Let’s Talk Financial Sustainability
The coronavirus pandemic has taught us many things, but two of the most important things are that we need to take care of our health and our finances. While two separate categories, they are inextricably linked. United States household and consumer debt reached a record high of $14.3 trillion in the first quarter of 2020, according to the Federal Reserve Bank of New York’s quarter 2 Household and Credit report. After the effects of COVID-19, which resulted in many households and individuals constricting on finances, the second quarter saw a drop in overall debt of about $34 billion, the first drop since 2014. The practice of being indebted is not a new concept and goes back thousands of years, but the modern credit score concept originates in the 1950s, with the FICO score we all know dating back to 1989. Today, debt is marketed as not only a good thing, but as a necessity, in order to obtain things like a house, car, and education.
It started with what I thought was the inevitable, run of the mill student loan debt…
I’ve been on a journey to become debt free since the beginning of 2019. I graduated college in 2015, a year early, and managed to finish with only $41k in student loan debt. I say only because some students are buried in triple digit figures. I, like most recent college grads, had no choice but to move back in with the parents. I lived there for a year paying nominal rent and eventually got a permanent job with benefits. Outstanding student loan debt reported in quarter 2 of 2020 totaled approximately $1.54 trillion, with 47.5% of up to date borrowers having the same or higher balance than the previous quarter. This shows that despite being current on payments, for a large number of borrowers, their overall balance is not decreasing.
Next came a house and “just for emergencies”credit card…
After no luck finding places to rent within a one hour radius of my job, I started investigating what it would take to buy a home. I had started filling out my information on an online lending website, and half way through I was getting a phone call from a mortgage company to get pre-approved. In April of 2016, my then boyfriend, now husband, and I became homeowners. A small house that was just perfect, I called it the magic house. It wasn’t more than we needed, but was something we could make our own. As of June 30th, 2020, mortgage balances in the United States stood at $9.87 trillion, and home equity line of credit (HELOCs) totaled $375 billion. According to Experian, per the first quarter of 2019, the average mortgage debt was $202,284. However, with homes selling at much higher prices because of drastic drops in interest rates as a result of coronavirus, that number is likely to be higher for 2020.
Naturally, I was encouraged to get a credit card in case of emergencies and I thought it made sense because I didn’t think I could cover a several thousand dollar house fix. And this is where things started to take a turn as you would expect. I didn’t really have anything to furnish the house with so I of course used the credit card for that. According to the Federal Reserve Bank of New York, credit card debt reached its peak in the last quarter of 2019 at approximately $930 billion, with sharp declines in the second quarter of 2020 associated with coronavirus shutdowns and reduced spending.
So now I’m up to three payments (kind of). I had multiple student loan payments that I ended up consolidating into one (which ended up reducing my overall monthly payments), a mortgage, and now credit card debt. I was paying above the minimums on everything and never had a late payment so I thought I was doing great. And realistically, our debt loving culture would say I was doing great.
Then came “Will you marry me” and a new family member
In the fall of 2017, my now husband proposed when we adopted our first dog, Brantley, and we started planning a wedding for the following October. I got a wedding credit card to cover the expenses, planning to use my tax return to pay it off. I also booked our honeymoon on that card knowing that we were only asking for cash or checks instead of gifts. This is when I really lost control of the credit cards. Even though in my head I was able to pay everything off, somehow it ended up being much more than I anticipated (no surprise to most credit card users now, it takes a special person to be able to use them “properly”). This wasn’t due to interest, but rather the multiple $20-30 charges that have a tendency to sneak up on you.
And then another family member…..and a new set of wheels
After being engaged for six months, we ended up meeting a foster dog through my sister in law and while we didn’t plan on getting a second dog so soon, long story short we adopted him. Well with what would become two large dogs once full grown, I had to upgrade my honda accord to something more dog friendly. This is where I really started crunching numbers for the first time, seeing how exactly I could afford a new vehicle. I knew it would be tight but based on my calculations, I could make it work. I decided to keep my honda, which was owned outright, in case I wasn’t able to afford the new vehicle, that’s how tight the budget was. Now I was up to a student loan payment, mortgage, several credit cards, and a car payment. I knew I was in over my head. In the United States, auto loans account for $1.34 trillion of consumer debt, with the average amount borrowed being $32,480 for new vehicles and $20,446 for used vehicles. For me, that was the last straw (or should I say penny).
Back from tropical St. Thomas and straight into the dark, cold Maine winter, my now husband fell into his second bout of seasonal depression caused by what is essentially cabin fever (as we all know now what it’s like to be cooped up in a house for months on end).
Maine winters are dark with limited opportunities to enjoy the outdoors during daylight. It’s dark when you leave for work, dark when you get home, not to mention frigid, so weekends are usually the best time to get outdoors. Additionally, he has a crushed disc in his back, which causes chronic pain that is usually manageable but comes in waves and can last for weeks.
He thought a hot tub would help with both his back and his mind, so we hopped on craigslist and found a single owner, used hot tub that had been winterized and sitting on a trailer ready to go. The seller was responsive, had a bill of sale, and seemed legit. I used the last $1,000 I had in my savings. Well come to find out it wasn’t properly winterized so my husband paid to get it fixed, since we didn’t have the space to do the work ourselves.
Time to get serious…
After the hottub fiasco and spending my last bit of savings, I reached my stress limit. I felt the most out of control with money I had ever been. I was always so responsible with it, how did I get here? I wanted to get more serious about my finances. I came across a YouTuber, Aja Dang, who was documenting her process on becoming debt free. At the start of 2019, I made my own debt and savings spreadsheet. I knew I wasn’t capable of tracking and assigning every dollar in my budget, that was too daunting. I needed a system that I could succeed with. Steadily throughout the year I tracked the numbers, I deleted the items in my online shopping carts for the things I wanted but didn’t need, I had friends over for dinner instead of going out. I became obsessive, how could I save that extra dollar.
This is where the sustainability factor comes in (finally right?!). My grocery spending was one of the easiest ways to find “extra money”. Frankly, I started buying lower quality foods, primarily my meat and produce, to stretch the budget. I started buying what my husband and I call “yellow chicken” because of the color of the polystyrene packaging it comes in. It’s the lowest quality, a breast is the size of a whole chicken! We got the factory farm ground beef because it was the best bang for the buck. Goodbye cage free, organic eggs and hello to whatever the basic option was. Some people would say go vegan but that wasn’t what my husband nor I wanted so I found a way to make our existing diet work within my budget. There’s no chance that I could afford sustainable clothing at this point, and while thrifting is great, there are only one or two used clothing stores in my town. Sure I could be more proactive in spending hours searching through clothing racks but honestly, I reached the cap of my mental capacity and didn’t have it in me to do that. So fast fashion is what I turned to when I needed the occasional new top for work, new pair of field pants, or my annual pair of sneakers.
Where am I now?
I paid off my credit card debt in the beginning of February. Close those stupid cards immediately because if you were bad with cards before, nothing has changed. I ended up accruing another $200 on them so once I paid that off I had to start closing or locking them (if locking, remove all the saved cards from your websites and apps). I’m now using those funds to pay down my car as soon as possible, and then I will attack my student loan for my last non-mortgage debt. I am following a Dave Ramsey approach to my finances at this point, and recommend you check out many of his free resources if you’re interested.
Keeping my spending down is still a key to my financial progress, so I’m still trying to limit my grocery spending. That said, because of the supply chain breakdown with coronavirus, more chain grocery stores began offering local produce and meat options, making it easier to access them. I’m trying to integrate them into a regular shopping routine. I still don’t really buy much for clothes or shoes, so nothing has changed on that front.
I can only speak to my experience, and realize that I am the primary person responsible for my financial situation. There are other individuals that are impacted by systemic racism, generational poverty, and unequal access to healthcare, education, transportation, and other basic needs, that are in more dire situations than mine. I can’t speak to what those people go through and my advice would only go so far for them, which is why I am speaking to the people in similar situations to me.
Advice:
Avoid: Avoid getting into debt in the first place. It’s hard when we live in a debt culture, and people will always tell you there are still “good” kinds of debt to have to keep your credit score up.
Minimize: If you are in debt and are in the process of getting out, minimize spending. Track down where your money is going and concentrate as much of it as possible to paying off debt. This is going to be one of the more difficult times to be sustainable as stripping down the budget might mean choosing the cheaper, less sustainable options for food, clothing, etc. But keep in mind that this is temporary.
Mitigate: Once you’re out of debt and have a healthy emergency savings (3-6 months of expenses), it’s time to invest your money back into your local economy. As we know, sustainability isn’t just about the physical environment, it also accounts for socioeconomics (things like environmental justice, human health and safety, etc.). Avoiding and/or getting out of debt will allow you financial freedom to make more sustainable decisions, to buy the local produce, get that locally made necklace or art, and maybe even the solar panels for your house. Do not be fooled by those who will try to lead you into a lifestyle of debt. For debt is a thief, a thief of your happiness, choices, and future. Financial freedom is a key component to living a more sustainable lifestyle.
