Monday, December 8, 2014

Downsizing for Financial Peace

Freedom…Flexibility…Financial Peace

Though I put those reasons for downsizing in the title of my eBook, they didn’t occur in my life in that order.

The freedom part had been an ongoing issue. With a big family in a big house, and despite organizing and donating things to charity over the years, there was still a ton of clutter in our house, and I never seemed to find time to deal with it. But it weighed on my mind daily, and I sometimes dreamed of waking up to find most of it gone.

The flexibility part did not come into play until much later, and it was actually the financial peace part that caused the entire downsizing episode.

I knew we would have to downsize a few years before we actually did so. I told my family about it, but they either didn’t believe me or didn’t want to believe me. But I knew.

How did I know? And how can you know if you’ll need to downsize in the near future?

It’s all about the bottom line. You have to know how much you spend, how much you earn, which number is larger, and which way the trend is going. It’s really that simple. But it takes effort to figure out the first part, how much you spend. Not a lot of effort, but regular effort.

For many years, I’ve kept track of what we spend in a notebook. (Younger people not so set in their ways might want an app for this, or even just an Excel file.) I round off amounts to the dollar, and categorize as I go along. I use one sheet of paper for each month, and I write down our expenditures under the following categories:

Utilities
Property Tax
House Insurance
House/Yard Costs
Health Insurance
Dr./Dental/Medical
Church/Charity
Food
Entertainment/Out to Eat
Car Insurance
Car Gas
Car Expenses/Repairs
Disability Insurance
Life Insurance
Books/Newspapers
Gifts/Cards
Cell Phone
Misc.

At the end of each month, I add up the numbers to get a grand total of what we spent that month. And at the end of each year, I add up the monthly numbers to see not only what we spent in each category that year, but how much we spent for the entire year.

You can imagine how much my husband enjoys hearing how much we spent, given that he prefers not to think about how much anything costs him.

But I’ve always felt that it must be done, and by doing so year after year, I had a good idea of where we were at financially, and where we were headed. By the year 2004, I could see that despite our debt-free status, we were spending more money than we earned (the difference was coming out of savings). To make matters worse, our annual income was declining, because my husband’s business was slowly dying.

For me, it was like being on a hill, watching a car coming from the north and a car coming from the south heading toward each other on a one-lane road; you just knew what would happen very soon.

As I said, my insistence that we were going to have to downsize did not make me popular. But it gave us time to talk and strategize about what we might have to do, and as time went on and the numbers showed more clearly that we were spending more than we were earning, even my husband came to see that something would have to be done. To live in denial would only make things worse.

Besides, we had experienced many years of earning more than we spent and saving the difference. That’s where we found financial peace. And we wanted to get back to that place.

Next: Flexibility.

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