Tomorrow is payday. I think I could end the blog post there. Each of us has a different story on what our payday is like. I recognize that there is an international audience reading this post. So, perhaps I can share my story about what payday is like for a blogger living in South Texas.
When I was younger, I would get paid with a check. I would take that check and either deposit it in my checking account or cash it at the issuing bank. If I needed money right away, I would cash it. If I could wait three business days, then I would deposit it.
These days, my paycheck is direct deposited into my bank by my employer. I wake up on payday, log in to my bank, and see that my balance has increased. When I wake up on payday, I immediately check that the money is there so that I can schedule payments. Before I leave for work, I schedule payments. By the time I leave, I have spent my paycheck. I do not see a single dollar. It is all electronic. By Monday morning, all the payments have settled.
Where my money goes changes over time. At the moment, here is a breakdown of where my money goes this payday.
Despite the loosey goosey appearance of my finances, there is a plan in the works. My goal is to eliminate installment loans. In my experience, we have been deceived into thinking that credit cards are evil because of their high interest. In actual fact, installment loans are evil. If your house payment is $900 per month, then 20 years later your house payment will still be $900 per month. Whereas with a credit card, as long as you make big payments, your minimum payment will go down. Your interest cost will go down.
If I were to graph my debt, you would see a descending line with a few spikes. I earn enough that I don't need to limit our family to eating beans and rice. I can pay off debt and enjoy life too, so long as I avoid installment loans. I swear installment loans are the devil.
I have three installment loans. One installment loan is the timeshare at $231 per month. The second is the private note at $250 per month. And, the third is student loans at $350 per month, which are on pause until August.
We are aggressively paying down the timeshare by transferring as much as possible onto credit cards. The majority of the balances on the Discover Card 1, Discover Card 2, and City Simplicity card come from balance transfers from that loan. We have $3000 remaining on the timeshare loan. This should be completely transferred and eliminated by July.
Once the timeshare is zeroed out, then the focus turns to paying off the transferred portions accruing interest. Afterwards, we will start paying off the portions at 0% interest. We should pay that off around October or November.
Then, we will apply the same technique to paying off the private note, which is to balance transfer everything onto credit cards, which we would then aggressively pay down.
And, finally, we will apply the technique to paying off the student loans. We will balance transfer to the credit cards, and aggressively pay them off.
This approach of transferring balances to credit cards works because it reduces the volume of interest we will pay, which is ironic given the high interest rates credit cards charge. Keep in mind that a credit card charging 23% interest only gets 23% if you fail to lower the balance over the entire year.
Earlier, I mentioned that I put $100 per paycheck into savings. This isn't exactly true. I set $100 aside per paycheck for contingencies. There is the occasional surprise expense that requires cash. For the most part, I use debt as money. This is baked into charge cards like the American Express Gold Card. Charge cards require you to pay in full each month. I also use the credit cards such as, Hilton Honors Business, Choice Privileges Visa, Apple Card, and Chase Freedom Flex for my every day spending. I pay these off in full every month, or as close as possible.
When I buy lunch or a pair of socks, I'm not using my own money. I'm using the credit card's money. When the time comes to pay it back, I am able to do it with a little extra.
A year ago, things were rougher. I had a much tighter budget. A $5 difference would throw off my calculations to be able to meet all my obligations. My credit was also more limited.
What has made the difference is that my balances have decreased and my credit has increased as a result of churning money through my credit cards. Having more credit has made paying off debt much easier. It's a perverse feedback loop that makes it easier to pay off debt by having access to more of it.
And, thanks to cash-back rewards and the earning of points and miles from credit cards, travel becomes more affordable. That's another perverse loop of travel becoming cheaper the more you do it. But, that's another blog post.
In my case, Payday is more of a check-in to keep the machine going. I anticipate that in roughly five years I will pay off the student loans in full. That would free up a good chunk of cash flow.
In some ways, payday can be a sad day in which my money is spent before the day starts. But, in actuality, payday is just a day to check in and make course corrections. Last year required careful budgeting. Now, I am able to roughly guesstimate where my money would be more effective.
My experience is not the experience of everybody in South Texas. I have always been keen on finances. But, I never earned very much. Years (decades) of experience in budgeting for a low income has ingrained in me some degree of responsibility. Now that I'm earning more, I have a bit more freedom in how I allocate my earnings. And, also because of my higher income, I have more credit. To be honest, it took some hard knocks to figure out how to best use credit. Now, even though my paycheck is spent before I have earned it, I am encouraged by knowing that my situation is improving as a whole.
I don't expect that payday is the same for everybody around the world. Wage levels will be different. Credit availability will be different. Perhaps you are paid in cash or check. Are you debt free? Are you mired in debt? Do you have a high income? Low income? What does payday look like for you?
