Friday, 6 April 2007

The Cash Diet

Mentioning my cash diet earlier brought up some memories I thought I’d share. The term “cash diet” comes from a post on the Motley Fool by eakina http://boards.fool.com/Message.asp?mid=12478487 , but I’ve been living the diet for a lot longer than that.

It started when I was about 20 and a student nurse living on $232 a fortnight (2 weeks). Naturally, I was in debt. I had a car loan for my beloved Mini, “Charlie” ($1,000 over 2 years = $60 a month) and a credit card that bumped along at the exorbitant credit limit of $500. I remember that, when I started nursing, the card was $200 above the limit and I struggled to get it down. These were the days before computerised verification of transactions. I remember phoning the bank and apologising, and agreeing a repayment plan. Oh, the humiliation!

When I turned 21, I got a massive raise of $150 a fortnight. Having been burnt by credit cards, I set up a credit union account to save for my first big adventure: a trip to China. The $150 went straight in there via direct deposit. I think it was about then that I started to track my expenditure and give myself $150/fortnight “money to live off”.

I’d spent the first year scraping by like all the other student nurses, broke by the end of the last weekend before payday (we got paid every second Wednesday). With my notebook tracking my “money to live off”, I was still broke but I managed to save enough to spend 10 days in Beijing and, later, to fund my trip to Europe. I also funded several thousand dollars of car repairs to keep Charlie going; season tickets to the Australian Opera, State Opera of Victoria and Melbourne Symphony Orchestra; trips to Intervarsity Choral Festivals and, later on, carried my quarter share of a house in Fitzroy, one of Melbourne’s trendiest districts. I paid my own way, sometimes using credit cards but mainly cash.

I don’t remember when I stopped tracking my money to live off. It wasn’t a conscious decision. I think it was when I came to Britain and lived hand-to-mouth for several months before drifting into a debt lifestyle. The cost of living in London had come as a shock; forget whatever my salary translated into in dollars, my “real” salary had halved whilst prices had effectively doubled. $0.50 bought more in Australia than £1 in Britain.

Also forget “real time banking”, a concept that existed in Australia but seemed unheard of in the UK. I was banking with Barclays and it could take up to 10 days before my pay cheques cleared and were available to withdraw from my deposit account.

I buried my head in the monetary sand for about the next year and half, until I had to face the fact that I had been burned, again, by credit cards and an overdraft. By that stage, I was living with Dumbo, my now ex-husband – not the world’s best money manager – and pretty soon I was supporting him. I clawed my way back into solvency, changed banks (yay TSB!) and started to track deposits and withdrawals from my new current account.

For the next 5 or 6 years, I religiously wrote down every deposit and withdrawal in the money pages of my planner; every cheque and debit card payment was recorded. Every time I went near my bank, I’d get a statement printed off from the cashpoint and reconcile my bank account. I wasn’t always solvent, but I knew how much was in my bank account. For at least 3 years, I didn’t even have a credit card.

Then the next fiscal storm struck. I bought a house, whilst still paying all the bills on Dumbo’s flat. For what seems like forever, Dumbo procrastinated about the flat and I paid the bills on two properties. He worked part time whilst doing a masters degree (of which I paid half) and I didn’t see a penny of his money. Eventually, I forced him to sign a standing order paying me £150/month towards the “housekeeping”. I stopped paying the bills on his flat – just refused to make the payments – but still he found ways to bleed me fiscally dry (taking my mobile phone and running up a £280 bill in ONE WEEK springs to mind – is it any wonder we divorced?).

I used credit cards to keep myself afloat, drowning slowly. At one stage, I was using one card to pay the bill on the other. Too ashamed to admit to myself the mess that I was in, I stopped tracking my money.

(Anyone see a pattern here? Fiscal probity = good money management. Poor spending decisions or difficult times = trying to hide the damage from myself.)

The crisis finally came when I started a new job (small but useful pay rise) and didn’t get paid for 6 weeks. I didn’t have enough cash or credit to buy my train ticket for all that period of time; somehow I managed to organise a “tax free season ticket loan” (the perk of the Londoner) with 2 days to spare before my existing ticket ran out. My employer bought me an annual train ticket and I was saved!

My ultimate saviour was an “away job” where I clocked up £150/week mileage allowance for six weeks. This was 3 months after I joined the new company. Until that point, I’d scraped along, no longer meeting the minimum payments on my credit cards but rationalising that if I paid them something, they wouldn’t hound me. (I think I paid both of them £100/month, when the minimums were closer to £200.) Late fees and partial payments put me well over the credit limits, but the away job meant that I could bring the accounts back into line.

Slowly I dug myself out of the mire: I rented out the spare room, climbed up the career ladder at work, and dumped Dumbo. And I started to track my money again. A couple of months after my divorce became final, I even reinstated my “money to live off” so that I could see where my cash was going.

- Pam

1 comment:

John said...

Real time banking... oh, yes.

We recently switched banks after getting ticked off about ATM fees and were enticed by an offer where any fees were rebated.

Little did we know that the new bank's technologies were about 20 years behind the times. If you make a deposit by 4:30PM, a courier would pick it up from the branch and it would be processed that evening and posted to your account around midnight. Get to the branch after 4:30? It would sit until 4:30 the next day, get processed that evening and posted around midnight the following day. Direct deposit? Posted at midnight the following day.

That's how they can rebate the ATM fees - they float your money for a day or two.

They drop this on you at the end of the account opening process - here, just one more paper to sign. They make it sound like any day now they'll finish upgrading their systems to process transactions in real time. It wasn't until I sat down with the branch manager and she commented that she was surprised when she joined the bank two years ago how backwards they did things and acknowledged that they weren't going to join the 21st century anytime soon.

This bank was so slow in posting credits and debits that balancing the checkbook was an exercise in futility, and we've screwed up and been dinged for NSF's more than we'd like to admit.

We're back at the original bank. We know we'll get screwed when we travel abroad again, but at least our deposits will be posted immediately.