Living without credit cards is difficult but worth it

Back in December, my wife and I refinanced our house to pull out about half of the equity to use to pay off our credit cards. About 2 months later, we have no credit cards, but living without them, at first, can be a bit difficult.

When we had credit cards, we had one with Bank of America that was tied to our checking account. If we were overdrawn in our checking account, money would be transferred from the credit card into our checking account. We were spared the embarassment of bounced checks but at a very high cost: over 20% interest!

Because we had that “protection”, we didn’t pay attention to our spending or balance our checkbook regularly. We knew the credit card would cover whatever we did. Occasionally we would try to transfer the overdraft money back to the card when we got paid, but not frequently enough to make much difference.

Now we don’t have that high-interest cushion to fall back on, so we are forced to keep an eye on our spending. We have to know how much money we have and we have to plan ahead. We also have to say no to some things because we just don’t have the money.

How sad is it, that we find it so difficult to be financially responsible? And it’s not just us, it’s our generation! I caught some headline on TV news the other day that mentioned something about people in their 20s and 30s being behind on savings or being heavily in debt. I can’t remember exactly what they said but they made it sound like we’re victims.

We are not victims of anyone or anything but our own wants and desires and greeds. We want in our 20s what our parents didn’t have until their 50s! We want what we want ad we want it NOW. We have got to take a long hard look at our lust for “stuff” and get it under control.

Anyway, living without credit cards is difficult, but worth it. We don’t get what we want when we want it, but I just did March’s budget on paper, and at the end of the month, if we stick to our budget (which is not that tight), we will have a surplus of over $1300.

So living without credit cards is doubly advantageous. First, you don’t have those monthly payments each month, where you basically throw that money away. You can save that $600 a month (it was about that, in our case) for better uses. Second, living without a credit card forces you to be in tune with your finances. You know where every penny is going because if you don’t, big trouble lies ahead.

Budget worksheet example — Excel

Here is a budget worksheet I use (though I usually hand write it in a ledger book). I break everything into weeks, because we always ran into a problem with a monthly budget. We knew we had, for argument’s sake, $500 a month for groceries. But we didn’t think about the fact that we may only have $250 of that available during the first half of the month. So that is where we would be overdrawn.

This way, you know what money you can expect to receive during a given week and what expenses you have that week. Also, there is a carryover category, where any money unspent that week carries over to the next week and becomes part of your income for that week. If you do it right, by the end of the month you should have plenty of carryover left over, either to carryover into the next month or to invest or save.

The bold areas in the spreadsheet are all calculated figures based on the numbers you put in the other fields. I know this is not one-size-fits-all, but maybe it will give you a starting place for a budget worksheet to fit your needs.

We were doing so well

Well, spending has become a problem again, as well as not keeping track of spending. We’ve used up our home improvement savings, so now we have to pay that back (it wasn’t that much, but still….)

And tomorrow we are doing a Valentine’s dinner out, but the money for that will definitely be tight. Fortunately we get paid Thursday. Time to re-examine the budget and stick to it this time. It’s so different now that we don’t have credit cards. Before, we had overdraft protection from our credit card, so if we overspent, it just came out of our credit card as a cash advance.

Now it comes out of savings, which is currently empty. So there’s a very real risk of bouncing a check if we’re not careful. It is forcing us to be a lot more careful with our spending. I am hoping we learn a valuable lesson from this and start keeping better track of our spending and stick to our budget better.

I’ve done a budget for the rest of February (from payday to the end of the month). If we stick to it and not go crazy we’ll be in the black and start off March in good shape. I even budgeted in the $250 required to start the Roth IRA.

The importance of sticking to a budget

Well, I’ve been doing this blog about a month now, and have already learned a lesson about sticking to a budget. When I first figured up January’s budget, we were going to have several hundred dollars left over that would carryover into February.

Also in February, we were going to get my wife’s first paycheck from this semester’s teaching classes. But the latter half of January, we kind of fell off the budget wagon and ended up overspending a lot. We dug into a little of our savings and spent the surplus we would have had. So now the first couple weeks of February are going to be tight, money-wise, making it harder to save this month for investing.

Fortunately, I am getting a check any day now (could be today) for $250. See, in August I was in a car accident with someone who works for Nissan. They were driving a company-owned car, and were, in my opinion, 100% at fault. The police report said I shared some fault because I didn’t see them when I was pulling out of the gas station, but they were passing illegally in the oncoming lane.

Fortunately, Nissan recognized their responsibility and I am receiving my deductible back. I hope my wife doesn’t have plans for that money, because I have earmarked it to start my Roth IRA.

Anyway, it’s important to stick to your budget because messing up one month does not just mess up that month. There is a ripple effect that can be felt for months to come!