My Story So Far

petepetepete

This is neither an impressive or inspiring story I'm afraid. I read about people here who life has dealt some really tough hands to, and that's why they're in debt. Not me. I got in to debt because I spent too much, even though I was earning well. I'd spend on alcohol, cigarettes, eating out, taxis, CDs, whatever.

I have, however, really turned a corner, even though it's taken literally years.

My debt-free journey began about 2 years ago. I knew I had problems with uncontrolled spending, and while I hadn't quite spent myself in to serious short-term trouble, I always seemed to have added to my credit card bills at the end of the month, even though I was earning a very good wage.

With a lot of focus, and a lot of false starts, and a lot of complaining and feeling glum, I managed to get myself to keep roughly in to a daily budget. I found this to be very hard work, even though I'd set it pretty high - £40 a day on non-scheduled payments - so £40 a day on food, going out, films, etc. And ... I was living in Thailand. So this was really a great deal of money, and I struggled to stay inside it. Like dieting, the short-term pay-off of going a little over budget outweighed the apparently tiny long-term cost.

But I mostly did. It seemed every month or so I'd have to 'write-off' £100-£200 quid, but this was a great improvement on what had gone before. I didn't appear to be spiralling in to debt any more. I realized then that I'd broken the back of the problem. I stopped spending money to impress people and I'd kicked the addiction to spending sprees. I'd also, I think, just about managed to realize that 'credit' is not the same as 'spending money'. If I'd been accepted for a new credit card, I finally worked out, that didn't then mean I could go out for a £200 dinner. You may be getting the idea at this point that I'm pretty stupid - and maybe I am - but I like to think I was addicted to spending money.

After 6 months or so of this, I felt I wasn't really making any progress forward. The write-offs happened too frequently, and I was losing money by finding reasons to spend outside of my budget. So about this time I started dual-entry accounting, and logging everything that went in to or out of every account.

At the time, my finances were hellishly complicated. More details are unlikely to help or be interesting here, but it was a daunting task. But I had to start somewhere. I tried to write out what I thought my tax liabilities were, VAT, business investments, etc etc. And I did a pretty good job.

At that point, I established I was in £52,000 of debt. Ooops. A lot of it was in 29% APR credit cards. I realized that the progress I'd made so far in terms of reigning in spending was good, but I needed to get better.

I also had my first bit of good luck here. Having sworn me to secrecy from everyone else in the family, my Dad lent me £21,500, at 10% APR. He said he finally trusted that I'd pay it back, which helped my confidence a lot. I also promised him he'd get it back hell or high water. When I mention this to some of my friends, they think it's wrong he charged me any interest, but I disagree - I am eternally grateful for him for doing this, as it saved me a HUGE headache in terms of interest.

It also put me in the fairly fortunate position that 2/3rds of my debt (what my father had lent me, and due taxes) no longer showed up on my credit report, meaning I was able to start shuffling money around, and nixing interest even further - balance transferring credit cards to pay my tax and some other nifty moves. End result: effective APR on my debt went to about 5% (it's now about 3.7%). While I got seriously lucky on this front, I also maximized the opportunity, which I'm proud of. I'm not sure how I'd be coping with having huge interest to pay on top of the thought of paying back everything else.

Fast forward three months to a year ago. I was keeping very detailed accounts, and knew to the pound (or so I thought) my current net worth. This means that the first two months that I worked my !!! off all month and went 100 pounds more in to debt, I had visibility of it. It was unmistakeable on a graph in front of me. This became a huge motivating factor for me to stop going over my budget at all ever, and seriously bummed me out for a few days. Result: I became even more careful with what I spent...

Six months ago, the client I was working for started having difficulty paying me. It got to the point where he owed me £15,000, and I had no liquid money. This was some bad luck to counteract the good luck :-) I was enjoying the work, and I could work from home - probably why I didn't make a much bigger fuss much earlier. I realised at this point I'd have to leave my lovely home in Bangkok and come back to London where I could charge more and work for bigger clients.

It's been incremental improvements since then. I've found myself a great client who pays well and on time, and I am forecasting that I can pay off £2,500 a month while living comfortably.

I've had a real clean up of my ledger over the last couple of days to deal with the bad debts from the client who struggled to pay, and to try and get on top of my tax situation. It's taken a lot of work, and a lot of time to do this properly, but I believe I have the most accurate picture ever of the state of my finances now.

This in itself has revealed a few interesting things: the first six months of this year, I broke even for the whole period. This is due to bad debts and also due to me calculating my tax incorrectly. I thought I started the year at around £52,000 in debt. I now see I started it in £55,500, and despite initial progress, was in £56,000 debt at the beginning of July!

The good news is: as of today, I'm £45,000 in debt, and my net-worth is improving by £2,500 a month. I'm living comfortably, and most importantly, sustainably. By NYE this year, I expect it to be £40,000. I can look back at the graph of my net worth over the last year, and see progress, and so can my girlfriend: no small thing, as we almost ended a 5 year relationship over this. My calculated debt free day is end of Feb 2012, just after my 29th birthday.

There will definitely be more setbacks, but looking back, it seems I'm getting better and better, and I think I have finally cracked it. If you've read this far, thanks! Were anyone to ever ask me for advice on improving their cash situation, I'd offer the following advice:

*Summary*

- Start with getting visibility of what you're spending day to day. It takes discipline to maintain this, and took me several months of trying to do this without ever stopping. I use iExpenseit on the iPhone and it works.

- Improve your visibility over all your accounts. I use Moneydance to do this. It wasn't until I could see daily fluctuations in my net-worth that I finally realized any month in which I'd worked my !!! off and actually lost money ... that was a terrible feeling!

- See if you can pull off any magic tricks to lower APR. Avoid creating new credit lines for yourself in the progress if you still don't have spending under control

- Keep plugging away at it. Like giving up smoking, like giving up abusive drinking, like giving up all sorts of things I had mild addictions to, it took lots and lots of false starts.

petepetepete

One final thought: this will be the first year in my life, since the age of 18, that I'm worth more rather than less, at the end of (in financial terms, anyway!)