4 steps to finding financial improvement

The two worst years of my financial life were 2007 to 2009. Before 2007, our income was low, but our expenses were low, too. We didn't save much, but we didn't spend more than we earned, either.

Then we saw our dream house. And we bought it while we still owned our first house. For two years, we had two mortgages. Suddenly, even though our income was slowly increasing, our expenses had skyrocketed. We cut our expenses as much as we could, but you can only cut them so much when you bought a fixer-upper with squirrel holes in the siding, leaking toilets that threatened to fall through the rotten bathroom floors, and desperately needing a new roof. (I guess we have low standards for our dream house!) As if that weren't painful enough, I was also trying to finish grad school. It was an ugly time, and I was desperate.

Along with our finances, my desperation also manifested itself physically: I gained about 25 pounds, and developed heartburn and other GI difficulties, along with some self-diagnosed depression. I was so tired all the time.

That desperation bled into other areas of my life, too. My relationships suffered. I didn't love myself, so how could I love others? And, seemingly unrelated, my house was always messy. Not really bad, but definitely substandard compared with the rest of my friends and family.

Sounds terrible, doesn't it? It was. I remember sitting at my kitchen table one night, thinking that my life was in shambles, and I wasn't sure it would ever get better.

If your life feels the same right now, I want to share four things that changed our lives — for the better.

1. I repaired my relationships. While I needed to improve my relationships with my friends and family, my marriage had been suffering the most. My husband and I were so stressed that we weren't taking time to communicate. Even though we both had the same goals, we were on parallel paths, each of us working so hard to get ahead financially. But we weren't tapping into the synergy of two people who work together.

One December night, when things blew up, we looked at each other and realized we didn't like what was happening to us. That night, we prioritized our marriage over our finances. Strangely enough, our finances improved, too.

2. I decluttered my life. I had been keeping things because “we will use them some time” and what's the problem with storing them? When we decided our life had to be as simple as possible while things were so stressful, it was time to say goodbye to the things we weren't using. Most of the items were actually given away, so while I sold some things, the biggest benefit wasn't financial…at least, not directly.

But it was more than our possessions. We also evaluated our activities (volunteer, church, community, etc.) and decided, with so much stress and so little time, we had to eliminate some.

I struggle to understand why decluttering made such a difference to us financially. But I think since I had less to clean around and more empty space, it made me less stressed, less overwhelmed, and more likely to have the energy to tackle our challenges. And having a lighter schedule allowed us more time to concentrate on our relationship and getting ourselves out of the financial hole.

It was one step that didn't cost us much, but made such a huge improvement.

3. I set up a personal escrow account. I had tried budgeting in many ways, but I just didn't stick with it. As stressed as I felt, it had to be easy. And all the methods I tried weren't easy enough.

I evaluated our bills and found that we had the most difficulty paying bills that weren't monthly, bills like our property taxes, house insurance, car insurance, and so on. For instance, our property taxes were always due in July and September, and I knew that. But whenever I got the bill, I would be surprised and wonder where we would get the money to pay for it. And life would be even more stressful while we worked overtime and cut our expenses to try to make the big tax payments.

Thing is, this happened all the time. I would be surprised by our house insurance bill one month. The next month, by our car insurance bill. I've never claimed to be the sharpest knife in the drawer, but this was ridiculous. It also wasn't fun.

So finally I had an idea. I totaled up all our non-monthly bills and divided by 12. The only budgeting I was going to do was save that much per month in a targeted savings account that I will talk about in a minute. When a bill came, I would go to our “yearly expenses” savings account, transfer the money to our checking account, and pay the bill. Proactive, not reactive. It has made my life so much easier with so little effort.

4. I set up targeted savings accounts. Speaking of those targeted savings accounts, I opened up a few savings accounts in July 2009. One of them is our yearly expenses savings account. Others include two vehicle replacement savings, an emergency fund, and our charity account. I didn't think we could afford to save very much and, at the beginning, I was right. But as things began to improve, I kept bumping up our automatic savings contributions.

An advantage of saving in this way is that it's been easier to stay motivated. And you know I need help with that. When I see our “New Car Fund” savings account, saving money has a name and a purpose.

The results

These steps had a domino effect on the rest of my life. Today, I am 25 pounds lighter and much less stressed about finances and life, in general. My relationships are healthy, and my life is not in shambles. I am a different person from the desperate gal who sat at my kitchen table a few years ago.

I can't explain why all four steps made such a difference, but they did. And of course, there were other things that had a huge impact on our improvement as well, like selling the first house, finishing grad school, getting raises, and earning side income.

But the improvement began with four small steps. And I believe these four steps can improve the financial state of anyone, despite their income level.

More about...Debt

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MoneyAhoy.com
MoneyAhoy.com

Wow, that sounds like a very difficult time period in your life. These are some great tips that helped to pull you through.

I especially like the targeted escrow account idea for all bills / 12. This would probably help a lot of people out if they could follow it!

Glad to hear that you’re back on the right track and feeling healthy once again.

Elizabeth
Elizabeth

Sounds like you had some great strategies to see you through! Thanks for sharing — I especially like the idea of an escrow account. My yearly bills come in the summer, and family birthdays all seem to cluster into three months. I don’t have problems accommodating the extra expense, but I think I’d feel more in control if I had a targeted account.

And I can totally relate to de-cluttering! I recently gave up a couple of hobbies and unfinished projects and it felt like a I’d gotten rid of a debt to myself.

Monique
Monique

I am sitting here and I am completely shocked…you have described my life. Thanks for writing this.

John S @ Frugal Rules
John S @ Frugal Rules

That does seem like a difficult period and kudos to you for finding ways to work your way out of it. I love #3 & #4 as they can be a great way to manage finances, but I think so much of it goes back to #1 and specifically with your husband. So many marriages do not do that and they can often end up in divorce as a result. It’s so refreshing to see when that does not end up being the case.

Jan
Jan

I started my targeted savings account immediately after paying off my home in March. It makes life so much easier knowing that each check I deposit X amount into it and when the bill comes – I’ve got the money for it! I funded my “property tax, car insurance, house insurance” savings account initally with the total of my deductibles as an extra safety net. That way if I do have a claim on my home or car I can easily cover the deductible and not have a surprise bill.

Matt @ Your Living Body
Matt @ Your Living Body

Sometimes you just need to keep your head up and keep moving forward. No matter how hard it may seem, keep doing the things that are good for you.

Debi
Debi

“May your path be the sound of your feet upon the ground.” No truer words.

Joel
Joel

You described what is going on around our home too. Its been a challenge lately.

This is an inspiring post. Time to make some changes!

GamingYourFinances
GamingYourFinances

Clutter leads to stress. And stress leads to impulse purchases. We found that when we simplified our life it became easier to maintain our monthly budget! It was amazing!

Laura
Laura

Lisa,
Thanks for sharing your story. I really appreciated it! I think that your 4 steps are great and helpful tips. In particular, I think the decluttering is a really great tip that not enough people appreciate the value of. A cluttered house/office often is the result of a cluttered mind, and decluttering really can have a meaningful impact on us psychologically. Kudos to you!

Debi
Debi

I agree completely. Recently I made a concentrated effort to declutter the family room of “we might need this someday” stuff. Made a trip to Goodwill, sold some stuff on Craig’s list, and held a very successful yard sale. I used to feel stressed in the room. Now I get a sense of peace and contentment.

Penny
Penny

Great article; thanks for takling the time to share your experiences and what steps you took to straighten things out. I think what you faced is a common trap of married/young adult life, but the struggle is (hopefully) all worth it at the end of the road.

Kristin
Kristin

I am where you are when you started your turnaround. My stress stems from being laid off almost a year ago, and after months of unsuccessfully searching for a job, deciding to open my own business. (I am a professional with many years of experience, and no one wants to pay for it)I have gained ten pounds in the last year, on top of the thirty I gained in the previous two years due to other stressors. My husband is a full time student earning a Master’s Degree; he has another year and then we hope he gets a job.… Read more »

Kelly @Try New Things
Kelly @Try New Things

Sometimes it is in our darkest moments that we rise and find the strategies that can change our lives. Dark moments, instead of being scary, can be turning points if we can see them in the right light.

Great story to share.

Kelsie
Kelsie

I started decluttering this year and my energy level shot up. It was hard at first, but now each time I go through my closet I find more stuff to get rid of.

John
John

I’ve been using an escrow account for 20 years now. We are never surprised by an annual bill that comes in. We include all taxes, insurance, HOA fees, and Christmas and birthday gifts. It really works well for us.

phoenix1920
phoenix1920

Of all of the articles I’ve read here, this one really speaks to me. And it looks like it speaks to a lot of other people as well. Too often, I feel like I’m drowning in projects I want to do, job, kids, clutter, etc. I think it is taking up so much mental room to juggle it all, that I don’t have a lot of room for the mental energy that is required to set and move toward my financial goals. If possible, I would LOVE it if anybody can give more insight and help on the decluttering aspect.… Read more »

Paularado
Paularado

I decluttered a bunch of “someday” boxes and an area of our basement storage room that we had been carrying around and storing for over a decade. I work full time, have a commute, and a 3 and 5 year old. So for me, any project must be done in 15 minute increments at night. I tell myself, I only have to do 15 minutes. So, kids go to bed, I pour myself a glass of wine, and head down to the basement to work. The key is not to overthink and not to set a goal like “I want… Read more »

phoenix1920
phoenix1920

THANKS SO MUCH for all these great suggestions!! I think the mental battle in letting go or saying I don’t need this is key–and perhaps a nice glass of red wine may make it easier and more enjoyable.

Robert | perfectyourfitness.com
Robert | perfectyourfitness.com

Don’t forget the importance of reanalyzing your stock portfolio and discovering weaknesses and strengths in your portfolio. Always be on the lookout to strengthen your portfolio and diversify it to decrease risk.

lmoot
lmoot

What an honest and refreshing post. Thanks for writing it Lisa. ALOT of people go through what you’ve gone through (myself included) and it’s so inspiring to hear that others have gone through and overcome the same.

The turning point for me was no more excuses, and more action. Sometimes it’s good to treat things as if they were an emergency even before it’s a true emergency…things could have been a lot worse for you if you hadn’t turned it around in time and made the mindful decision to change your life and create a life plan.

Carla
Carla

I am currently in the process of decluttering my home as we speak. I have one huge bag (one of those extra large Crate & Barrel Outlet paper bags) full of paperwork, statements, bills, etc that either need to be filed or shredded to start. Though I don’t buy much for the home I don’t throw much out either so things pile up over the years.

I’ve done it before and my financial life really did improve during that time.

Ely
Ely

I’ve used the escrow account idea since we took the responsibility for taxes and insurance back from the bank. Not only did it save us money up front – they wanted us to keep a $2000 cushion that we didn’t get the interest on – but it makes paying taxes and insurance easy and painless. And I still have the $2000 cushion, and the interest it’s earning! 🙂

SavvyFinancialLatina
SavvyFinancialLatina

Cleaning up is always a good idea. I just did this, and it felt awesome. Now I have a bag of papers I have to shred.

Jamie@SoyMilkMustache

I’m so happy that “repair relationships” was #1 on the list. With the support of my hubby, I feel like we can get past anything. On the occasions that we weren’t meshing, all the other stresses were magnified ten-fold.

#1 is exactly where I would have prioritized that step. 🙂

Christopher Quinn
Christopher Quinn

Hi Lisa

Boy does your process of getting your financial house in order sound very familiar. I just went through a very similar process to help keep my financial future on a steady positive course.

What I found most helpful in my efforts is what you termed “I de-cluttered my life”… and for me by de-cluttering my life I found it much easier to focus on saving money, bettering my relationships and focusing on what really is important in my life.

Great article!

Chris

Marie
Marie

Am I the only person who loses weight when stressed? I have no appetite when I’m upset.

Jen2
Jen2

No, you’re not alone. Actually, whenever I see a really skinny person I wonder if they are ok. I often correlate being skinny with being stressed and/or depressed. My stomach gets very upset when I’m stressed out.

L@Dandelion Cabal

Hi Lisa, great article!

I couldn’t agree more with the targeted savings accounts…I’ve found them so helpful! I’m someone who needs to “see” things, and it makes the division of funds extremely clear.

Breaking down the year’s expenses into a monthly amount to save made a big difference for me as far as cash flow went.

Thegooch
Thegooch

You were doing good with decluttering but then increased your clutter by opening unnecessary banking accounts. less is more. Keeping track of many accounts and the hassles of moving money in between them is stressful. Instead, keep one checking account for all of your expenses, keep one high interest savings account for short to medium term savings, and an investment account for long term savings. Get a program like Youneedabudget to split those few accounts into categories that let you have the advantage of multiple accounts without the management overhead. I used to targeted savings accounts and it really stressed… Read more »

PB
PB

It’s amazing what decluttering can do to your life: it really frees you up from unnecessary chores. Not only cleaning the house becomes easier, but assuming an item is unimportant, it literally frees up time and pacience not to have all these objects hanging around. A most cathartic step everyone should take.

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