How we cope as a single income family - Pt 1 - Our story

Please Note: I'll do this over a series of posts as I feel there is a need for a bit of background info, to help explain our situation.

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I've been approached by a fair few people now, about how we cope financially on one income, pay off our debts and still live a fun life.

It's simple. I'd rather keep our hard earned dollars in our own pockets than in someone else's.

Background

I grew up in a single income family of 6 in Sydney. Dad worked hard. He did the day shift when we were little, getting up at about 3am and not coming home til about 7:30pm, in which we were already in bed. So we never saw him. In the end, I would get up as soon as I heard him getting ready for work, just so I could spend a few minutes a day with him. As we got older, he switched to night shift. He slept all day and worked all night. Again, we hardly saw him.

My parent's had the usual debts - a mortgage, car loan, credit cards... putting 4 kids through school.. etc

We never went without, in fact when I look back we did quite well. Sure we didn't have everything brand name, but mum made sure she'd get a couple of brand name items for us so we weren't left out.

I did however, feel deprived of time with dad and as a family unit. It was mostly us kids and Mum.

Before I became a SAHM, I was working pretty much full time. Picking up as many (extra) shifts as I could and doing as much over time as I could. To me (and my husband who was also working as much as he could), we thought we were doing the right thing for our family in order to get ahead. But we weren't. We didn't have the right mindset. We were on an excellent combined income, so therefore we had a hideous spending habit, and an even more hideous (growing) debt.

When I was just 21 years old, and 32 weeks pregnant with our 2nd, we bought a fixer upper and within a year we had bought a bigger car, installed a new kitchen, bathroom, driveway, ripped up the carpets and stained the floorboards, installed ceiling fans in every room, ran power to the garage, got built ins, cladded the house, ripped out and replaced all the old windows and external doors, ripped out a wall and replaced with a sliding door, got a new lounge, bed and mattress, flat screen TV, installed another aircon unit... that's not including all the little improvements like painting etc... So in one year we WASTED over $90000 on the house. Did it improve the value of our home? Yep. Did we miss out on most of our 2nd child's first year? Yep! Am I happy with that?? Definitely not!! Did it stop there? Sadly no. We went on to waste over $4300 on a 7 pc dining set, coffee table and TV unit... why? Cause I fell in love with it. Do I regret buying it? No. Do I regret spending that much? Yes!! I can't believe we spent that much!

So why did we spend that much? Because we lived above and beyond our means.We thought we earned enough to support the lifestyle we wanted. We were young, dumb and had too much disposable income which should've been put on the mortgage. But we didn't and now we are paying for it. Literally!

Have we always been this way?

No! When I was 15, I really wanted my own computer in my room so I could surf the net and chat to friends without having to limit time due to siblings wanting to use the computer too. When I got my first job, I sat down with my payslip and a computer catalogue and worked out how much I'd have to work to be able to save up for a computer. I didn't end up getting the computer because I was given an old one :D.. I have no idea what I ended up spending my money on... probably clothes and bags...

As soon as I was 18 and employed, my boyfriend (now hubby) and I moved into a unit (literally across the street from my parents lol). I was always jotting down our incomings and outgoings and working extra debt payments into our "expenses" (I had no idea at this point that I was budgeting lol). We were never late with rent or bills, refused to get credit cards, saved up for things we wanted (except for a medical debt and a computer my husband bought -  he leased that). We furnished our little patch of heaven with pre loved goods from family, garage sales, ebay, second hand stores. We stayed there for about 6 months and then rented a cute little 3 bedder which we were going to buy but the owners wife was too greedy (the owner himself was willing to accept our offer). We had over $10000 saved and were still enjoying our credit card free life. It started going down hill from there. We sold our cars (cash not credit), bought shiny new ones (credit), bought a house and blew most of our savings.

A credit card came with the home loan even though we told the bank we didn't want one. I was going to cut it up, but mum told me to keep it 'for emergencies'. I understand what mum was saying, but I should've gone with my gut and cut it up. We had some money saved, enough to cover an emergency, but I still kept it... and unfortunately the spending started. Hence the debt.

We went from no credit cards to two of those interest free things and one mutual credit card.

I believe you have to have the right mindset to use your money wisely.

It's easy for anyone to say they want to save money and/or get out of debt, but without an action plan they won't get very far.

First, you need to work out what it is you want - save $5000 emergency fund? Save for a house deposit? Pay off debt?

Then work our exactly how much you owe, to who, and when it needs to be paid by.

If you have debt collectors chasing you for money, don't ignore letters/phone calls etc, let them know your situation, they are there to help. If you can afford to do so, give them a call and offer to pay 40% of the total amount owing up front and could they waive the rest of the debt.
We contacted a creditor and politely asked the above, they told us to send it in writing, we did and sure enough our offer was accepted. We saved ourselves $510 :)

Work out a payment plan to get those debts paid down/off.

There are many methods out there to pay down debt, such as Dave Ramsey's Debt Snowball method, which is to pay off the smallest debt while maintaining minimum payments on everything else and build momentum to pay off each consecutive debt. Hence the snowball. I like his method. It's been working well for us.

Put the payment plan into place and see those debts disappear. It's so invigorating :)


Where are we now?

We upgraded our car in Oct 2010, but this time it was a need as we have 4 kids (well we had 3 kids at that point but I knew we would have the 4th soon :)). We've paid off all store credit cards (interest free), so we finally own all our contents (yippee :)). Hubby bought his little run around with cash, and we've almost paif off the family car. We paid credit for our flights to QLD, but I'm not too fussed over that, because spending a few dollars in interest vs what could possibly be a financial ruin if we move interstate and end up hating it, is definitely well worth it.

Are we happy with our situation?
Yes we are. We wished we hadn't spent so much on the house, and waste so much money over the years, but we're happy. We love our house. We love the fact we can comfortably afford to have a parent home and  still pay off debts.

We now have the right mindset to dig ourselves out of the hole, and get back in control of our finances. We can now recognise needs vs wants and enjoy life the way we want, not the way society says we should.

I enjoy living a thrifty lifestyle, and learning all the different ways to stretch the dollar that much further, or better yet, not parting with it at all. To some people, this may seem "tight". Yes I suppose it may be, with today's world of spending being the norm, but I really don't care what the "norm" is and what isn't, what I'm concerned about is my family and OUR financial situation.

Some older posts that may be of interest:
3 year plan
What do I want out of life?
Debt slashing


In my next post, I'll share how we do our budget, and what we do to stretch our hard earned dollar that little bit further.

Linking up with the lovely Jess @ Dairy of a SAHM for IBOT :)

What are your financial goals?