YNAB BLOG

Transitional, Tumultuous Times Take Tight…Budgeting

magnifying glassI wanted the alliteration to work. I wanted it so badly.

Anyway, I’ve been emailing with a guy we’ll call Sam.

Sam lost his job in early 2012. His wife, Flo, was working, but wasn’t earning enough to cover their bills.

Debt happened.

Quoting Sam:

“I had enough in the emergency fund to cover two months of expenses; then we had to turn to family for help.”

Relatives chipped in to cover the mortgage, Flo’s income covered what it could, and the rest went onto credit cards.

Sam was unemployed for six months, and during that time he and Flow accrued about $20,000 in credit card debt.

Wait, huh?

  • Relatives were covering the mortgage.
  • Flo was earning $2,000 per month.

On top of that, they added over $3,000 per month to their credit card balances? How on earth?

Oh, that’s right. I can tell you how they did it because I’ve done exactly the same thing. :)

When Kate and I were transitioning to self employment five years ago, our income went way down for a while (there were a couple of months with no income at all). Because we had no budget to help us understand our true expenses and needs, our spending just sort of did…whatever. By the time our income was back on track, we’d racked up over $15,000 in credit card debt.

Three factors drove our borrowing:

1. A willingness to borrow.

Some people seem unwilling to borrow, no matter the circumstances (major medical emergencies excepted). They don’t borrow, they don’t consider borrowing, and somehow they manage to get by. This is a group I admire, and within a couple of years I may consider myself one of them (I have to further prove my own unwillingness to borrow; it’s only about two years old.)

If you’re willing to borrow, you’re at risk of getting in debt. Yes, I know that seems simplistic, but it’s a concept I wish I’d understood better 15 years ago.

2. The already-mentioned lack of budget.

We spent what we spent. I’m sure none of it seemed frivolous to us. Combined with the willingness to borrow, a lack of budget is dangerous.

3. Life upheaval.

There’s something about turmoil and transition that ramps up spending. Interruptions in your life routine (moving, job change, job loss) seem to trigger something in our brains that says “We need to buy this/spend that right now because we’re in flux. When life calm down, we’ll reign in spending.”

When you put 1, 2, and 3 together – you get Sam and Flo’s situation. They were willing to borrow (just like I was, in case you think I’m on my high horse), they weren’t living with a well-managed budget, and their life went through several big transitions: job loss, a move for a new job, and Flo going back to school.

And here’s the only reason I bring it all up:

After life calmed down (with full employment and settlement in the new city), Sam and Flo have kept borrowing. Even though Sam has identified about $1,000 per month he can put toward debt reduction (awesome), the balances aren’t really shrinking. Once the borrowing habit takes root, you have to work pretty hard to get rid of it.

Sam and I will talk about this (one borrower to another) on the phone in the next couple of days, but here’s the simple solution:

1. Total unwillingness to borrow.

The only way to guarantee the credit card balances won’t grow is to not use them. If you can’t be sure you won’t use them for non-essentials, cut them up.

2. Commitment to follow the budget.

This doesn’t mean you never overspend. YNAB is built to work with overspending where one category covers overages in another. It works amazingly – as long as borrowing to cover the excess is totally off the table.

3. Prepare for future turmoil and upheaval in your life.

It seems not to be enough to just live within your means in terms of your right now expenses. We have to acknowledge unknown, unknowable, guaranteed-to-happen external shocks to the system: job loss, medical issues, and other life transitions.

Sam and Flo will be fine. They YNAB together, and Sam admits that Flo’s much more diligent than he is about sticking to the budget. I take it as a great sign that the admitted weaker budgeter is reaching out to the community for advice.  I’ll update after we’ve had a chance to work through their numbers together.

10 Responses to “Transitional, Tumultuous Times Take Tight…Budgeting”

  1. B-Ster

    I just want to say… yes. This. EXACTLY explains how after 12 years, a couple can get into and out of credit card debt of 10K plus amounts, three different times. That willingness to borrow is the biggest mindset change. And I’m a repeat offender. So best of luck Sam and Flo!

  2. Manda

    Transitional tumultuous times take tight tune-up of the treasury. :)

  3. Solvent Debtor

    The #1 Rule in money recovery rooms: Don’t incur unsecured debt, no matter what.

    You can’t get out of debt by debting. Period.

  4. Dan McCurry

    High income earners are not immune. They can manage to rack up debt at a high rate when their high income suddenly goes down. Even when income goes up suddenly, often the debt will increase rather than decrease.

  5. Jess_Esq

    This definitely resonates with me. Recently I have been considering what if DH lost his job… what if I become pregnant and am on maternity leave (with less income), etc… And this is a good reminder 1) to keep saving for those things and 2) to keep the credit cards away. I am so glad I have YNAB now! I do not want to go back to credit card debt but I can see how easy it can happen! Good luck Sam & Flo!

  6. Sam

    Sam here, just wanted to correct some of marks numbers, the 20k debt was total including the amount borrowed from mom and dad to cover the mortgage, the real credit card debt was only about 10K at that time. Its a little higher now because of the midsummer flooding we had in the midwest displaced us and i had to take an additional cash advance to put 2400 down as a deposit/prepay on a new apartment when we were left homeless.

  7. Terry Bickmore

    Mark,

    I went “All In” with YNAB about two weeks ago. (I know that is pathetic because I first learned about YNAB from the head huncho several years ago.) But better late then never.

    I love the blog, love the website, love the tutorials, love the YNAB community. I’m fired up to continue to progress.

    Thanks for all you do.

  8. Josie

    I am a repeat offender on willingness to borrow as well and I am working on changing my mindset on this. I love the blog because I don’t feel so alone with my financial struggles and the helpful suggestions from the community give me new ways to do things when I think none exist. Keep up the good work!

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