(Intro)
Lacey is a full-time accountant who has been married for nine years and they have floated in and out of being debt free, most recently a move in 2021, putting them back into debt. She lives and breathes numbers and spreadsheets professionally, but didn't find a budgeting system that stuck until trying the Debt Free Mom template. Lacey comes on today to talk about sinking funds, saving, setting aside money in advance and organizing bank accounts. So thanks Lacey for being willing to come on and share.
Thanks. I'm happy to be here.
So before we dive into those two specific topics, can you share a little bit about what you had tried or just not done at all in the past with budgeting and then what led you to seeing the Debt Free Mom template as something that clicked for you?
Yeah, so I always, I say always in my entire adult life, I have planned for my bills and I have always followed my biweekly pay schedule. So, part of what clicked for me was that I was already doing that, so it made it a lot easier for the transition. But one thing I wasn't doing was budgeting my expenses. I was saying I have these bills due when I get paid, and then everything else was a free fall. I haven't balanced a checkbook in probably 10 plus years. And I never really needed to, but I found myself returning to work in 2021 from being a stay-home mom and not seeing progress in our financial goals. And so after about a year of that, I'm like, something has got to change. And so when I found the Debt Free Mom and then ultimately purchased your budget spreadsheet, I was able to plan for those everyday expenses that I wasn't calculating or tracking in any shape or form before. And so it's been really helpful to see exactly where our finances are, where they're going, and how to make changes to positively impact our finances.
I feel like a lot of times the people who have the most of a shift are those who are paid biweekly. And you said you were already kind of setting up your bills and everything by that bi biweekly schedule, but for some reason there's just something about having all of the numbers, both the bills and the spending, like the planned, you know, shopping and clothes and all of that stuff having it laid out in the same lineup with the way that your pay periods fall that tends to just be like, oh, okay, now I see why the cash is flowing a certain way. And I love that you were able to pin down what the exact problem was in terms of not having the progress that you expected. And I know that a lot of times where people stop is writing a list of bills, seeing that, yep, like my income can cover all of that and then some, so we're fine. And then just kind of letting it go after that and then being like, okay, that's a head scratcher, that it's all gone. Exactly. Cause it just ends up being like, I think we underestimate how quickly we're capable of spending pretty decent amounts of cash, right? Because we all, we spend it in little transactions along the way, so we're like, oh, this here and this at Amazon and this is Target, it's all fine. And then suddenly it's not fine.
That, that's exactly what we were seeing is that, you know, the $10, $15, $20 purchases here and there really add up and we use credit cards. I know that's something you've talked about in the past and we use those for points and try to benefit from that. But when you have multiple credit cards and you're not tracking where your expenses are it really is hard to know where your money is going at the end of the month, or at the end of a pay period.
Yeah. You get kind of sticker shock when you see the balances of all of them all together. Like how did I possibly, you know, like I think a lot of times people will look back assuming either there's some fraudulent charge or my husband bought some $900 thing without saying or something, but it, it almost is, it almost never is those things. And more often is the sum of much smaller things all. All added together, which is just crazy.
So as you started to then put your numbers into the budget and try to pay attention to not just the bills, but also the spending, what were a few of the categories where you were like, oh, once we actually budgeted amounts for these things that I hadn't been budgeting before, then we started to stay more on track.
Did you have a few specific spending kind of categories that really were the focus of your attention?
The primary one is definitely eating out. I have three kids. My husband works a weird schedule. I work from home and by the end of the day, sometimes I just don't wanna cook dinner. And so we were eating out a lot and I knew we were, but I wasn't really paying attention to what that total was at the end of the pay period, and that's really what caught us off guard and where kind of most of our money was going. So not only have we stopped doing that as often, we've also, you know, that has effects outside of money, you know? Health, health wise and things of that nature. You know, we're, we're spending less time eating out, less money, eating out, and our health is going to improve because of that. So it's kind of twofold.
Yeah, for sure. Perks. Perks all around, right? So when you applied to come on, the two things that you kind of mentioned as wanting to focus on or ask and spend our time together, talking about were you said, looking for advice on building and tracking sinking funds for larger annual expenses, as well as saving towards major things like house repairs, car, and then also like connected to that, how do we organize our bank accounts so that we have savings for all of it? Do we keep separate accounts? Do we keep it all in one account? So let's first talk about what you're currently doing for those things. So two things- annual insurance premium, that is a large bill once a year. And then let's talk about like a major house renovation as it stands now. How would you approach putting that into your budget spreadsheet?
So for insurance premiums, I am able to see what that's going to be next year or estimate what that's gonna be next year. And so currently I have just an automatic transfer coming out of our account into a single savings account.
And then in the past we've just, anything next year, we've just put into that same account for whatever expense that might be. You know, we, we did a major house renovation in the early part of 2022, and a lot of that came from the proceeds of a sale of a home. So like we didn't really budget for that. I mean, we just had the funds available to us. So it's really just all going into one bank account and at the, then when the premium is due or the expense comes up, I say, oh, yep, I've been putting this money in and I can spend it. But our financial situation has changed a little bit and so we don't necessarily always have that money in there in the savings account to cover that. And so I think for me, it's really important that I'm allocating those funds and making sure that I am saving those funds. For that particular expense and not pulling it out for a vacation or something of that nature.
So my rule of thumb with setting up sinking funds is that I first try to, as I'm building the budget long term and kind of looking ahead. To the pay periods that are gonna include that large expense, whether it's like a school registration or like you said, an annual premium, I first try to put it in the budget and just see like how, how cleanly can this fit into my pay period budget?
My rule of thumb is if I can spread it out in the two or three pay periods leading up to the expense, then that's just what I'll do. So for example, our car insurance premium is paid once every six months and it's about $500. So I just make sure as I'm looking forward into those pay periods, we pay it in April and October.
I make sure that I can sit the $500 right into the pay period that it's due, and if not, like can I split it up and the two pay periods leading up to April 1st, can I do like $255 and $255 or something. So that is, that's my default for those. I would call 'em like a medium sized expense where it's like, I can't assume that I can just drop it into the pay period, but most likely I can spread it out over a couple of pay periods.
So for example, like 500 divided by 12 is 60. So I'm having, I don't want a long list of like $50 a month for this and 60 for this, and 25 for this, so that I am growing this massive list of funds that I have to remember what they're there for. And then also it just tends to make me feel like I'm not making a lot of progress in other areas.
So like if I'm primarily wanting to invest in my Roth IRA, but between these seven different goals, I'm sending $700 to savings for these other sinking funds, there's not a whole lot left for the other one, the other goal. So that's, that's my default approach to kind of, I would say a medium size expense is that I would rather just like, okay, April is not gonna be a month that I invest a lot because I'm paying the car insurance premium, but I'll jump back in in May to investing more or something. But then for the larger ones, so like house insurance we don't, we closed our escrow account last October. So now we manage the property taxes and the insurance ourselves. And I do set aside monthly amounts for that because it doesn't, you know, all altogether, $4,000 or something. I can't spit that into one pay period. So I do set monthly amounts for that, that I transfer into an account. But what I do for those that I'm doing long-term is I actually do have separate bank accounts.
So I use Ally and I, before we even got on together, I Googled like, what are the other banks besides Ally that let you subdivide your savings? And I found a couple discover and Barclays I think is one it's called. And then Capital One 360 was another one. But I have used Ally for a long time, and I would say in the last three or four years, they added the option to not only have multiple accounts, so I have like, I think six different actual savings accounts. But in addition to that, they have a feature on their savings accounts where you can split it into what they call buckets, which is basically subcategories. So I have like an escrow account, and then I have three buckets in it. One for each of the property tax payments. Our property taxes are paid in May and September, and then one for the annual home insurance premium.
What I love about this is that I don't have to have a separate additional spreadsheet for like tracking that I'm on progress with those escrow amounts because inside of that bucket, I can not only set a goal amount. So if I'm like, okay, the home insurance premium is $1075, I can actually designate in that ally bucket, I need $1075 in this bucket, but I can also tag a date to it and I can say, April 1st.
So as I'm adding money into that account and I'm putting it into that bucket, there's a little green bar that kind of fills up. And I know, okay, you know, it's January, we're gonna have to pay that in April, and I'm only 50% of the way to that. I'm gonna need to target that bucket a little more. So I love that feature because it's visual, it's organized, and it's all in one place.
And it prevents me from, like I said, having to then in addition to my budget, also be tracking what, what inside of my bank account is for different purposes. As soon as I log in, it'll actually tell me your escrow account has property tax one, property tax two, and home insurance. And here's how, how far you are on the progress.
So are, do you know, are you at a bank that either allows you to open multiple savings accounts for one person or allows you to subcategorize a single account?
I think we can do multiple savings accounts, but I don't, it's a very small credit union, so we don't really have the option for the sub-accounts.
But I, I briefly heard you mention that on, on another podcast, I think and so I, it's something that I think is an enticing to me to consider, because especially knowing that it tracks your goal. And, you know, helps track that I, it's just, I have so much going on in my life that adding another thing to track for me and another spreadsheet to manage. As much as I love spreadsheets, it's just too much. It's just too much. And so I think, you know, hearing you talk about this today and, and hearing it before in other situations, it's like, it's really starting to resonate with me that that might be something that we need to do.
You know, we do have a couple of savings accounts, like, you know, we have one that's the family and then I have because you, at the credit union, you have to have your own so that I have my little one that gets a, you know, a transfer every paycheck, and that's kinda like our fun money or Christmas, you know, if a holiday comes up or something.
But I, I really think having the, the buckets inside of the account would be very helpful for me.
Yeah, and I know initially sometimes it sounds backwards, like when I explain that people are like, oh, I can't imagine having like four different bank accounts with four categories in it. But what it does is that once you set it up, you then don't have to be like mentally responsible for remembering what it's for. So even though it might like initially be a little bit more administrative, Just to set it up one time, what it does is then release you from having to, like you said, track another spreadsheet or some people, I mean literally just hold it in their head. Like if they have a $15,000 emergency or savings account, they're like, well, 10 of it is this and two of it is this.
And I'm like, I, that would go right out my mind. So I love the idea of once I've set it up if I, if someone asked me, how much are your property taxes? I would honestly log into Ally and look at the bank, like the bucket that I set up to be like, okay, it's that much. Because once I set it up once, then I'm like, okay, now I know what it's, what it's for and what the due date is. And I think, you know, so that's kind of the numbers tech side of being organized and having a place for something with a name on it. But on the like money behavior side, I think it also helps a lot with what you mentioned at the beginning, which is pulling money out for other things and then getting to the due date and being like, Ooh, I don't have the money for that premium that I thought I would.
When we actually like log into the bank account, instead of just seeing it called my savings account and seeing $12,000, we're actually seeing that this much money is for the insurance premium. And so it just mentally makes it harder to be like, oh, no problem. I'll just use that for vacation, because it actually had a name on it. So I love that for myself as well, because I am a spender. I am tempted, especially tempted by savings accounts that aren't my emergency fund. For whatever reason, I've kind of gotten over the using the emergency fund for fun stuff. But I have not gotten that way with my other savings account.
So if I see too many savings accounts that just have money that's not a specific purpose or a specific due date, then I'm like, well, it wouldn't really negatively impact anything if I just spent that. And that's really tempting for me. So, because I know that's tempting, I've, I've tried to really focus on putting some safeguards around those savings and, and giving them a name and a due date has been really effective for me because, like you said, I've come to terms with or experienced when that due date comes around, if I don't have the money, then I have to answer for where is it gonna come from instead, and I don't really have a good answer for that, so I better keep this where I'm putting it.
As an aside, I would venture a guess, not, not always, but I would venture a guess that a bank like Ally would also earn you a lot more interest than a credit union. So Ally, I think I right now is at like 3.7% interest. Some are even higher, closer into the fours. So that's a good thing too of, like you said, I, we have a mortgage at a credit union, so we were required to open both a checking and a savings account to be a member so that we could you know, get our mortgage there. But I don't keep money in it because I don't keep money in the savings one other than to just pay the monthly mortgage because the interest rate, I think is like 0.1%.
I'm, I'm, it's definitely under one. So I. Definitely prefer to put the money that we're gonna just let sit there into something that's gonna earn a little more, it's not a life-changing amount, but between all of our savings accounts, they earn a little over a hundred dollars a month in interest. And so what I've gotten into doing - we have like a set amount that we want in our emergency fund all the time, and that account earns the most interest cuz it has the largest balance. But what I do each month is then actually transfer that earned interest out into that escrow account, a nd I put it towards like our, our home insurance, you know, or the property tax. And so it offsets what I actually have to budget for in terms of saving up for some of those premiums. So when I do that, Yeah, it's, it's like, I think, I wanna say it's like 80 a month from all the interest from the different accounts, and our home insurance premium is $1075 a year, so it almost entirely covers
Oh, wow.
The premium, you know, a thousand, yeah, a thousand a year and earning about 80. So yeah, it almost entirely covers the annual premium just by letting those funds sit there. So that's another incentive too, is like when you see the connection between the bank account and the budget that you're trying to set up, if we let it sit in that high yield savings account over time, it actually minimizes how much pressure we have to put on our budget for some of those larger expenses.
So that was an aside about interest rates, but if you're just locked into the bank account or the bank that you're used to, or the credit union that you're used to, sometimes it's like, oh, I didn't even think about how transferring this from here to here could mean a thousand dollars a year in earned interest.
And I definitely, like I said, have a mortgage with them and they were absolutely phenomenal to work with when it came to the customer service and all that stuff. Credit unions are awesome for that, but in terms of where I'm gonna park that long-term money, it's not gonna be there. So if you don't wanna go the route of multiple bank accounts with multiple categories, then really the reality is that the only other way to track it is to have some kind of external tool outside of the bank account, which is gonna be like your spreadsheet basically. Talking to an accountant, I'm not gonna assume that you'll use anything other than a spreadsheet to organize it. Some people are like, eh, no, not a spreadsheet. I have found a decent number just by googling, like free Google sheet sinking fund trackers. I have found a decent number of them out there that would also be an option.
Some of them, like if you're always putting the exact same amount per month, some of them you can just put like, this is the starting balance and I always put $50 a month and they'll tell you, in July, you'll have this much, you know, in August you'll have this much. So that would be another alternative to organizing it. But again, I think that involves more of your hands-on effort than it does the bank account side. Because also the benefit of setting it up, you know, having your bank account be organized is that when you make a withdrawal and actually use the money, you don't have to like go into a spreadsheet and record minus $1,000. The bank account is just gonna reflect the new balance.
As far as sinking funds, when you transfer the money into your one big savings account for like the insurance premium, and obviously you're recording those transfers into the insurance premium, are you currently doing anything to track what you know, earmark in your savings account, what the different amounts are for, or just writing it down? Like how are you currently paying attention to what the actual balance should be used for?
I'm really not. And, and I, until recently, I didn't really feel like I needed to do that. But I think as I've gotten more of those annual expenses and we've tried to kind of consolidate what's actually coming out of our account every month and, and pay those annually, it, it's becoming more necessary. And it's kinda like counterintuitive, like, I don't wanna pay it every month, but now I'm gonna transfer money every month. And so it, it's like, why this doesn't, this doesn't make sense. And you know, there's generally not that much savings involved in those, like, especially when it comes to premiums, it's a few bucks, you know? Right. So it's not really benefiting us in any way. So no, I am not tracking it at all.
And then, where I'm struggling because if I go to my husband and I say, and he, he's like, can we do X, Y, or Z? And I'm like, oh yeah, we have this much in our savings account. It's not really reflective of like what we actually have available to us to spend. Because it, some of that money is, like you said, earmarked for something else. And so, I just, that's where I'm lost and struggling and I really want to change that so that we're not running into that situation in the future.
And it's so true, like you said to, to be like, oh, well let's just pay it once a year so we don't have to pay it 12 times, and then we start making 12 transfers into savings. And so it's basically the same thing. Anytime there is like a financial incentive to pay something annually, I do that. You know, if they're gonna offer, like you said, a couple bucks or whatever some of 'em are more substantial if you do one year. So I do that if that's available. But otherwise, if I can just do like a auto bill once a month, then I, I generally do opt for that because I can't then spend it for something else. I can't advance myself a vacation when I'm paying a monthly car insurance premium or something.
So maybe, finding a happy medium for you of like, okay, what are the ones that are the most financially advantageous to be paying once a year? Like, which ones offer you the largest benefit by paying in full instead of paying monthly and stick with paying those annually. But if you're talking about like you get a dollar or two by paying it in full, you may wanna just reverse and go back to an autopay for a monthly bill, cuz in your budget, then that's gonna be a lot more simple too, because then you can just be like, yep, 17th of every month we're auto drafted for this amount. And so then that becomes part of your normal budgeting that you then don't have to follow the money and remember to pull it back out and pay that once a month bill. Because sometimes the bills that are paid the least frequently are the ones that we forget to pay, right? Like quarterly and annual bills are the worst offenders of like, well, my budget was fine and then I had this annual bill that I forgot about.
So yeah, finding like, I know what is it? Amazon Prime offers a decent amount of savings by paying it once a year instead of monthly. But I, I, if I can remember right, our car insurance, I think it was $3 a month. If, if by paying $3 a month to have a monthly bill, that means that you're then not stressed annually when that premium comes, then that just might be the price you pay for giving yourself a little bit less budget stress. So that might be something too to pursue moving forward, if you're gonna be organizing these bank accounts into different categories with different goals, if you say, okay, I, this list is longer than I expected of needing eight sinking funds in order to manage all these, what are the two or three that I can just go ahead and put back on an autodraft monthly and, and build it into my budget just like all my other bills and not really have to worry about it? Do you have like a few off the top of your head where you're like, Ooh, that would probably be better for those?
We actually recently did that with our car insurance. So that was one that we, we were shopping around, but our renewal was coming up and I'm like, let's jump around and find a better rate. And we were able to secure something significantly less expensive. And it was like, I knew when it came to, at the year mark, I wasn't gonna have the, it was gonna hurt. You know? That all at once. And so, and I, I was like, well, let's just go to monthly. And then Yes, it's coming out and I see that money moving, but I, I should be moving it anyway, I should be accounting for that anyway, so it's, it, let's just pay it every month. And so we did that with insurance, with our car insurance. We have some other bills that are, you know, insurance bills that are going to stay on that annual cycle. But yeah, I think evaluating which ones really benefit us that way because it, it's not a benefit when you get to the, to the renewal point and it's, Ouch. It really hurts.,
And it's such a, like, it's kind of a letdown when the first time you pay it in full, you're like, woo, I'm good for a year and then you immediately realize, but now I already have to start planning for the next year. So I'm not really good for a year. Cuz I think, I know I did that with a business expense once. I paid a big business expense a year, a full year. And I was like, woo, I'm good until 2023. And then it came like two months before and I was like, okay and now I have two months to save up the entire amount. Because it, it is easy to be like, all right, outta sight, outta mind. Like, if it's not coming outta my account then I don't have to worry about it. But it sneaks, just like we said at the beginning, how those small expenses sneak up on us. Those due dates also sneak up on us.
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Let's shift towards thinking about some savings goals that don't have a due date, like a house renovation or replacing a car where it's just, it really comes down to your own discipline to get that amount saved up before you make that purchase. Do you have, you said you just recently did a h a home renovation with some proceeds from a house sale. Looking forward, do you have like one or two things that are larger savings goals that you guys have on the horizon for yourself?
Yeah, so right now we're we have some 0% credit cards that we're really focused on trying to pay off before they start getting interest. But beyond that, we want to do another major renovation in our house. And so, I'm like, there's, I want it done now. . But there's no way that that's something that we can do. And I don't want to have to finance that. I don't want to have to struggle, you know, to, to cover those expenses because we've. In our home currently and then in our last home we were able to pay up front for a couple of renovations and so that's really nice to, to be able to do. Yeah. So it's like, you know, a major bathroom overhaul in two bathrooms.
And then my husband has a work vehicle, but we would like to be able to purchase a vehicle for him and we've either no car payment or only one car payment as a family for for almost 10 years. And so that's really important to me is that we don't have more than one car payment. So saving up a, for a nice vehicle for him is really important as well. So those are two things that like, are kind of on our three to five year horizon, I think.
It sounds like you kind of have priorities in order in your head of, of tackling things. I think it would be really advantageous to pay those credit cards off first that have the 0% interest rate, not only because you then avoid the interest when that due date comes, but also everything that was going to, that can then be freed up to make your next goal even faster. So trying to do in the same way that we, we wanna stay away from this with sinking funds, also with the financial goals that we're targeting, we don't wanna do too many of them at the exact same time, because then we're just gonna not feel like we're making progress in anything.
You know, people are like, well, we want to, like you said, we wanna do the bathroom and we wanna do the car and we wanna pay off the credit card. So they take whatever extra they have per pay period and divide it into three. And then they're constantly saying like, nothing's happening. Like, we're not doing anything. You know, because it's not, it's not enough to pay off the card, but it's also not enough to redo the bathroom and it's certainly not enough to buy a car in cash. So then we just feel like, well, there's no point. I'm trying and it's not working. So I really recommend doing, like coming up with your next I would say, two to four goals, and then deciding an order that will help you achieve them the quickest.
And so I think in there, number one, paying off the credit cards before they get to that 0%. And it's, it's sometimes just a matter of telling ourselves like, I know this doesn't feel like it's helping with our future bathroom or our future car, but what I'm doing now is gonna free up so much more income in the near future that then that next savings goal can happen way faster than if I had this card still looming over our budget.
So that's how we can remind ourselves that they are connected and that paying that card off is leading the way to the more fun goals that we like to think about. But then when it comes to a, a house renovation or a car, sometimes those can actually be where we slow down our progress because it's, it's fun or incentivizing to watch a credit card balance go down and you know, like, I'm paying this off. And especially when you have that 0% interest, you're like, stick it to the man. I'm not paying them a penny in, in interest. And then when the only person who knows about it is us, where it's just us transferring money into our own savings account for some way, future goal, then that becomes where often our motivation really slows down. So I like to in those longer periods of time where we're like, oh yeah, well sure we could pay for any renovation in cash if we had a eight year timeline. But if we wanna make it even shorter, we're really gonna have to be focused.
Then I like to set up the timeline, see what we realistically can do. So instead of just being like, well, in order to get there, we have to do $700 a month. And then, you know, without looking at the budget, being like, well, $700 a month just doesn't fit into this budget. So it doesn't matter that you want to do $700 a month.
Making it realistic and then also doing some celebrations or rewards along the way with certain benchmarks can help to increase that motivation. Sometimes it's not so much a math problem, it's more of a motivation problem. And so, for example, if you're a bathroom renovation is, let's just say $15,000 I would do at $5,000 we're gonna do this. And at $10,000 we're gonna do this, and at $15,000 we're gonna do this. And it might not necessarily be even related to the bathroom. I just mean like at $5,000, the two of you are going to a steakhouse or something. You know, some reward where you're like, okay, that's, it feels close enough that I can actually focus more money towards it because I know it can happen in a few months.
And then you get that reward and you're like, yes, we checked that box. Now let's go to the next one at $10,000, the whole family's doing this fun day thing. And then do that. And then all of a sudden those goals that felt super far away are broken down smaller and tend to go to come a lot faster. So definitely don't ignore the idea of rewarding yourself and giving yourself benchmarks for some of those longer goals that just are gonna take a long time to actually accomplish.
Do you have any questions for me either related to what we've talked about so far? So far, or anything else related to the pay period, budget, your savings, anything at all?
I do have a question and I know you've talked on building your emergency funds in place of, or first, instead of paying off those credit cards.
And so I'm kind of struggling with that because I get why you say it. If you don't have an emergency fund, you're likely to get back in the same situation as you are right now with your credit cards. And, but, but then I'm like, but there's 0% interest. And so, at the sake of paying those off when I, before the interest hits, I don't want to divert my attention away and start putting into, into an emergency fund. So picking those things into consideration? Do you still apply the same set of advice and the same tips as, as far as emergency fund first, credit card second?
So the one thing I do say is if it, if you have less than a month of expenses or a month of income, whichever you prefer, then I would say emergency fund needs to be first. Because if we target the 0% interest savings it's like you said, it's pretty likely that something is gonna pop up, whether it's an unplanned expense or it's just like we've been talking about these big expenses before that we didn't save enough ahead of time or whatever it might be. So to me, the red flag is when people have less than one month of an emergency fund and they're trying to send all their money to their other goals.
Now, a few caveats on that. People who have a large gap between their income and expenses, I tend to be less concerned about because they could skip one month of, like, for example, if someone has a large credit card that they're trying to pay off that has 0% interest and they're currently putting $800 a month on that card in order to pay it off. That tells me that if an unexpected expense came up, they could forego paying an extra $800 on that credit card and instead cover two new tires on their car or whatever.
The double red flag to me is gonna be when someone has less than a month of income in emergency fund and a razor thin margin between their income and expenses, which means we have nowhere to turn except to take on debt if something were to come up. So, and you can kind of discern for yourself where you fall in that, but that's the double red flag where I'm like, yes, I know that the math doesn't math when I'm telling you to put money in savings while you have these credit cards. But I think it's a combination of probability that something will go wrong is pretty high. And number two, what we're actually doing is engaging in a cycle breaking behavior, which is going to feel wrong even when it's right. So when we're like, okay, I've always done, I've always relied on credit cards in order to cover an unexpected expense, and I no longer want to do that. The process of no longer doing that is going to always involve some things that feel wrong because our brain is like, Hey, this isn't how we normally do it. But that doesn't make it actually wrong. So, If you have at least a little bit of money, and, and I don't mean that amount in your savings, but you're like, oh, well actually a thousand of it is for this insurance premium, and a thousand of it is, I would say if the amount that is unallocated, it's not earmarked for other bills would add up to at least one month of expenses, then you could kind of put the breaks on that goal in order to pay those credit cards off, and/or if you have a significant gap between your income and expenses where you're dumping a lot of extra cash on that credit card, but you know that if something unexpected came up, you could just pause how much money you were putting onto that credit card and use it for the unexpected expense instead, those would be the two ways that I would be like, yeah, go ahead. Chase down that 0% interest before the due date comes so that you can avoid the interest. The other thing I just thought of one more thing. There's a difference between cards that are 0% interest and then when the promo period is done they start charging you interest moving forward and other cards that will backdate interest to the day that you took out the card if you don't pay the whole thing off. So the, the language they usually use is, Like 0% interest for 24 months versus 0% interest if paid in 24 months. So that it takes looking at some of the fine print because every card and every different offer that someone signs up for is gonna be different, but, if you have a card that you are paying and trying to avoid the interest, and by the time the promo period ends, you have like $200 still on it. The interest is gonna be rather small on that. But if you have a card that's like, 0% interest if paid in full in 24 months. If you don't pay that down to zero, by the end of that 24 months, they will slap you with a giant interest bill dating all the way back to day one of however much you originally took out.
Those I would like, I'd be like, do whatever you can to pay that down to zero, cuz that can sometimes, I mean those interest rates can be in the thousands and thousands. Most of them are not like that. Most of them are the 0% interest for 24 months where you just are gonna pay interest on the remaining portion. But every once in a while I get someone being like, how is it even legal that I had $500 left on it and they just charged me $3000 in interest. And it's like, it's because it went back to day one for the last 24 months being charged, 23% interest. Like that's just gonna add up to a couple thousand dollars.
So those, those would be kind of the triage of questions that I would process through if I were in your shoes is, can I cover one month? And then if I can, or even if I can't, do I have a significant enough buffer between my income and expenses that if I needed to pause my goals, I would have the ability to pay an unexpected expense in cash.
And then last, am I gonna have a little bit of interest charged if I don't make it all the way to this deadline? Or am I gonna have a giant amount of interest charged?
That was super helpful and it validates what I'm doing, so I appreciate that. Cause I'm like, am I doing this wrong? And even I, there is no true, wrong answer. I know like any progress is great progress, but I just, I wanna make sure I'm, making the best choices for us because we're in a position where we should be making lots of progress towards our financial goals and we just, we weren't. And so, having your spreadsheet and the visibility into exactly where all of our money is going is helping me. It's also helping me explain to my husband, like why we are in this situation we're in. Or why we're not in the situation we want to be in. And so, it's just been super helpful. I go to him and I'm like, listen to what she said here. Like, we should start doing X, Y, and Z. Cause it's just, it makes sense. So I appreciate the way you share that and communicate that to, to me and all of your followers. It's great.
Well, I appreciate that and I hope, like what I just did with that question, I know it's probably annoying to like ask a question and then be asked more questions in return. But my goal is always to like, just give you the confidence to make the right decision that is gonna work best for how you're wired and what your family needs. Not like you said that there is one magical right answer and I'm able to confidently give it because there are, I mean money is so complicated and there are so many different factors that are related to just the cold, hard numbers, but then are also just related to like what motivates you or what are you interested in. So my hope is always that one, I can give you the assurance that whatever you're doing is probably the right thing and it's so much better than doing nothing.
But then also to have the thought process that can then also be applied to other questions as more things might come up down the road. So just know that you're probably almost never doing the actual wrong thing, because there's very, very, very few things that like across the board would be objectively wrong to do, you know?
But sometimes it is just a matter of having any outside perspective being like, yeah, you're doing a great job, and it's like, oh, okay. Like I am doing okay. So it's so easy to just question everything that we're doing.
Well, thank you Lacey, for coming on. We hit the target with our time just exactly right.
So I love that. And I, I really think that which is with just a little bit of either a bank account organization would be by number one suggestion, but number two, if not a little bit of a spreadsheet organization can help you to feel like you don't have to remember all of the numbers and that you can't steal from your future self to give to some present day expense will help you as those due dates come past to be like, okay, I love having the money sitting there ready to go. You know, sometimes it just takes doing it, like I said, with those cycle breaking behaviors, doing it one or two times and being so happy that the money was sitting there with the right name on it and the right amount, that suddenly we find ourselves grabbing it less and less because we're like, no, I remember how great it felt to have that bill come due and already have that cash sitting there.
So I think just a little bit of tweaks to the organization of your bank accounts can really continue to push your progress forward.
Yeah, thank you. It's super helpful advice and I'm so excited to like, transition how we're doing things and, and, and get better.
Awesome. Awesome. Well I'm excited for you. Keep me updated.
Let me know if you open Ally and you're like, what is the bucket again? Where is it? I will help you out cuz I love that feature.
(*Credits) (Wrap Up) Thanks for listening to the Debt Free Mom Podcast. If you want to join me as a guest on the show, go to dfmpodcast.com. The Debt Free Mom Podcast is hosted by me, Carly Hill, and is produced, edited, and mixed by Kyle Hill. Music for this episode was written by Kyle Hill. Hit subscribe wherever you're listening to join in with every new episode as we grow our confidence and contentment in our personal finances.
