Authenticity in blog-writing
From day one of writing this blog, I said I wanted it to be authentic. I wanted to give a genuine picture of what it looks like to get out of debt. Much of the debt-reduction advice and testimonial out there has a “Rah-rah!” tone to it, and I’m all for it. Sometimes, I’m leading the cheer. But not today. It’s our third anniversary of debt-reduction, and our numbers show great progress, so what’s my problem?
My disagreement with DH re. accidental TFSA
I feel rather petty admitting to it, but I really wanted to have Debt #3, our business debt, paid off by the end of May. Why? So that we could reach a hugely significant milestone on this anniversary date, and I could write for my title of today’s post, “3rd Anniversary of Debt Reduction: Debt #3 ELIMINATED!” It could have been, but DH and I are in a disagreement, and he is winning. Debt #3 today sits at $5,500, down from an original $80,800. Way down. But still there.
In April 2012, just a month before we started our journey out of debt, we opened up a tax-free savings account (TFSA), and began depositing $101 per month into it. We were floundering at the time, knowing that our finances were in a mess, knowing that we needed to reduce debt and save, but having no strategy. Once we read Dave Ramsey’s The Total Money Makeover, we had our starting strategy:
- Have a small emergency fund on hand ($1,000) and take part in any employer matching program that might be offered through your work for retirement savings.
- Otherwise, focus exclusively on debt-reduction, starting with the smallest debt, until you are debt-free except for the mortgage.
- Save a big emergency fund.
Psychological vs. logical debtors
If the penalties aren’t too severe, advises Ramsey, put any savings you have against your debt. In my mind, that includes an accidental TFSA that has, over the last three years, quietly grown to just about $4,000. We could today cash in, find another $1,500, and Tah-Dah! But here is where our fundamental personality differences come into conflict:
- I am a psychological debtor. Ramsey’s assertion that debt-reduction is more about psychology than it is about logic goes double for me. It’s why he advises paying off the smallest debt first. Logically, it makes more sense to focus upon the debt with the highest interest rate, but the encouragement that comes with being able to say, “I did it! It’s all gone!” is worth its weight in gold in terms of the motivation it gives debtors to keep forging ahead. For psychological debtors, encouragement and motivation are everything. Without them, we give up. For me, there would be HUGE encouragement and motivation in being able to say today – on our 3rd anniversary – that we had finally paid off our $80,800 beast of a business debt. It would mean WAY more to me than having a random (in my eyes) TFSA just sitting there on the sidelines sucking momentum.
- DH is a logical debtor. It seems counter-intuitive that logic and debt should co-exist, but it’s a common enough phenomenon. Spin the numbers convincingly and make clever use of financial jargon, and many people come to a logical acceptance of debt as normal and benign – never mind sky-rocketing levels of household debt, financial stress, and bankruptcy. For us, it’s fortunate that our smallest debts happened to have the highest interest rates. No argument there. But for this situation, DH logically notes that in the long term, it makes no difference whether we pay off Debt #3 today or in two months from now. A careful man prone to worry, he also logically notes that we have significant expenses coming up, and that a cushion of savings will be a healthy thing to have.
I know that in the long-term, it doesn’t matter if Debt #3 gets killed off in July. The point is, I also feel frustrated by what I perceive as DH’s indifference to what motivates me towards our mutual goal. And I know that we have significant expenses coming up. I just don’t think it would be imprudent to pay off Debt #3 now and then refocus for what’s ahead. I like the neatness of finishing off this phase. I don’t like the sloppy indefinite sense I get with what DH is going for.
So there you have it. It’s the marriage thing and not being on the same page. That’s why I’m not feeling too peppy right now. Nevertheless, here are our numbers:
Looking back and looking ahead
I have just read the post that I wrote almost exactly 3 years ago when we were at the starting line. “Now it’s June, and DH and I are taking the proverbial first step on our journey out of debt,” I wrote. “Psyched by a vision of debt freedom, we feel a happy adrenaline – a hope-filled, united, optimistic energy.” I think that “united” is the key word we’re missing now. Hopefully, our awareness of this fact will lead us to find it again.
The most encouraging thing I get out of that 3-year-old post is what it reveals about our very optimistic expectations: “In preparing our June budget, DH and I found that we didn’t have a lot of fat to trim. That makes sense as we had to take many cuts off our living expenses when DH lost his first career … The most significant change we’ve brought about with our budget is to follow Ramsey’s advice about paying off the smallest debt first – with intensity … With the aim of intensifying our repayment of Debt #1, we’re going to stop paying off the business debt and we’re going to stop topping up our mortgage payments. These two changes mean that we will pay $2,300 off of Debt #1 in a regular month.” Apart from mortgage payments, we had ambitious hopes of a regular debt repayment rate of $2,300 per month. In fact, after three years of widely varying monthly repayments, we have averaged $2,700. We’ve exceeded our ridiculously high expectations by $400 per month, which over three years adds up to $14,400.
So for better or for worse, we’re on the right track. And as I look at the challenges ahead, whether income-related, expense-related, or relationship-related, I can only be encouraged. And, psychological debtor that I am, that’s exactly what I need.
Do you think that psychological or logical factors play a greater role in your personal finances? Your comments are welcome. (And it’s OK if you agree with DH : )