy to keep middle-class lifestyles afloat . . .” (Porter, 15).

The Debt-Matrix

            The picture of the middle-class that emerges is not very pretty.  We’re indebted because we want more than we can afford.  We use debt as an “enabler” to “simulate social class” – to fake being richer than we are.  We in today’s middle-class are not as wise as our predecessors, for whom “debt was a dirty word”, and who would look upon our debts as “unthinkable”.  But we can’t beat ourselves up for this collective lapse in judgement.  We’ve been subjected to powerful assaults by sophisticated ads that keep us dissatisfied; by “generous” banks eager to capitalize on that dissatisfaction through loans; and by the math riddles of “experts” who convince us that debt is a winning proposition.  And why save and wait when you can have it now?  The agents of debt in our society create in our perception a Matrix-like reality from which it is very difficult to unplug.
            A colleague who knows I write this blog said to me a few days ago, “Your blog is very helpful to people in the middle-class.”  I think that she meant it in its positive sense, but I also think she meant that it doesn’t apply so much to those who are less privileged.  She is probably right.  However, according to Broke:  How Debt Bankrupts the Middle Class, debt is overwhelmingly a middle-class affliction, as “more than 90 per cent of bankrupt people are members of the middle class” (Porter, 10).  Debt, it claims, “is ubiquitous in the middle class” (Porter, 15).  

Middle-class mission

            I believe that the call to all middle-class debtors is to get real – to embrace the laws of addition and subtraction; to resist the urge to present ourselves as better off than we are; to make an intentional break from society’s Debt-Matrix; to develop the patience for delayed gratification.  DH’s expression of what it is to be middle-class in our times is accurate.  We don’t have money, so we borrow it.  But middle-class characteristics are not set in stone, and we can change for the better just as we have changed for the worse.  DH and I are facing down our discomfort with debt reduction, and we’re helping to break and reshape the mould for our class. 
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First Slice Out Of Debt #3

DH = Dear Husband

Debt #3 – an “exciting” debt to pay off            

I remember thinking, months before we would start to take on Debt #3, the business debt, that it would be exciting to pay it down.  You know you’re in a pretty special head space when you think of debt repayment as exciting, but that’s how it is.  We decided in advance that when the time came for us to start in on this debt, DH would pay himself as little as possible from his business revenues so that as much as possible could be directed against the debt.  That way, we’d be using money taxed at a business rate – about half the taxation rate for personal income – and we would therefore be able to put more against it.  Furthermore, we would have variable payments each month, following the variable monthly revenues of DH’s business.  Exciting, right?
            I liked to think that we’d start off by giving Debt #3 a decisive blow.  In my wildest projections, I dared to imagine taking off $10,000 to begin with.  Although I predicted that we’d start paying it off in February – not December – I knew there would be a Christmas windfall to use.  I also knew that DH wouldn’t have to keep large amounts aside for business purchases because he’s at that sweet spot where he’s got all of his basic, major equipment.  Significant purchases will still be required from time to time, but not on a regular basis as they were in his first three years of operation. 

Debt #3 – a “fluid beast”

            DH’s business debt has been a fluid beast.  It started out at about $60,000 and he began right away putting $700 per month against it.  With major expenses, however, the beast grew, maxing out at about $90,000.  DH’s monthly payments would sometimes bring it down a bit, but then the need for another piece of equipment would shoot it right back up again.  By the time we started our journey out of debt in June 2012, Debt #3 sat at $80,800.  We decided then, as we took on Dave Ramsey’s approach to debt reduction, that we would not touch it until we had first paid off our smaller Debt #1 and Debt #2, but DH would not allow it to grow either.  Any business purchases he has made since June 2012 have been made with money generated, saved, and available from his revenues.
            So at the beginning of December 2012, Debt #3 still sat at $80,800. We had done nothing to reduce or add to the principal, and the monthly interest of $200 had been a regular business expense.  Taken in total over three years and four months of operation, it’s an expense that has added up to somewhere around $8,000.  Ouch! 

Too busy

           But at the beginning of December, we were on a high from our earlier-than-expected elimination of Debt #2.  We weren’t analyzing the numbers for Debt #3.  And how could we?  The Christmas rush was already well under way.  I have written before about our gratitude for DH’s gainful employment – about how much better it is for him to be too busy at times rather than to be underemployed and floundering.  We’ve experienced both, so we know.  But this December brought us to the brink in terms of how busy things became.  It’s a home-based business, and throughout most of the month, DH only pulled himself away from his office to go to bed at about 2:00 am – sometimes later.  It became normal for him to get more business on a given day than he usually takes on in a week.  “How am I going to do all of this?” became an almost daily question. 
            This kind of work volume takes its toll.  “All work and no play” doesn’t capture it.    “All work and no play, no family time, no church, no workouts, no social interaction, and no sleep,” is more like it.  For my part, I was running the household and parenting – as well as working – pretty much on my own.   And while we couldn’t help but be encouraged by the boom, I believe DH was completely accurate when he said, “If I had to work like this over the long term, I wouldn’t live very long.”  It was unhealthy physically, relationally, and mentally.  And although at its peak it lasted for only a month, it’s not a month we want to repeat.  Christmas was lovely – but we hovered over a breaking point in the lead up to it.

First slice out of Debt #3

            On one of the last days of 2012, mellowed by good sleep, rich and recent memories of friends and family over Christmas, and looking forward to a day on the slopes, DH and I put down our first payment against the business debt.  Never dismiss your wildest projections – because sometimes they turn out to be true.  Debt #3 now sits at $70,800.  The first slice we took off of it was $10,000.

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I would love to hear what you have to say. Feel free to share your thoughts, offer advice, disagree, or ask questions. (Disrespectful comments will be deleted.)

New Year’s Resolution: Personal Debt Reduction

 DH = Dear Husband
            There is something about the week between Christmas and New Year’s that leads many of us reflect upon our lives and resolve to make changes.  No matter how old I get, no matter how many New Year’s resolutions I’ve broken in the past, I find myself at this time of year on the precipice of a new beginning wanting to make things better.
            If one of the changes you’d like to make in your life is to reduce your personal debt, I encourage you to go for it.  When DH and I resolved to begin our journey out of debt, it was not at New Year’s but in May 2012.  Our start date was June 1, and if you can be motivated by other people’s experiences, then be motivated by ours.  So far, we have exceeded our goals.  In our first six months of debt reduction, we lowered our total debt (including mortgage) by over 10%.  At the end of November, we dug up numbers to compare our debt reduction in the six months prior to June 2012 with the six months after.  Income was identical.  Expenses were the same.  But our debt reduction increased by 640%.
            “How?” you might ask.  I certainly have.  The best answer I can come up with is that when you go at something with focused intention, when you reject complacency, when you fight against obstacles from the outside and sabotage from within, powerful change happens.
            Does everyone who resolves to lose debt succeed?  I’m sure the answer is “No”.  Gym memberships increase sharply each January as a result of people’s New Year’s resolutions for physical fitness.  By the end of February each year, most of these resolutions have fallen flat and the gym is less busy.  Resolutions do not have a great track record.  But we all know a few people who have done it.  They lost 70 pounds and kept it off.  They quit smoking.  They paid off the mortgage. 

Maslow’s Hierarchy of Needs ǁ Prudence’s Hierarchy of Personal Debt Reduction

I remember studying Maslow’s hierarchy of needs both in secondary school and in university.  As a high school teacher, I’ve even taught it to the next generation.  Maslow’s theory was that in order for people to reach their full potential, they had to have their needs met.  Basic needs had to be addressed before higher order needs could effectively be satisfied.  According to Maslow, a person would live a successful, fulfilled life to the extent that all needs were taken care of, from survival needs to needs for self-expression.  Usually presented in the form of a pyramid, Maslow’s hierarchy of needs looks like the diagram above.
In reflecting upon the success we have had so far in our journey out of debt, I have come to believe that DH and I have a few things acting in our favour.  I have put together a hierarchy like Maslow’s to help explain why we are succeeding.  I’ll call it Prudence’s Hierarchy of Preconditions for Successful Debt Reduction.  (I know that’s a mouthful.)
First Precondition
Maslow:  Food, water, shelter, air. 
According to Maslow, you can’t lead a fulfilled life if your survival needs aren’t met.
Prudence:  Pointed discomfort with personal debt.
According to Prudence, you won’t succeed at reducing your personal debt unless you feel a distinct discomfort with your debt load.  For years, DH and I lived with our debts in perfect comfort.  We could make the minimum payments and then some.  We had good incomes, good prospects, and we “deserved” what we were buying.  Then DH became a casualty of the hi-tech bust and our income decreased by over 50%.  The financial distress that we endured for over six years predisposed us to become very uncomfortable with our debts.
For some people, it’s a job loss.  For others, it’s a marriage break up.  And then there are those who don’t require their own personal experience of financial distress to feel discomfort with debt.  They’ve witnessed the hardships of their parents or friends.  Or they’re simply wise.  Are you decidedly uncomfortable with your debt load?  If so, you’re a good candidate for a New Year’s resolution to reduce your personal debt.
Second Precondition
Maslow:  Safety, steady income, insurance in the case of misfortune.
            According to Maslow, you can’t lead a fulfilled life unless you have basic security.
Prudence:  Stable, improving or innovative means of income.
            According to Prudence, you will have difficulty in reducing your personal debt if your income isn’t reliably steady or improving.  It’s not impossible though.  Some people sell their cars and even their homes to make it happen.  They simplify their lifestyles and take on part time jobs delivering pizza or cleaning office buildings.  There is room for gumption here.
            DH and I are very fortunate when it comes to this precondition.  After years of unemployment and underemployment, DH bought a franchise business (yes – more debt).  He’s in his fourth year of operation now, and it’s going very well.  His income has so far been stable, and there is every reason to believe that it will increase.  I taught summer school for the first time in fifteen years last July.  We sold some household items.  We stopped hiring cleaners.  I didn’t accompany DH on a business trip and we didn’t go away for our anniversary.  So with some stability, some innovation, and some lifestyle simplification, our income precondition is met.
            Do you have a stable or improving income?  Or if not, is there a part-time job you can take on?  Or big ticket items that you can sell?  Is there a significant way in which you can simplify your lifestyle?  If so, you’re a good candidate for a New Year’s resolution to reduce your personal debt.  
           
Third Precondition
Maslow:  Belonging, love, family.
            According to Maslow, you can’t lead a fulfilled life without the love of family.
Prudence:  Team support.
            According to Prudence, you will have a hard time reducing debt if you don’t have support from others.  If you’re married, you and your spouse must be unified in this effort.  If you have children, try to win their support – or at least acceptance (but don’t capitulate under their pressure if they don’t like the changes that come with debt reduction).  Whether you’re single or married, seek out friends who will encourage you and keep you accountable.  Find trustworthy allies with whom you can share your numbers, discuss the obstacles that confront you, and confess the ways in which you sabotage your own efforts.
            For years, DH and I experienced crazy amounts of marital strain as a direct result of financial stresses.  Last spring, when a friend of mine gave us the audio and print versions of Dave Ramsey’s book The Total Money Makeover, things changed completely.  DH and I became equally determined to get out of debt and we have been on the same page with regards to financial matters ever since.  While our children have not been entirely thrilled with our mission, they have at least come to accept it.  And we have shared our efforts with a few allies who have proven to be supportive and encouraging.  This blog is very important to me in terms of keeping me accountable and on track.
            Are you and your spouse on the same page financially?  Is this a goal you can take on together?  If you are single, do you have friends or family with whom you can share your numbers?   Will you seek out the support of people who are wise with money or who, like you, are trying to become that way?  If so, you’re a good candidate for a New Year’s resolution to reduce your personal debt.
Fourth Precondition
Maslow:  Self-worth, accomplishment.
            According to Maslow, you can’t lead a fulfilled life unless you develop the self-respect that comes from achievement in something significant to you.
Prudence:  Recognize your own power.
            According to Prudence, you will not succeed at reducing your personal debt unless you truly believe that you have the power to do so.  For years, our debt was just part of the scenery.  It was an inevitability.  Like the force of gravity and the changing of the seasons, it was something over which we had no control.  After we read Ramsey’s book though, we saw debt as something to conquer.  And after applying a simple strategy – start with your smallest debt – we developed confidence that we could do it.  In our first six months, we eliminated our two smallest debts.  We encountered significant obstacles along the way, but we won.  DH and I have very high confidence that we will be completely debt free in about five years.
            Think of your smallest debt.  I encourage you, at the very least, to resolve to pay it off.  When you do so, whether it takes a few months or over a year, I believe that you will recognize your power to tackle all of your debts.  If you have this confidence now – or if you give yourself the chance to develop it – you’re a good candidate for a New Year’s resolution to reduce your personal debt.
Fifth Precondition
Maslow:  Self-actualization.
            According to Maslow, you can’t lead a fulfilled life unless you have a complete knowledge of yourself and the freedom of self-expression.
Prudence:  Inspiring vision of life after debt.
            According to Prudence, you will have a difficult time finding it within yourself to reduce your debt if you don’t have a vision, to spur you on, of a better life without debt.  Ramsey wisely includes a vision of debt freedom at the beginning of his book, The Total Money Makeover.  As I listened, in the car on my way to work last spring, to his analogy of a tough bike ride up a steep hill (representing debt reduction), cresting the summit, and then embracing the exhilaration of the effortless ride down the slope on the other side, I was surprised at the tears streaming down my face.  DH and I don’t have a well-defined vision of life after debt, but we have the makings of one in this bike ride analogy.  We have vague hopes of travel and significant giving and generous provision for our children and material purchases.   But more than anything, we are inspired by the prize of freedom from the heavy weight of debt.  Already we can feel the relative lightness of having dropped 10% of our debt load. 
            Can you imagine life without debt?  Does an inspiring vision form?  If so, then you’re a good candidate for a New Year’s resolution to reduce your personal debt.
             I expect the gym to be full next week, but I’m sure it will settle down again by March.  Some of the newbies will stick around though.  And they will reach their goal of physical fitness.  If you feel burdened by the weight of your debts, consider a New Year’s resolution of financial fitness.  60% of Canadians retire in debt.  Canadians’ average debt to income ratio has risen to a record level of 164%.  DH and I were right in with the debt trend at this time last year, but now we’re bucking that trend, and our numbers signal real change.  Make 2013 your year to begin, and join us in a journey out of debt.
           

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I would love to hear what you have to say. Feel free to share your thoughts, offer advice, disagree, or ask questions. (Disrespectful comments will be deleted.)

Newtown CT. U.S.A. – Standing With You In Grief

            Almost half of the readers of this blog are American, and this week, I would like to dedicate my post to you.  As details surface of the unspeakable horror that robbed twenty school children and six staff of their lives in Newtown Connecticut last week, shock and disbelief give way to profound grief and mourning.  Support is so powerfully and generously pouring in from your leaders and your fellow citizens.  Please know that your neighbours to the north also stand with you in grief.
            Across Canada, flags fly at half-mast.  Prayers are lifted up in churches, homes, and hearts.  Moments of silence are observed in schools and other places of work.  Tuesday morning, outside the high school where I work, teachers gathered together before classes started and listened to a reading of the name and age of each victim.  I’m sure that every one of us wondered whether we, if caught up in such a nightmare, would have it in us to act as bravely and sacrificially as our fallen colleagues to the south.  When the school day began Tuesday, all staff and students stood for a minute of silence to honour the lives lost. 
               One of the classes at Sandy Hook Elementary School was preparing to make gingerbread houses that day.  So many of the children were looking forward to Christmas.  What a staggering contrast there is between the cold-blooded massacre of children and the one whose birth we celebrate at Christmas.  He came into the world as a baby.  He distinguished himself as a child.  And when he was a man, he welcomed and valued children, and spoke with uncompromising vehemence against anyone who would corrupt and harm them.  He lifted up children as a role model for us all.  “Allow little children to come unto me, and forbid them not: for of such is the kingdom of God.” (Luke 18:16) 
The closer you are to the centre of horror, the more raw the devastation of its impact.  As much as everyone of my acquaintance has been shaken by this atrocity, I know that Americans must feel it more acutely.  Please accept my condolences on behalf of Canadians for your nation’s grief.  The sweet faces of the children you have lost are etched on our minds.  Their names are known to us, as are the names of the devoted staff who took bullets in an effort to protect their precious charges.  You are not grieving alone.  You have our support and good will.  May God give you comfort and strength, and may God bless America.

Christmas While Getting Out Of Debt

DD1 = Dear First Daughter
DH = Dear Husband

I love Christmas.  And while I generally recognize the wisdom of the philosophy “less is more” through most of the year, at Christmas time, I let more be more.  Our Christmas lights are up outside; we’ve chosen our tree and have wrapped the first garlands around it; I baked shortbread cookies and Nanaimo bars last week-end; I sent Christmas cards out in the mail two days ago.  DD1 will be arriving in less than a week!  It’s been a full year since we’ve had her home.  And plans are starting to evolve:  plans to go out with family, with friends from high school days, friends from work, friends from church.

We’ll be hosting Christmas dinner at our house.  There will be four generations of family, twenty-seven people in all sitting down to a meal here.  Everyone will bring a dish, and there will be turkey, stuffing, potatoes, gravy, cranberry sauce, bread, roasted vegetables, salad, and a whole range of desserts.  After dinner there will be ping-pong, pool, a game of charades, and singing around the piano.  This is what Christmas is like for us.  And I know that make us very, very lucky.
I remember a few years ago watching Cast Away with my class the day or two before Christmas break.  There’s a Christmas dinner scene in the movie, just before Tom Hanks’ character leaves on his ill-fated flight.  One of my students whispered to me, “Miss, is that what your Christmas is like?”  I didn’t understand what she was getting at.  Lots of food; lots of family; candles, Christmas lights, decorations – it looked very familiar to me.  So I answered, “Yes.”  She said, “I’ve never had a Christmas like that.”  She told me that her dad didn’t do anything special at Christmas time, and her mom wasn’t in the picture, so she and her friend would go to a movie theatre for the day, as they had the previous December 25th.   My heart went out to her.  I could feel her longing for what she was seeing in the movie.  When you hear of the difference it makes to give an anonymous gift or to buy items for a food bank or in some other way to make a donation for people who struggle and for whom this is a very difficult time of year, it’s not sentiment.  It’s very real.

Does our journey out of debt matter at Christmas?

So is it really necessary to allow considerations of debt repayment to enter the scene at this point?  For the sake of family and friends and celebration and giving, can’t we just put that whole thing on hold?  Just for one month?  No.  DH and I agreed that Christmas would be on a budget this year.  Two week-ends ago he was annoyed with me because I’d started shopping without our having established a plan of action.  I soon thereafter became annoyed with him because he would not put aside his mountains of business (very welcome business!) to sit down with me and actually define that plan. With fierce intention, we carved out a period of time and started in on the numbers.  Are we feeling Christmas yet?
I remember wondering in November, a month that included an extra paycheque for me and a business expenses claim for DH, what had happened to the very same windfall at the end of last year.  I realize now that Christmas happened.  DH and I spent somewhere around $2,500 on presents alone.  Eeek!  On top of that, there were five restaurant meals with friends and family.  There were ski days.  Movie days.  Shopping days.  And then there are always the expenses of wrapping paper, cards, host & hostess gifts, baking . . .  I hope I don’t ever become jaded, but the money flow at Christmas time can be obscene.  In fact it was for us last year.  And perhaps the year before.

 “Balanced abundance”

This year will be different.  Our plan is balanced, and allows for a finite abundance.  Presents will come in at about $1,000.  There are plans for two restaurant meals.  Ski days?  Movie days?  I hope so! But here’s the rule of thumb:  We will not go into debt to finance Christmas this year.  And that will be a first. 
“Remember what Christmas is for,” we are occasionally reminded at this time of year.  “It’s about Jesus’ birth.”  That doesn’t altogether clarify things for me with regards to monetary restraint though.  I understand Jesus to be someone who enjoyed gathering with friends to break bread and to celebrate.  He was all for giving to the needy.  And his birth was worthy of the lavish gifts bestowed by the wise men. I don’t want to be a debt-ridden dupe of the commercialized sentiment of Christmas, but I don’t want to stingy my way out of the celebration either.  The learning curve involved in our definition of a plan for Christmas has been sharp, but we’re moving ahead with it now.  More is still more; it’s just not in debt.

Comments are welcome!
I would love to hear what you have to say. Feel free to share your thoughts, offer advice, disagree, or ask questions. (Disrespectful comments will be deleted.)