For many of us, the prospect of dealing with our finances - doing the grueling work of tracking spending and building a budget and then (horror of horrors) sticking with that budget, sends us running for the nearest cocktail (paid for with a credit card, of course).
But as most people who've made the journey to financial freedom will attest, the pay-off is well worth all that paying down.
We recently checked in with Jen Smialek, freelance writer and founder of The Happy Homeowner, who went from a being a self-described spendaholic to a savvy money manager. She said one of the biggest surprises to tackling her finances early on was how motivated she became to continue making positive progress on her journey.
"Once I paid off my debts and was accustomed to tracking and budgeting my money, I began setting lofty savings goals," she says. "I also set my sights on owning my own home (paid for all by me) before the age of 30, which in the Boston market was a pipe dream for some of my peers."
In the six years since Jen's made the final payment on her credit card, she's owned real estate, traveled the world, increased her net worth by over $250K and hasn't carried a single cent of non-mortgage debt.
Here she shares her story, offers tips on buying your first place and on budgeting for a round-the-world trip.
Tell us the story behind The Happy Homeowner...when and why did you start the site?
I started The Happy Homeowner back in September of 2010. At the time, I had stumbled upon a few financial blogs and advice forums, and I was intrigued by the idea of keeping accountable with your finances by sharing your goals, setbacks and budgeting ideas with others. As someone who had struggled to manage money well in the past, I wanted to help others by sharing my stories.
I laugh when I look through my archives because the original posts were basically just a spending diary. Over time, the site evolved to include more financial topics such as the psychology of money and budgeting tips. Gradually, I began to feature more content focused on homeownership, lifestyle and my personal passions, such as travel.
It was an amazing feeling to be able to leave my corporate job back in 2013 to make a go at the full-time freelancing lifestyle - all of which came from starting this blog!
You describe yourself as a reformed spendaholic...when did you realize you had a spending problem? How did you view money as a spendaholic?
When I was in college, I was an absolute financial disaster. It wasn't until after a few years of credit card debt and living paycheck to paycheck that I finally had a wake-up call that this wasn't the way I wanted to live my life. I wrote a post explaining how I was standing in line at a store to make some unnecessary purchase when I realized that I had no idea why I was going to buy the things I was holding.
Up until that point, I really viewed money (and credit in particular) as a means to live a life I'd never experienced. If I wanted it but couldn't afford it, I charged it. Luckily, I always paid at least the minimum on my cards, so I managed to keep my credit intact. Unfortunately, I racked up over $14,000 in credit card debt in a few short years.
However, once I committed to making some serious changes, I paid off every cent of that debt in less than a year.
How did you reform yourself? What was the most difficult part about this process?
Basically, I went on a severe spending diet. I slashed every expense in some way, and I went cold-turkey on my shopping and vacationing extravaganzas. I created my first budget and set of (ambitious) financial goals, and I kept my nose to the grindstone when it came to sending every penny I could to the debts I had accumulated.
One of the ambitious goals I set was to rid myself of the credit card debt in one year. I had read that when you make a vague statement such as "ASAP," it's more difficult to actually achieve the goal, so I set specific timelines and mapped my progress as I went. I also began tracking every single cent coming in and going out, which was an extremely effective way to identify my spending pitfalls and figure out solutions to avoid falling back into old patterns.
The hardest parts of this process, aside from the mega reality check it provided, were learning how to admit when I couldn't afford something (no more giving into peer pressure!) and working six different jobs to boost my income enough to eradicate the debt quickly.
You've written extensively about homeownership...what are some of your top pieces of advice for someone looking to purchase their first home?
There's a ton of information on my site, but here are my top tips for first-time home buyers:
1. Remember that your first home is often your starter home - adjust your expectations with what your budget can accommodate and save the McMansion dreams for when you're more established.
2. Budget for everything - including moving expenses. Something as simple as stocking your new refrigerator and pantry can be enough to derail your budget.
3. Shop around for mortgages - check with your HR department to see if your company offers any assistance; my employer at the time had preferred lenders, and I was able to save a boatload by choosing to work with one of them.
4. Visit the home at least four times before buying - at night during the week, at night over the weekend and during the day on a weekday and weekend. Pay attention to what's happening around you during these visits.
5. Ask lots of questions - get copies of the utility bills, speak to some of your potential neighbors, ask about recent home improvements and absolutely have a professional home inspection.
What advice do you have about saving for a house? What are some costs that people often forget about or overlook?
When it comes to saving for a home, I advocate taking on more work to boost your income (and automatically putting all money earned into a separate savings account). For some, it pays to investigate creative ways to reduce your housing expenses.
For example, when I was paying off my credit card debt, I got a part-time job that provided all living expenses. Instead of spending the money I was saving on rent, I paid it to myself - I researched the market rate for the apartment I lived in and "paid" that amount to myself. At first, the money went to my debt, but once the debt was paid off, that money became my down payment fund.
When you're saving, you need enough for your down payment and closing costs, but you should also remember to include extras such as moving expenses (hotels, gas, shipping and food count here if you're moving a long distance!), money for cosmetic upgrades, property taxes and even money to stock your new pantry, as I mentioned above.
What tips can you offer on shopping for a mortgage?
Obviously, shopping around is key. Also, pay attention to what you're signing when you're applying for your pre-approval. It pays to know whether or not your bank will sell off your mortgage to a third party because there can sometimes be sneaky fees associated with doing so. Read everything, and don't be afraid to ask questions about any wording, fees or numbers you don't understand.
With the industry changes that have taken place over the past three to four years, it can be more difficult to qualify for a mortgage, so do your homework before you take the plunge. Know your credit score and what's on your credit report, collect your tax returns and W2s, and try your best to save up at least 20 percent for your down payment so you can avoid Private Mortgage Insurance.
Once you've purchased the home, what areas of home improvement have you found offer the best ROI?
Cosmetic upgrades can have a dramatic impact on the future sale of your home. When I owned my first condo in Boston, I was handsomely rewarded for my painting and DIYing efforts when it came time to sell - to the tune of a six-figure profit! It was incredible because a unit in my same building with the exact same layout sold for $50K less than mine and my realtor attributed it to how much more appealing my color choices and finishes were (we sold our units at the same time).
Larger, more involved upgrades that give the most bang for your buck are the kitchen and bathrooms. Simple DIY projects such as tile, fixtures and cabinets make sense if you don't have the money for a full renovation.
You recently embarked on a trip around the world; how did you budget for the trip?
For my trip around the world, I was very creative in how I budgeted and paid for everything. I made a point to tap into my online network to secure free hotel stays, excursions and even flight discounts. I created a strict budget based on categories such as airfare, food, experiences and hotels, and I utilized room-sharing websites such as AirBnB when I wasn't able to stay for free somewhere.
By using a category-based budget, I had some freedom to rearrange the numbers from time to time to accommodate the changing financial needs of the trip.
I also changed my original itinerary to have cheaper airfare (I opted to purchase all individual, one-way tickets myself because I couldn't justify the cost of one of those around-the-world fares, and I traveled to more destinations than they allowed).
One of the best changes I made was to fly from New Zealand to Singapore then Bali instead of going straight from New Zealand to Bali. The NZ-Bali flight would have been over $1,300. Instead, I flew to Singapore for $600 and from Singapore to Bali for $117, and I used the extra money to enjoy the Singapore addition of my itinerary!
How did this trip affect your views of money and how you spend it?
I best articulated these thoughts in my post about my trip around the world, but my experience led me back to basics. I rekindled my appreciation for the simple things in life, and I was reminded to value people over things. I encountered lovely people and witnessed incredible happiness in the most barren areas of the countries I visited.
In terms of spending, I've concentrated my efforts instead on slowing down, savoring the little moments in life that are free, and saving for my future - not so that I can live richly in a monetary sense, but so I can live richly by doing what I love free from financial burden.
Coupled with the reflections I've made since returning from my trip, I know the following (excerpted from my blog post):
"What we need to do is to stop, take a look around, and be thankful for the non-monetary blessings in our lives. When you strip away the money, the fancy cars and the nice clothes, what do you have? If there isn't substance below the surface, are you truly living a happy life as a happy person? I think my new friends in Bali are on to something - walking barefoot down a dirt road isn't all that bad when you have a true smile that radiates sunshine and happiness firmly affixed to your face. "