YNAB BLOG

Closing the “Should Gap”: How to Live Life While Fighting with Debt

magnifying glassAmy’s an architect in her mid-twenties earning a little over $50,000 per year as an hourly contractor. She lives with her two cats and her favorite pastime is going out for good food and good drinks with her friends.

In fact, until recently Amy was spending upwards of $800 per month on her social life. That’s a lot of money, but it wouldn’t be such a big deal…if Amy weren’t also trying to pay off $80,000 of debt.

Amy feels guilty and embarrassed about her debt, but this budget review catches her right in the middle of positive transition. She’s going from this: “I get what I want. I wanted a degree, so I bought it. I wanted a new couch, so I bought it. I wanted to go out, and so I spent my tax money on going out and now I owe the IRS,” to this: “I want freedom from debt, and come hell or high water, I’m gonna get it.”

Take a look at Amy’s budget; then we’ll go over the rest of the story.

Category Budgeted Notes
Monthly Bills
Rent $550
Phone $45
Internet $25
Utilities $230 Water, trash, electric, gas.
Gym Dues $85
Public Radio Membership $7
Monthly Bills Total $942
Everyday Expenses
Pets $120 Her cats are her babies.
Fuel $180 Commutes 3+ days/week, 60 mi. round trip.
Groceries $161
Health and Wellness $65
Household $25
Fun Money $100
Giving $25
Everyday Expenses Total $676
Infrequent Expenses
Car Taxes and Registration $30
Car Maintenance $38
Car Insurance $76
Birthdays and Christmas $19
Skin Care $35
Supper Club $20 Hasn’t been using this, considering dropping it.
Infrequent Expenses Total $218
Debt
Back Taxes $1,260  $16,000 owed to the IRS.
Student Loan 1 $317  $39,776 @ 6.55%
Student Loan 2 $68  $9,468 @ 8.25%
Student Loan 3 $55  $8,425 @ 6.025%
Student Loan 4 $40 $114 @ 5%
Credit Card 1 $300  $1,664 @ ~8%
Credit Card 2 $38  $571 @ 0%
Credit Card 3 $86  $171 @ 0%
Car Loan $214  $3,285 @ 6.99%
Debt Total $2,378
Budget Total $4,218 “Exactly what I earn per month.”

What’s missing? Health insurance, emergency fund savings, and retirement savings. She’s committed to setting aside $100 per month for health insurance, she’ll save for retirement when the debt is gone, and…we’ll get to the emergency fund in a minute.

Alright, so here’s Amy, fighting the good fight, spending 56% of her take-home pay on her debt, and starting her snowball by paying $300 per month on Credit Card 1. She’s doing great, and on her current path she’ll be totally debt free in about five years (maybe a little less).

But after I went over Amy’s budget, it seemed like I needed to dig a little more. Why? Because she was budgeting every penny, she has no buffer or emergency fund, and her Fun Money category is 1/8 of what she told me she historically spends.

“Hey, Amy,” I asked, “How long have you been working with this budget? Long enough to know it works? Or are you still trying to get used to it?”

That’s when I found out Amy is fighting the “Should Gap”: that state of stressful limbo where a person is trying to make a positive change in her finances, but is still trying to close the gap between what she “should” be spending and what she actually is spending.

Amy told me she’s been trying to make this budget work for about four months, but in a couple of those months she had some pretty ugly overspending in her Fun Money category. While budgeting $100 per month for fun, she’d spent an average of $300 to $400. She’d covered the overspend with a small buffer she’d built up, which is now basically gone.

I pointed out to Amy that “a couple overspends” in four months means it’s happening 50% of the time, and on the current path she’s going to have to cut her spending, cut her snowball, or start using the credit cards again.

In other words, Amy’s dealing with the hard reality of changing habits and getting out of debt: it’s great to resolve to make the big snowball payment, but the money has to come from somewhere. She’s been trying to keep a foot in both worlds – spending like she’s always spent (because, although the dollar amount is lower, the excess and impact are the same) while trying to pay off the debt. Something has to give.

But…just because something has to give, doesn’t mean it has to be the thing that “should” give – I told Amy it’s okay to maintain her social life – under certain conditions. See, every budget has its sacred cows. I (and others) have taken heat for prioritizing charitable donations in spite of having debt. Donations might be easier to defend because they’re “noble” (or whatever), but it’s not about the “nobility” of the category. It’s about the values of the budgeter.

After dialoging with Amy, I can tell that socializing with her friends is what she values most. It’s what she looks forward to, what she thinks about during the day.

For Amy, closing the Should Gap doesn’t mean she has to cut out the thing she loves most. She has to acknowledge she’ll be happier and more motivated to stick with her snowball if she protects the social spending, and then make it work.

Here’s how she and I decided it could work:

She’s going to allow herself $250 per month in the Fun Money category. That’s still a cut compared to her recent history, but it’s much easier to stomach.

Allowing herself $250 for fun creates a $150 deficit. Added to the $100 she’s decided to set aside for health insurance, she’s working with a $250 total deficit.

During the course of our email correspondence, she called two of her banks and got interest reductions on some debts that freed up $50 per month. She’s committed to cutting at least another $50 from her spending, but that still leaves $150 per month she has to cover if she wants to preserve the snowball and maintain her social spending.

As Erin taught us on Wednesday: when bills exceed income, there are only two options: cut spending or increase income. Amy knows that she needs to come up with that extra $150/mo, and she accepted the challenge of creating some extra income to make it all work. She can increase her hours as a contractor, and she’s also been able to earn money selling jams, baked goods, and hand-made scarves before.

My thoughts on Amy’s budget would be very different if she weren’t already sending out 56% of her income to creditors, and if her snowball weren’t going to free her in five years.

But Amy -make no mistake: if you want to break the debt cycle, you have to prioritize the snowball ahead of the social life. Fight for both, but make sure the debt payments go out early in the month so the only thing that can suffer is the social life.

One final thought: I wonder if the Dave Ramsey enthusiasts in the audience would tell us you need to create a $1,000 mini-emergency fund as a protection against new debt. I’ll let the commenters chime in on that one.

Here’s to closing the Should Gap and spending according to our values. Hope everybody has a great weekend.

58 Responses to “Closing the “Should Gap”: How to Live Life While Fighting with Debt”

  1. Jordan

    I always cringe when I see people forgo a retirement fund (especially if there is employer matching) to pay down debt. Yes debt takes priority but that compound interest on your retirement is not something to ignore, but that is her choice.

    These posts make me want to send my budget in for review to see what everyone thinks of it.

    • 200F

      But I read something interesting elsewhere—consider your credit card as providing a NEGATIVE XX% return every year. As in—if you have a credit card balance, and the interest rate is 18%, it’s like an investment that is providing -18% (compounding) return every year.

      That really struck a chord with me about why it’s important to pay down debt first.

  2. Bean

    Thank you for saying that we all have that “one” category that people tend to judge or don’t understand and saying its ok to fight for it. AND for saying to make sure to put debt as a priority over fun but to fight for both or you won’t stick to your budget. After reading some of the comments on the previous blogs, some of these responses were so judgmental and close minded, it was hard to take part being new to budgeting. But I can tell you, being new at budgeting, if we had to make a huge drastic change, it wouldn’t have stuck. We still allow ourselves our fun category as well. We know it will take a little longer to pay down the debt but life is too short and you never know. So a little responsible and budgeted fun is necessary to us. :)

    We are slowly building our emergency fund at about $50-100 a month. We will get there and I’m sure as this lifestyle becomes more of a habit, this category will likely go up.

  3. Laurel

    Great article. My husband and I are in a similar position to Amy. Trying to pay off debt (student loans and car loan), while still maintaining some semblance of a social life (and fun life for our son). Some months we do really well and stick to our budget and have our credit cards at $0 or close to, and other months we somehow ring up $500-$1000 in credit card purchases. For us the issue is the same, our bills are almost equal to our income which leaves no CASH for anything fun. We are continually trying to cut down on our bills, and continually looking for higher paying jobs. Thanks for the suggestions in the article.

  4. Dona

    This is exactly what I am struggling with! Thank you for sharing and the insight!

  5. Justin Miller

    Of course the DR enthusiasts are going to tell you to save up a $1,000 beginner emergency fund. It’s what we do. :)

    • Justin Miller

      Now granted, we’d probably also tell you to give up on the social life temporarily because 5 years to get out of debt is just too long.

    • Megan K

      Yep. Makes sense to save up the $1000… Then she has a buffer if she has car problems or… But I think her challenge would be protecting it from being spent on social stuff by accident. Def. don’t keep it in the same account! Stock it away somewhere, and forget about it.

      So much social stuff is done on the fly. I wonder if she might benefit by having her social funds in cash.

  6. Janviere

    Yes, I am a DR enthusiast and I agree with establishing the emergency fund. It takes a weight off of your shoulders. ALSO, SELL THAT CAR. A cheap, paid-for beater could very well pay off the largest credit card debt and erase the car debt. I have never used the service, but it might be worth talking to a company like Tax Resolution to see about the IRS debt. Perhaps that can be drastically reduced. I am also a tither so you won’t get flack from me about continued giving. Those are the things that jump off the page at me. Good for her for getting her life in order. As a person who went through this three years ago, I can tell you FOR SURE that life is much more enjoyable with debt gone. Good luck

  7. Jodie

    I’m glad I’m not the only person who values getting OUT of the house to see friends as a priority. I’m willing for it to take a little longer to get out of debt than to be stuck at work or at home for the next few years. (It helps that my employer puts in 10% toward retirement no matter if I put in $0 or the maximum.)

    • ChefTreana

      Thanks for being honest…. because i kinda feel the same way.

      • Jodie

        I’ve received a lot of suggestions to have people over to my house to socialize, but it wouldn’t get me out, and I’d always be the person not paying money to hang out with friends. I don’t want either of those things to happen. It’s not fair to me or them, and that’s a sacrifice I’m willing to make right now.

  8. Lee

    I just got started, again, on Dave Ramsey’s plan. But I’m also trying to use the YNAB 4 rules. I did save up $1000 as a mini emergency fund. Once I did that, I cut up my credit cards. The emergency fund helps with Rule 2, saving for a rainy day. I still budget for my monthly expenses that I know are coming, but I don’t have to keep a credit card for emergencies. I’ve done that in the past, and it just leads to digging a bigger hole when the car needs new tires or something that I didn’t plan for.

  9. dg

    This the exact situation I’m in. Month five of a debt-busting budget that invloves a car note and student debt. Only had one month of over spending so I borrowed from myself out of my savings buffer but managed to pay myself back. It’s hard and it sucks but it’s starting to bear fruit!

  10. Invert Sugar

    I think it’s important to keep in mind, too, that part of why socializing is probably so important for Amy (or someone like Amy; me for example) is that she lives alone–aside from the cats. When you have a family in your home, it’s easier to entertain yourself cheaply or freely, but when you’re single and living alone, if you don’t go out at all, you can get lonely. I’m glad this post emphasized the importance of allowing room for yourself in your budget. I needed this post right now, because I’m in a similar situation (though it’s not going out for me). This post inspired me to fix up my budget and make sure to find money for things first rather than overspending later.

    • Jodie

      I’m the same–single and living alone. I see lots of folks saying “stay in and do this!” but I do that enough already. I think I’d lose my mind if I couldn’t go out once a week.

      • whocindylou

        Social life, dining out, arts/entertainment are a huge, high priority part of our budget as well. Paring it down during the years of debt-busting/wealth-building was literally painful but well worth it.
        Envision when your debt is gone and the $1200+ you’re throwing at debt every month is yours to ENJOY however you want–giving, fun, savings, whatever makes YOUR life richer.
        The social/community life in poor countries/cultures/communities is almost always stronger and more vibrant than in well-off countries/cultures/communities (where loneliness abounds), so money is obviously not the critical factor in strong social connections.
        A game night or movie night with friends is a great social treat that doesn’t have to cost much. Book clubs, cooking clubs, so many other gatherings are also budget friendly. Potluck it, order pizza, BYO wine/cheese–whatever works. Be creative–have a theme.
        Once the game/card(s) are bought, you’ve got lots of paid for fun. There are some terrific party games designed just for social interaction and laughs and lots of eurogame options out there for those that require a little more depth in their games.
        Good luck to all!
        p.s. The $1000 emergency fund should be priority number one–before snowball, before next night out or anything else. It is a critical buffer between you and ordinary pitfalls.

  11. bob

    My advice:

    Get rid of the ‘giving’ category. Amy already pays thousands in taxes (or will pay), the company she works for pays taxes, the landlord she pays rent to is paying taxes, it’s her taxes job to ‘give’, not hers.

    Cut Health/Wellness. You should be getting your health and wellness from the food you eat and the life you lead not from random products. Unless this is some kind of medical requirement (which I doubt based on the name of the category), whatever she’s spending here is likely ineffective.

    Drop Household, Amy is in huge debt including to the Government, she can’t afford a new throw pillow or new appliances.

    Public Radio. Radio is dead, and so is the money you’re spending on it.

    What is Car Maintenance actually being used for? $38 wouldn’t get me a lot of maintenance.

    Drop Supper club.

    Drop the gym if not contracted.

    Drop Skin Care completely. Skin care products are a scam, you’re better off buying cheap makeup if you really want to make your face look better..

    That’s $300 a month in subjects that if dropped will make no meaningful difference to Amy’s life. And if she really needs them, she can use her increased (but smaller overall) fun money, and start making active decisions about what she really wants to spend her fun money on.

    I’d also think about cutting her kitty fund by $20. Is spending $25 a week on cat food going to be that different to spending $30? $25 a week on cat food still sounds like a lot to me. Maybe more bulk dry food and less wet fish type food. I don’t know much about cat food though.

    Her goal is removing debt.

    So Amy should start doing it.

    Use that $300 saved to pay off Credit Card 3 and Student Loan 4.

    Any other savings should be put equally towards Credit Card 2, her buffer and a $500 rainy day fund.

    That would clean up her overall debt situation and get rid of nagging low hanging debt branches.

    Then start on Credit Card 1. Being able to say she has no Credit Card debt will be a good thing.

    I would call the IRS and see if it’s possible to negotiate a reduction in your level of monthly required tax payment, or if it’s possible to skip a month. Extending it to 2 years from next month instead of a year would reduce your payments by half and obviously, removing a month would give you the ability to completely pay off CC 2, 3, Student Loan 4 and get rid of a lot of Credit Card 1 just on that one month repayment skipping alone.

    • Terry

      I bet that kitty eats better than I do!

      I used to get by on $5/month for our cat.
      Thanks to the inflation they say we don’t have, it’s around $12/month now.

      Good list.

      • Cate

        You are assuming that the amount is for cat food – this may also cover medical costs. It could also be for vet recommended food for an illness (this comes from personal experience with a cat who had kidney issues).

    • Morgan Momo Daigneault

      I think perhaps some of these could be cut or decreased as you suggest, but I think one of the points of this article is that sometimes budgeting for mental health is just as important as anything else. If she needs to buy vitamins and supplements to feel healthy or skincare products to soothe acne-prone skin, for example, then I feel it is worth it. A budget you can stick to is better than a budget that leaves no room for enjoying life (and what that entails is different for everyone). She’s already putting half of her income toward debt – I think she can allow herself a few “happiness” categories.

      • bob

        Obviously qualifiers exist on blogs, I don’t know if her health and well being and skin care categories are ‘medicinal’ or simply throwing money down the drain on expensive, useless products like vitamins and skin care creams made up primarily of water. If they are medical, then fine, that’s just something that needs to be kept in the budget.

        If they aren’t medical, and are things like vitamins and skin creams, if Amy said to me me your point about ‘happiness’, I would respond with a question to Amy:

        What would make you more happy, spending $1200 a year on your health, wellbeing and skin care categories, or paying off the IRS in 11 months not 12?

        That $1200 for the next month that would enable her to pay the remaining balance from credit cards 1, 2 & 3, Student Loan 4 and her Car Loan earlier.

        Or to put it into a more long-term perspective for someone with long-term debt, an extra $6000 over 5 years.

        Is 5 years worth of happiness in buying what is effectively expensive water with no actual benefit more than the happiness of having spent $6000 on the debt?

    • Minda

      Taxes aren’t the same as giving. The government doesn’t support the groups doing the most for our country.

      • Christian

        Agreed, but unlike taxes, “giving” is voluntary, and there is no obligation to give to charity.

        Amy is not in a position to “have it all”. Her income does not allow her to both give to charity and have a rich social life and feed her cats well and support public radio etc. Something has to give, and at this point in her life, she needs to get her own financial house in order before she can give others the fruits of her labor.

        Bob’s underlying message of “examine the sacred cows” is great advice. Not every thing can be cut, but most are frivolous and can be cut. Amy has to decide how much she likes paying for me to listen public radio vs. getting herself into a better financial position.

      • bob

        Well, I’d say it’s more ‘examine all spending no matter how small’ and ‘critically examine what you think you want to spend your money on’.

        Amy has serious, long-term debt that includes being a creditor to the most dogged collection agency on the planet, the IRS, a group who can do more than just take away her money, they can legally take away her freedom.

        Her situation is extremely serious and as such, I take a hardline stance when examining Amy’s finances. Despite the serious depth of her debt, there is no reason why based on her earnings and current spending, that she couldn’t get out of this deb within 3 years (give or take a year depending on how the interest racks up).

        Amy is already spending lots of her income on the debt, and her spending contains quite large sums of very (presumably) discretionary spending.

        Amy could still give, or buy health/wellness products, but they should be coming out of her fun money, and it will be her job to decide if she really needs that or if she wants to spend it on going out, or if she wants to pay it off her debts.

    • Absotively

      I doubt she’s buying many appliances or throw pillows on $25/month. A chunk of household might well be things like toilet paper, cleaning supplies, maybe window film in the fall to keep the gas bill down. And given that she’s renting, she might have to pay to do laundry, too.

      • bob

        That is a good point. For me household items like you describe would be included in either my grocery category (toilet paper/cleaning) or in fun money so when I read ‘household’ I see ‘stuff for the house’ (the house equivalent of clothes or new shoes so to speak) as opposed to ‘household groceries’.

  12. Simon

    This is a good article.
    Agressive cuts might get you debt free in record time but only the strongest will be focussed enough. Most will get so depressed with they will struggle to stay motivated long enough to actually reach the goal.
    We all want to be debt free/cash rich as soon as possible but until that day you still have to have a reason to want to get out of bed and face the day ahead.
    I think this article shows the emotional side of getting your finances back on track and it’s often your emotional side that got you in that state in the first place. Even the Dave Ramsey fans should agree it’s behavioural change that required & that’s emotional.

  13. Brenda

    I wonder why Amy doesn’t pay off the two smaller balances on CC 2 & 3? With the $300 she’s putting to CC1, those could be gone in 2 months. I know, 0% interest is nice, but why keep a balance if you can afford to pay it off? That would free up $124 extra to go to the other debt. If those cards are being used on a continual basis, the money spent on them should be in the budget, yes?
    Paying of smaller balances (for me) felt powerful. Maybe the numbers weren’t as big and nice, but less debt is less debt!

    • Minda

      I was wondering about that with student loan #4 too. In a two or three months she could completely pay off three accounts. That would give her a little breathing room.

    • Megan K

      I agree! Pay off the small ones!! It feels so good to have some dollars freed up to go “elsewhere” (another debt).

  14. DeAnna

    Reading through her budget, I cringed when I saw how she is trying to get rid of her debt and built her snowball.

    First of all, get rid of that monthly gym fee of $85 a month. Go outside and exercise. Get into an apartment complex that has a gym. Find a different way to do your exercise without having to join the gym. One year saving $1025.

    Second – I don’t know where she is living. Would it be possible to move closer to her work with slightly a bit more in rent increase with a possibility of a gym to decrease her gas consumption and the wear and tear on the car?

    Third – Getting out of the house to see friends is great and all. However, these debts are going to cost you more in the end for your retirements, etc. I would try to get out of the house to see friends at places that are free or cost me very little so I can stick with that $100 budget. Priority – friends or future free from debts – shorter time to be able to retired instead of having to work forever.

    Fourthly – Don’t worry about the interest rate – yes you do want to get them lowered, but always put most of your payment toward the lowest BALANCE first. That will start your snowball.

    I would concentrate on paying her debt in these order:

    Current Debt Payment:

    Back Taxes $1,260 ($16,000 owed to the IRS)

    Student Loan 1 $317 ($39,776 @ 6.55%)
    Student Loan 2 $68 ($9,468 @ 8.25%)
    Student Loan 3 $55 ($8,425 @ 6.025%)
    Student Loan 4 $40 ($114 @ 5%)

    Credit Card 1 $300 ($1,664 @ 8.25%)
    Credit Card 2 $38 ($571 @ 0%)
    Credit Card 3 $86 ($171 @ 0%)

    Car Loan $214 ($3,285 @ 6.99%)

    Here is my suggested Debt Payment:

    Current Debt Payment:

    Back Taxes $1,260 ($16,000 owed to the IRS)

    Student Loan 1 $317 ($39,776 @ 6.55%)
    Student Loan 2 $68 ($9,468 @ 8.25%)
    Student Loan 3 $55 ($8,425 @ 6.025%)
    Student Loan 4 $40 ($114 @ 5%)

    Credit Card 1 $300 ($1,664 @ 8.25%)
    Credit Card 2 $38 ($571 @ 0%)
    Credit Card 3 $86 ($171 @ 0%)

    Car Loan $214 ($3,285 @ 6.99%)

    Suggested Debt Payment:
    Sort the list by the lowest to highest balance

    Thus her current payment order should be:

    1. Credit Card 3 $86 ($171 @ 0%)
    2. Student Loan 4 $40 ($114 @ 5%)
    3. Credit Card 2 $38 ($571 @ 0%)
    4. Credit Card 1 $300 ($1,664 @ 8.25%)
    5. Car Loan $214 ($3,285 @ 6.99%)
    6. Student Loan 3 $55 ($8,425 @ 6.025%)
    7. Student Loan 2 $68 ($9,468 @ 8.25%)
    8. Back Taxes $1,260 ($16,000 owed to the IRS)
    9. Student Loan 1 $317 ($39,776 @ 6.55%)

    Total monthly debt payment – $2378

    Now let’s figure out what would happen if she were to take her $85 a month gym dues and apply it toward her debt payments with the max at the lowest one – with minimum balance on all of the other debt payments – her monthly debt payment will increase to $2463.

    Looking at her payment – keeping it at minimum balance (assuming credit card 1 minimum balance is $65 a month) – she has to pay $2143 a month – thus she can put $320 extra toward her lowest debt.

    First Month –
    1. Credit Card 3 $86 ($171 @ 0%) – Paid $171 – balance 0
    2. Student Loan 4 $40 ($114 @ 5%) – Paid $114 – balance 0
    3. Credit Card 2 $38 ($571 @ 0%) – Paid $73 – balance $498
    4. Credit Card 1 $65 ($1,664 @ 8.25%)
    5. Car Loan $214 ($3,285 @ 6.99%)
    6. Student Loan 3 $55 ($8,425 @ 6.025%)
    7. Student Loan 2 $68 ($9,468 @ 8.25%)
    8. Back Taxes $1,260 ($16,000 owed to the IRS)
    9. Student Loan 1 $317 ($39,776 @ 6.55%)

    Just the first month alone – she was able to eliminate 2 of her debts freeing her $126 a month!

    Second month – minimum out payment is $2017 – thus she can put $446 toward the next lowest balance:

    1. Credit Card 2 $38 ($498 @ 0%) – Paid $484 – balance $14
    2. Credit Card 1 $65 ($1,664 @ 8.25%)
    3. Car Loan $214 ($3,285 @ 6.99%)
    4. Student Loan 3 $55 ($8,425 @ 6.025%)
    5. Student Loan 2 $68 ($9,468 @ 8.25%)
    6. Back Taxes $1,260 ($16,000 owed to the IRS)
    7. Student Loan 1 $317 ($39,776 @ 6.55%)

    I bet that she would find a way to pay that extra $14 to bring the balance to 0.

    Third month – same minimum payment of $2017 and same extra $446 toward the lowest balance

    1. Credit Card 2 $14 ($14 @ 0%) – Paid Off (have an extra $24 toward the $446
    2. Credit Card 1 $65 ($1,664 @ 8.25%) – Paid $535 toward balance (4 months to pay off)
    3. Car Loan $214 ($3,285 @ 6.99%)
    4. Student Loan 3 $55 ($8,425 @ 6.025%)
    5. Student Loan 2 $68 ($9,468 @ 8.25%)
    6. Back Taxes $1,260 ($16,000 owed to the IRS)
    7. Student Loan 1 $317 ($39,776 @ 6.55%)

    So in 7 months – she will have reduced her debt by $229 a month in minimum payment.

    • Emlyn

      Good ideas, and paying off small debts provides some quick wins. However, Dave Ramsey would say to pay the IRS first and fast.

      • Emlyn

        (And yes, “DR” would also say to create a $1,000 baby emergency fund to prevent new debt, as Mark said. YNAB rule 4 is a similar idea, so either save $1,000 fast or become fully buffered fast, or both. Feels good.)

      • Justin Miller

        I don’t consider YNAB rule 4 to be the same as the emergency fund at all! Me personally, I have a stable enough income and bill schedule that I would get an upset stomach knowing that one month ahead is sitting there in my bank account when that could pay off a debt in full. Once I finish Dave’s Baby Step 2 next June or so, I will be getting one month ahead before I add to my emergency fund.

      • Emlyn

        Good point Justin. We don’t make anywhere close to the $4,218 Amy brings home, but closer to the $1,000 amount for the emergency fund so our buffer is similar (dollar-wise) in my situation and in my brain. However, I retract my earlier statement. That amount could pay off a debt in full for me, too. Kudos on being so close to your Debt Free Date!

        Thanks, Amy for sharing your budget! These exercises have been so helpful!

  15. Julie Hart Davis

    Great post, Mark! I think one of the main stumbling blocks for newbies is balancing the desire to get out of debt with the desire to live an active, social life. I know this was definitely the case for me! I think your advice to her was perfect.

  16. BWK

    Most of us who read financial blogs, have heard MMM say “treat debt like you hair is on fire.” as funny as that sounds, it’s true. If you are are in debt, you are missing opportunities, and are trapped. Sounds like Amy has the right mind set now, but still struggling making it stick. It must be hard, since she does need her social life. Sounds like she is only going into an office 3 days a week. That’s 4 days at home, just her and her cats. (just guessing)

    Just like the blog states, you have two things that need to get done:
    1. Reduce expenses
    2. Increase income

    Reduce Expenses:
    Great job on getting the low hanging fruit of calling the CC companies and getting reduced interest rates.

    Next see if you can reduce the gym membership. I have YMCA membership and love it. I don’t need a fancy gym to work out. (although, i used to have a personal trainer… not anymore)

    Talk to the IRS about getting a settlement. Also, where in your budget are you putting away for future tax payments. if you are paying back taxes, then you are clearly not paying enough in quarterly estimates. In YNAB, I track how much we are paying the federal government, you should too, so that it’s not a huge surprise come April 14th.

    Bye, bye supper club.

    have you lived at the same place for sometime? with a good tenant reputation, you maybe able to talk to your landlord, and reduce your rent 25 bucks.

    Sorry public radio, we love you, but you are in no place give charity to organizations. (they will survive)

    What is health and wellness? You should review this category further, since you are spending 85$ on a gym membership.

    Increase income:
    First, see if you can nudge you hourly rate up a bit.

    Build that $1000 emergency fund

    You are an architect, are you good and drawing freehand? I have a cousin, that is an architect, but on the side he does these beautiful hand pencil sketches of peoples houses. He gets many requests for these, because people see them at friends houses, then they want one. I think he charges $200 bucks for them, since we are family, he charged us only $50.

    Can you pick up another contract position with a different company on your off days?

    How about looking for full-time work? Keep your resume updated and keep looking for new opportunities.

    Keep looking into your God-given-talents that you can exploit for financial gain. (baking, knitting, etc)

    Best of luck with the journey. Remember, YOUR HAIR IS ON FIRE! Keep us posted.

    • Megan K

      I like the drawing idea!! So unique.

      I agree that the Gym & Health/Wellness areas should receive some review. Are these amounts necessary?

      Gym thoughts: depending on what part of the country she lives in, exercise outdoors may or may not be realistic. (I mean, really, how many Minnesotans run/bicycle in the winter?) But are there les expensive options? She could check if there is a “Crunch” gym in her area. With no contract, $30 annual fee, and only $10 / month, it’s a very reasonably priced option.

      Health/Wellness: what does this pay for? Could it be cut some? With out knowing more it’s hard to provide suggestions.

      I also wonder if she could cut her pet $ a few dollars a month.

      • BWK

        Totally agree on the cat budget, I mean $1440/yr is a whole lot of money. How much stuff can you buy $120/month for cats? Is this including some sort of pet insurance? Are the cat(s) sick or need special medicine? This might explain why that cost is so high.

  17. Bill

    make minimum payments on all loans except the one with the highest interest. use all remaining money on that until it is paid off then move to the next highest. get rid of the supper club and the gym membership and stop paying for radio. think about moving closer to work. 60 miles a day is a lot. move closer to work so you can commute and/or walk and bike and get rid of the car payments (and the need for a gym membership). instead of going out every weekend with friends have a get together with your friends at your place once a month instead of going out. you’ll save tons of money on drinks. make it pot luck so everyone brings a different dish or have them bring drinks / desserts. costs MUCH less than going out. take turns hosting it. rent or buy a movie (or borrow one for free at the library) and have “movie night” at home with your friends. plus she’s a girl. if you want to go out, do so on ladies night for the free drinks.

  18. Amy Lundberg Leone

    Well, if I was paying 56% of my income on debt, lived alone, and had that commute, I would move out of my apartment and rent a room near work in an old lady’s house who likes cats. Why spend five years struggling under debt?

  19. Terry

    First, I have to say kudos for anyone in their 20’s trying to work a budget. If only I could go back in time and do the same. Without a doubt, YNAB is THE tool to turn your life around and reach financial freedom.

    Boozing it up at $800 a month is just not normal. I know, it said good food and good drinks, but I know where most of that money is going…. you only eat once at night, but the drinks go on, and are always overpriced.

    You’re living a lifestyle outside of your means. Perhaps your peers are richer than you, but most likely they’re living outside of their means too, and are racking up credit card debt just like you did. There is an illusion of what ‘Normal’ is for material goods accumulation. We think people must just have better jobs than us, but it’s all ratcheted up due to credit. If these are truly good friends, I would think the party could be moved home…

    Right now you are only dabbling at paying off debt. Student loans + 3 credit cards + back taxes + car loan with no emergency fund, no retirement fund, and a buffer that got eaten away because you overspent partying seems like a serious spending problem to me. You’re on full tilt. Those debts should be scaring the crap out of you! But they’re not, yet.

    If you were trying to make the budget work WITH 15% going to retirement, I wouldn’t have written anything. But if a person at their FIRST high paying job out of college, single, can’t put aside 15% for retirement when life is simple, then they will never set aside 15% for retirement.

    I think Mark did a great job adjusting your budget to be more realistic for you to follow. Right now your goal is only to save money here and there so that you can continue to live your lifestyle. But the good news is, I think that once you start working this for a few months and begin killing those credit card bills, you will find pleasure in that, and it becomes addicting in itself. Eventually it naturally becomes a higher priority in your life.

    When you work, you are paid for the value of your work. There is a purchase power there. And when you save it, you are storing your purchasing power for a future date. When we get our monthly-sized paycheck we turn around and spend that on monthly-sized stuff right away, we are living like mice. But when we save month after month, year after year, we are building the purchasing power the size of elephants. What you can do then is the stuff dreams are made of. Thoughts usually reserved for what we’d do if we won the lottery. That is what financial freedom really is. We get out of debt, we build wealth, and then we quit the job we don’t like, and finally work on doing something we love AND build wealth….full time.

    Picture this. You hunker down, pay off your debts, do good at work, eventually get promoted, pay off more debts. Build wealth. Then one day you jump ship from ‘work’, and become the next Zagat (but younger, cool & hip), and people PAY YOU to eat out at fancy restaurants, and review top shelf liquors across the globe.

  20. Jennifer

    A great post. I am hoping in a few months there is a follow up to see what she decided and how she moved forwards. Thank you to Amy for sharing and for all the comments.

  21. Carrie

    My question is same as BWK’s – “Where in your budget are you putting away for future tax payments?”

    If all of this income is from contract labor, she needs to be making quarterly tax payments – not spending every penny she is bringing in. If she can’t do that, I think she would be better off finding traditional employment.

  22. Kenneth

    Pretty good responses to the budget of the week!
    The YNAB community is sometimes pretty namby pamby about this stuff. My response is, how badly do you want to get rid of this debt? If it’s just bothering you a little and you don’t care if it takes five years (or forever) to get rid of it, then by all means, keep overspending on socializing, gym, health, phone, catfood, car, whatever.
    If you really want it bad, and you should, then you know what to do. Lots of good ideas in the comments above.

  23. k-ro

    One way I balanced the need for an emergency fund with paying off debt was to “stockpile” the debt payments until I had enough to retire the whole balance of one of the debts. This served as my emergency fund should anything truly an emergency occur.

    There are (at least) 2 issues with this approach. One is interest – by making regular payments you end up paying less interest. Fortunately, all of my debt was on very low or zero interest rates. Second issue is the discipline to not touch this money being saved for debt retirement. I achieved this by moving it to a separate account, and by hating my debt more than I wanted to spend the money.

      • bob

        I’m stealing that name for a band and/or kickass action adventure movie.

  24. slimfender

    Looking at this budget and being of similar age and earning power to Amy, I find it extremely motivating and commendable that she’s spending over 50% of her take home pay on debt. She has a plan, she’s rolling forward, and she’s learning along the way. I think it’s normal for anyone who starts budgeting to encounter a few pitfalls and set backs, whether those are self-induced or “acts of God”. Way to go girl!

  25. Christine

    I think it’s great that Amy is working to pay off debt in her 20s – she’ll be so grateful she did when she’s in her 30s and 40s. I get her desire to keep her social life the way it is – when you are single in your 20s, that is a huge priority. However, she’s got to face the reality that she has dug herself into a hole of debt, particularly the IRS debt, so she really does need to get more aggressive.

    Barring making more money (I doubt selling jam is going to really help here), she should just commit to some short-term changes, like canceling the gym and supper club memberships for a while (workout DVDs and getting outside do wonders), and get rid of a few of the smaller debts. She should really analyze ‘health and wellness’ and see if she can find some cheaper alternatives to whatever she’s spending that on – even if it’s just for 6 months or so. And, I love my animals, but maybe she can find a way to cut back on the kitty spending for a few months, again, just to get rid of some of the CC debt.

    While I understand the concept of paying down the largest interest debt first, in her case, I’d get rid of the smaller ones first, since she can do that pretty quickly, and then take that extra money and put it toward the rest of the debt. Mentally, she’ll probably feel like she’s accomplishing her goal faster if she can cross a few of her debts off the list.

    Kudos to Amy for being willing to put her budget out there! With a little commitment, she’ll be in great shape in no time!

  26. Christina

    I haven’t read through all of the comments, so forgive me if I am repeating someone, but it is worth mentioning that an emergency fund is for emergencies only. An emergency is when the car dies or some essential part of life – food, shelter, electricity – is in need of repair. If Amy has an emergency fund then it would not apply to the “emergency”of missing a great night out with her friends.

    I think it is worth enjoying life a little while fixing debt, but there are tons of things to do that don’t cost money. Plus, debt means you already spent the money.

    I hope Amy finds a plan that works for her and also that she can find an intensity that will make all of the sacrifice now worth the reward later. Perhaps she might do well to write down her one, five, and ten year goals for her life, including finances. That way she will have a measure upon which to base her spending decisions today and some better perspective.

  27. Right track?

    You did invite the DR enthusiasts to chime in, so here I go.

    First, let me congratulate Amy for recognizing that she cannot continue to live the way she had been living. It is an important first step.

    Now, having said that, let me a speak to what I know. In her position, I would make extreme sacrifices. While our situation was not the same as hers, We had the same illness. We owed a lot of money (approximately 83k – not including my house) to others. Meanwhile, we were living as though we did not have those commitments. When we wanted something, we bought it. When we were bored, we found entertainment, etc. Finally, after being a passive listener of the Dave Ramsey show, I decided I wanted the success I was hearing on that show. I remember hearing the Debt Free screams and how they moved me (emotionally -Still do, if I am being honest). We owed a lot of money to other people and had no savings, no retirement and no umbrella. All it was going to take was a visit from Murphy (you DR fans know what I am talking about), to cause our house of cards to come tumbling down.

    We got on a budget, made significant sacrifices, cut up our credit card and began to see real improvement. Fast forward 4 years now and we have paid off 83k in debt, with a commitment not to sign up for any more. We have a buffer (thanks YNAB), have a 3 month emergency fund (4 if you count our buffer), have saved money ($15k) and will buy our next car with cash, put 4% (plus company match) into a 401k, and are on track to fully funding a Roth IRA for myself and one for my wife.

    While those things are good, the best parts of all this are summed up in the following:

    1) We are tithing 10% of all income received (regular time, over-time, etc)
    2) We have a tremendous sense of peace as it pertains to our finances.
    3) We are modeling good financial health to our 6 children.
    4) We get to have all kinds of fun (now that we get to keep more of our income).

    We are living proof that the process works, and the rewards are awesome. We are calling out from beyond what some would assume is an insurmountable hill, with a message of hope. If you believe you can do it, if you are willing to make the sacrifices (in the short-term), the rewards are phenomenal.

    You can do it!

  28. Stacie

    I feel in a similar position to Amy in paying close to 50% of my income on debt. I was doing that before YNAB, and the three days before every paycheck I felt like I was suffocating financially. So, when I first started YNAB, I took one month to make minimum payments and build up a small buffer. This was so helpful for me, and after 15 days of YNAB and receiving my next paycheck, low and behold, I wasn’t dead broke. Now I feel like I have the capability to make those higher payments and get my debt snowball going.

    Good luck Amy!

  29. egsiegel

    This makes me think of Suze Orman’s first rule about money…don’t lie, to yourself or others. Being honest about money means being clear that socializing with friends may often mean making dinners together rather than going out.

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