Unraveling Money – My Exploration of Personal Finance and Productivity

July 5, 2009

How did I get into debt?

Filed under: Debt — unravelingmoney @ 6:31 pm

It’s pretty simple and pretty complex at the same time. To bring it down to the most basic concept – I spent more than I brought in. Well, sort of.

More accurate is: I spent money on my credit card, I brought in money on my checking account. I failed to pay the credit card balance in full until my available extra funds decreased drastically due to: home purchase, taxes and pay cut.

At the time I purchased my condo, I had about $10k on my credit card, but I had a positive cash flow net worth – I had the money in cash or cds, easily accessible. I asked my mortgage broker if I should pay off the debt to have a lower credit utilization ratio, but he said it wouldn’t make a difference.

So I didn’t pay it off.

And then I just continued living my life as normal once I bought the condo. Big huge mistake. I didn’t cut back on my spending significantly, I didn’t really have a budget. So the debt added up.

However – I’m not actually a very big spender. I didn’t buy a lot of clothes, I don’t have any expensive hobbies…just regular, everyday spending – with one exception. My company requires me to float my expenses, and I have a lot of them – I travel at least twice a month. The good thing is that they pay out expenses twice a month as well – but there still is the delay involved. So, I would put my company travel expenses on my credit card, get reimbursed – and not pay it off. This added to my ever-growing credit card balance.

Then I got hit with a huge tax bill, which wiped out my savings.

That’s where I am now. As soon as I have paid off my credit cards in full, I am going to designate one for my company expenses and ONLY my company expenses. That’s the huge mistake I made – mixing those accounts and not paying them off in full each month.



  1. Hi!

    Besides doing your monthly expenses balance sheet,
    you might also want to consider to do a fixed costs vs. income overview:

    Start a new Excel sheet and put your monthly gross income in the first line, with a description to the left of it.
    In the lines below put federal tax, CA tax, soc sec, casdi and medicare as negative numbers each, so they will get subtracted.
    At the end of this first block create a sum, that now shows your *net* income.

    In the next block put a (negative) number in a separate line for each monthly expense,
    like mortgage, HOA, electricity, cell plan, cable or dsl, netflix. For fluctuating amounts like electricity be a little generous towards higher cost.
    Add further lines for estimated other monthly expenses like groceries, hair&nails, gas and bridge tolls and so on.
    At the end of this second block create a sum, including the result from the first block, that now shows your remaining money after monthly expenses.

    In the same way put less often occurring expenses (like quarterly or annual) in a third block.
    Here you may end up showing insurances, car registration, magazine subscriptions and all kinds of things up to the yearly $25 fee per credit card.
    Even after intense thought you will be surprised how many more things will come to your mind later 🙂
    Now add further lines for estimated yearly expenses like $1000 car inspection and/or repairs, $1000 medical co-payments, or $3000 vacation budget.
    Divide each cost line by the number of months it covers, so each shows a monthly expense again.
    Sum up this third block, including the result from the second block…
    and you have the true amount of money available to you for discretionary spending or saving each month!

    Greetings from Oakland Jack London District!

    Comment by Michael — July 12, 2009 @ 12:07 am

    • Hi Michael,

      Thanks for your comments!

      Yes, unfortunately (because it was extremely depressing!!), I’ve already done this. You are absolutely right about there being a million things that you don’t think about.

      I went through this process at the beginning of the year and at that time I started cutting expenses. For example, I decided that I didn’t need cable anymore – so now I’m entirely without TV, but I kept Netflix at $8.99 a month. With their streaming feature I can usually find something to watch if I’m *dying* to watch TV – but I’m not paying the $150+ I used to pay to Comcast and I’m not (usually) rotting my brain either – win-win. Just an example, but I definitely found those kinds of expenses that i could do without.

      I will post my sheet at some point here – probably need to revise it now.

      With regards to the “unexpected expenses”, I’m following the principles set out in Ramit Sethi’s book – I aim to save for unexpected expenses each month. So – I’m actively putting money aside for those things that just “come up” every now and then.

      What I thought was most difficult, however, was understanding my paycheck. No joke. There are so many deductions (not optional) – and they are so exorbitant – it was really hard for me to understand how a GROSS pay of $100,000 becomes so little at the end. The fact is – my tax rate is so high even now – I will get a credit for my mortgage interest, but it’s not helping me that much.

      The other depressing thing is salary increases – a salary increase of $5k would make essentially no difference in my monthly paycheck. I need an easier way of figuring out what the NET increase in my take home pay would be for each $1 of extra income earned.

      Comment by unravelingmoney — July 12, 2009 @ 12:29 am

  2. Hi unravelingmoney!

    Yes this can be kind of depressing 😉

    Two tips from me on cutting expenses:
    Cancel fixed line telephone if you still have it. Assuming you have a decent internet provider and a microphone on your computer, open a Skype account and then buy some Skype Credit (I prefer non-auto-renewing) to call other people’s fixed line or cell from your computer – and $10 will get you a long way!
    Unexpected surprise for me: Skype calls from your computer onto a toll-free number are… completely toll-free!!

    However to get called or on the road you still have your cell phone.
    If you can live without the newest iPhone or Blackberry, cancel your cell plan as soon as possible and get a pre-paid plan without monthly/daily fees. I believe T-mobile still offers the best pre-paid plan rates: 1000 minutes for $100, unused minutes would expire after a year.
    (But I’m not sure if you can keep your existing cell phone number.)
    Please note that I have not researched data transfer service rates – if you own a smartphone you may have to take use of that into account as well.

    On the sheet you may want to use percentages to calculate the amounts for federal tax, CA tax, Soc Sec, CASDI and Medicare yourself depending on your gross income. The numbers I determined are constant Soc Sec 6.2%, CASDI 1.1% and Medicare 1.45%
    while progressive Fed and CA tax might be around 22% and 9% on your income in 2009
    (but marginal tax rate for each additional dollar you would earn is 28% and 9.55% respectively, resulting in an overall marginal tax rate of 46.3% for you).

    Comment by Michael — July 12, 2009 @ 1:37 am

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