Updated: Apr 30
The path to financial freedom is seldom easy or linear. In fact, it's often messy. But the principles and habits of good money management will benefit you, whether life is a cakewalk, or whether the devil seems bound and determined to bring you down. This couple's story is more of the latter. But yet they have triumphed.
Deven and Megan are a fabulous young couple with 4 children (3 when I first met them). Deven is a high school teacher and Megan has a faculty position at a local university. They came to me looking for help organizing their finances and tackling their debt. Their case was very normal in a lot of ways, but unusual and challenging in a few ways as well.
The best way I can describe their finances at the start is.....chaotic. Income from their regular jobs ceased during the summer, though Deven got an additional lump sum at the end of each school year. Deven also had extra income as a wrestling coach, and as a landscaper during the summer (for which he had to cover taxes). Megan tried to get her pay spread out over the calendar year, but could not do so until she was promoted to a full time position, which eventually happened.
Two of their 3 kids at the time were in private Catholic school, with partial scholarships. The 3rd was in full time daycare, and the older two in after school care. The older two were also in dance classes, and one ended up being selected for a traveling dance team, which added an expense.
While I always teach clients how to budget, as part and parcel of the whole coaching experience, the challenge here was to get Deven and Megan to, as I called it, “defrag their budget”. I wrote a blog article about that which you can read here
https://www.moneycoachbev.com/post/defrag-your-budget . They had become accustomed to compartmentalizing their income and designating certain income sources to go to pay for certain expenses. For example, they viewed Deven’s landscaping income as going to pay for the girls’ dance lessons.
That way of viewing your finances is very inefficient, and results in misplaced priorities. I always teach clients to view all of their income, from whatever sources, as piling up on their kitchen table, such that you can’t tell where any particular dollars came from. Then the budget is used to tell ALL of that money where to go this month, based on first covering basic necessities, then debt obligations, then everything else, while focusing on the next most important goal.
For most people, that next goal is paying off all non-mortgage debt as fast as possible.
Deven and Megan had debt in the form of a 403(B) loan, some credit cards, some medical debt, a car loan, and student loans – all totally normal stuff (but we always say “normal is broke – be weird!”). In order to work up a plan for eliminating these debts as fast as possible, they needed to organize and even out both their incomes and their outgoing expenses as much as possible.
To that end, they created 3 savings accounts:
an Emergency Fund ($1000 only, while getting out of debt),
a Sinking Fund (to systematically save up for large outlays like school tuition, dance lessons, car repairs, veterinarian bills for their 95 lb doodle, and Christmas),
and a Hill & Valley Fund.
The Hill and Valley Fund is for folks who have variable income to one degree or another. You sock away cash in savings every month when times are good, so that you can draw on that savings to supplement your income when you need to. You can read more about it here: https://www.moneycoachbev.com/post/hills-and-valleys .
Sometimes the variation is predictable in nature, and for other folks it’s not. In Deven and Megan’s case it was reasonably predictable....the summer months with no regular job paychecks. An example of a much less predictable variation in income is for full time real estate agents. The selling of homes, and the closings that actually produce income, can produce a roller coaster of feast or famine income. Deven and Megan’s was not nearly that hard to handle, but having a predictable amount of money each month that stays reasonably stable over time provided a lot of stress relief for their family.
The sinking fund concept provides a similar predictability when it comes to paying out for large expenses. By saving each month for those large expenses you know are coming, you smooth out your budget each month, and don’t have those huge surprises that would just blow your whole budget to smithereens when they come due. Deven and Megan started saving in a sinking fund for dance expenses, major car repairs, veterinarian bills, and Christmas.
Deven and Megan also learned how to include a line in their budget for carrying over a minimum amount of money to the following month, due to the fact they were paid every 2 weeks. With that pay schedule, for example getting paid every other Friday (which is the most common method by which people are paid), the numerical day of the month that paychecks arrive varies back and forth as the months progress. If you are paid on the 7th and 21st in January, you’ll then be paid on the 4th and 18th in February, and on the 12th and the 26th in August. There could be times your first pay of a new month is not until as late as the 14th. So purposely planning to carry over income to cover the early days of the following month is another technique to smooth out the variation, and be sure that all bills can be paid when they are due. The one advantage of that pay schedule is that you get a 3rd paycheck in 2 months of the year.
So as we started to wrap up our period of active coaching, the devil decided to try and derail Deven and Megan. The kids got sick, Deven got sick, a dear friend and mentor of Deven’s passed away, and rumors of furloughs at the school surfaced. The medical debt, the 403B loan, and the credit cards had all been paid off. Next up was the car loan, but instead the money went into the emergency fund to prepare for a possible job loss. Thankfully after a few months, Deven’s job was safe, so they paid off the car with the extra savings.
But then the proverbial feces really hit the air circulation device.
Their 7 year old daughter suffered a skull fracture and brain bleed, requiring lots of long distance medical trips.
A house fire destroyed the kitchen (and only the kitchen, thankfully).
OOPS an unexpected pregnancy! So they welcomed a new baby. (Yay for babies!) And they needed a bigger vehicle as a result.
The teachers union went on strike for 6 weeks. So no pay for Deven, and no health insurance either.
Megan was also unemployed for a few months, then got a full time job, but had to pay a good bit to provide health insurance for the family during the strike.
Plus chicken pox, shingles, Covid (of course), and increased daycare costs for the newest bundle of joy.
So how have they fared through that onslaught of challenges? Like champions!!! No credit card use, no union loans during the strike like many teachers did, and they got by on one salary for the duration of the strike. They have some debt on the larger vehicle, but they are snowballing that as we speak, and then on to the student loans!
Learning good money management does not guarantee a trouble free life. Trouble will come no matter what, so it’s best to be prepared. And the techniques Deven and Megan have learned, and developed through diligent practice, meant they could weather the storms of life (and WOW what storms!), no matter what, without losing ground or going deeply into debt like most people would have done.
I can’t wait to hear from Deven and Megan again when those student loans are gone. From that point on, there will be no stopping them. They’ll be Everyday Millionaires before you know it.
If you're sick and tired of being sick and tired when it comes to your finances, let's talk about how to completely transform your money and your life. Schedule a complimentary consultation with me here: