I’ve Paid For This Twice Already…

Archive for the ‘snowflake’ Category

When I was a kid, I was a saver. In fact, I saved almost every penny I was given from the time I was old enough for people to give me money directly versus giving it to my parents for me. By the time I was 16 I had saved enough money to put a $6000 downpayment on my very first car. Even after that, I continued to be a saver, but somewhere, somehow, in between then and graduating from college, the saving instinct waned and the spending instinct took over.

But I think that my saving instinct is beginning to recover, in the path of paying down debt. Even though I’m not saving the majority of the money we bring in, I’m using it to reduce our debt, and carefully counting my pennies and snowflaking them to make bigger and bigger dents in our debtload. But now, as we’re shifting our focus to a combination of saving and debt repayment, I find myself feeling a little nervous. I understand how to pay down debt. I can see debt freedom as my goal and shoot towards it. After 10 months of trying to keep focus on debt repayment and nothing else, it feels rather frightening to take my eyes off that and shift our priorities, even though it is necessary.

For those of us who have learned to pay down debt with single-minded intensity, the challenge now is to be able to shift that intensity from debt repayment to saving money. With debt, there is a finite goal - the elimination of the debt. With savings, the goal may be more nebulous. We want to be prepared for an emergency. We want to be able to retire. We want to be able to have some fun. We want our children to go to college. Whatever your savings goals are, they may feel more abstract and nebulous and not concrete, and that may be the roadblock to becoming an effective saver.

The key to turning savings into a snowflaking target is to define concrete goals you want to meet. Just like debt reduction, saving happens in baby steps. Don’t be afraid to be wrong about the amount you need to save. You can always revise your goals - I’ve revised my debt reduction goals at least a dozen times at this point. The point is to make a goal. Make savings a concrete goal to aim for. Set a goal for how much you will contribute to retirement per year. Maybe it is a percentage of your salary, or maybe it is a exact number. Then make a plan for how to do that.

Or maybe your goal is an adequate emergency fund. Decide on a number to aim for, and then snowflake to that goal just like saving is a debt to yourself. With a firm number in time, the process becomes exactly the same as it was for debt repayment. You can always shift that number upwards in the future - the point it to set yourself a specific goal to shoot for now. 6 months expenses is nebulous - $8000 is concrete. Calculate out a numerical value for your savings goal - and then go for it. Snowflaking works for any concrete goal - the important part is to know what you’re aiming for so you know when you get there.

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Want to harness the power of snowflaking in your own life, but can’t seem to manage to keep track of the details? Here are ten ideas to help turn the most detail-adverse person into a passionate snowflaker in their own right:

1. Start now. That’s the most important one. Whatever it is your goal is, write it on a piece of paper, stick it on the corner of your computer screen, and look hard at it. No debt? More savings? The ability to do whatever you want? Yes, I said now - go get some tape and stick it up there.
2. Identify one purchase that you spent less money on than you thought you would. Whatever the difference was between what you thought you would spend and what you did spend, take that amount and snowflake it to debt or savings. This is the action that started me on the path to snowflaking.
3. Carry a notebook with you. Every time you spend money, write it down. Write three simple things - item, amount, and essential or non-essential. Every week review it, and total up the “non-essential” category. You might be surprised.
4. Start picking up all the change you come across. When you have change in your pockets, put it in a jar. Give your house a thorough cleaning, and put all that change in the jar. Once a month, throw that change into savings or at debt.
5. Pick one small luxury you indulge in that you can do without for a month. Whatever it is, put that amount into savings or pay down debt with it for the month instead. If it is something you do daily, multiply it by 30. If it is weekly, multiply it by 4. The size isn’t the issue, it’s the action.
6. Declare one week the “No Impulse Week”. Every time you spend money impulsively that week (that is, without having a plan to do so in advance) immediately throw an equal amount into savings or debt repayment. This is the Paid Twice philosophy and it is how I started really paying attention to the details, and it continually reinforced my snowflaking habit (and kept me from many impulse purchases!).
7. Purge your stuff. Less is the new more! Go through collections and purge 10% of them. Go through rooms and identify two things you haven’t used in so long, you forgot you had them. Now have a yard sale, list things on craigslist or eBay, or sell things to a consignment shop. Donate the rest. Put your proceeds towards debt or savings.
8. Earn an extra dollar or three. Find something you can do - and spend two hours a week doing it for pay. Can you play an instrument? Give lessons. Do you know a school subject inside and out? Become a tutor. Like to babble on and on about your life? Start a blog (although this takes longer to “pay” ). Like answering questions? Fill out some surveys. Like kids? Become a babysitter. Once you have those extra dollars - put them towards debt or savings.
9. Gratification comes in actions not in things. Instead of focusing on monetary rewards, start giving yourself praise. Pat yourself on the back (yes, really). Recognize when you have taken a positive step. Be proud of what you accomplish. Just not necessarily with a latte.
10. Keep track. Keep track of the balances. Keep track of the payments. Set a goal for a month that you will really pay attention so you can see the results. Watch your debt balance go down, your savings balance go up, and the little pile of snowflakes become a huge flurry.

Some of these will be easy, some not quite as easy. Start small. Get that piece of paper. Write down your goal. Stick it up in the corner. Smile to yourself and say “I can do this, one penny at a time.” And start. All it takes is a single action to initiate an avalanche.

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I’ve frequently paid random amounts of money to different debts in the past, but it took more than that for me to become a snowflaker. For a few years before I learned about and actually started snowflaking, I would randomly throw an extra couple dollars at one of our debts for no apparent reason. I am not considering that snowflaking exactly, more a wish to escape futility. I had also been steadily paying $200 a month to our credit card, even when the minimum fell below that, but that wasn’t exactly snowflaking either. Snowflaking is applying small (or large) amounts of extra money in a purposeful manner and using them to further your financial goals, and I clearly remember the first time I actually made the decision to do so.

The first time I ever purposely snowflaked any money to consciously pay down a debt was last spring when I took my son to get new sneakers. His feet are XW width, so he needs special shoes from a specialty shoestore, and they don’t come cheap. Because kids feet grow so fast, I had basically been buying him new shoes every 3 months since he started walking (at 9 months, because he wished to try and bankrupt us ). I had just started budgeting our money, and I had set aside $50 to buy him new shoes, and set a recurring line item in our budget of $50 every three months ($16.67 per month) for his shoes.

Well when I took him to the shoestore, for the first time since he started wearing shoes his feet hadn’t actually grown in that three month period! The shoe salesman said to bring him back in a month, and we left without any new shoes. When I got home, I sat down and transferred $16.67 from our checking account to pay our credit card an extra snowflake payment. By the next month when I needed to bring him back for shoes, I would have $16.67 added to the shoe budget and wouldn’t need this month’s $16.67 for his shoes.

And so a snowflaker was born. It may not seem like much, but that little payment, that little extra “I can pay you whenever I want and whatever I want, you don’t dictate my life with minimum payments” really changed my whole outlook on paying my credit card. I started looking for little amounts of money I could squeeze out of our budget, and threw them at the debt. Then I started selling things we didn’t use and throwing the proceeds at our debt. I looked for ways to increase my income. Not by a ton, just a little here and a little there. One thing led to another, and almost a year later, I am hopelessly addicted to snowflaking and the power I feel it gives me over my finances.

It’s not hard to start. Sometimes, all you need is to identify one place you saved money, snowflake it purposely, and watch the rest unfold.

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Snowflaking, the practice of using small (or large) “extra” amounts of money and using those to pay down debt or increase savings/investing, is the idea of small things make a big difference in action. These small amounts can come from anywhere - earning more temporarily through another job, making things, or selling things, becoming more frugal and saving money in one or more budget categories that you previously would spend, or any other ideas you have for generating extra income or money in your budget that can be earmarked to achieve your goals. The idea that these small things can make a difference over time is sometimes questioned, so I created this example to look at what consistent changes can do over time.

Our example debt is going to be $5000, with a $200 minimum paid per month. This is the minimum that is always paid - think of it as a car loan or student loan - something where the minimum doesn’t change as the debt shrink. Although you can certainly create your own fixed minimum with a credit card, and in fact, that was one of the small steps I took that eventually got me out of credit card debt completely. In our example, we are going to look at the effect of paying simply $1 extra per week, $10 extra per week, and $20 extra per week for three different interest rates - 5%, 10%, and 20%. It might be surprising that even just $1 per week extra will end up in some cases making a noticeable difference. The data was calculated using the snowball calculator.

First, a $5000 debt with a $200 minimum payment per month at 5% interest:

• Paying simply the minimum: Paid off in 27 months, paid $268 in interest charges.
• Paying $204/month ($1 extra per week) : Paid off in 26 months, paid $262 in interest.
• Paying $240/month ($10/week extra) : Paid off in 22 months, $222 in interest.
• Paying $280/month ($20/week extra) : Paid off in 19 months, $185 in interest.

In this example, just that $1 extra per week causes the payoff date to come a month earlier than without it. Of course, the difference is more noticeable the more extra you pay, but even just that $1 per week will save you a few dollars in interest in the long run.

Now the $5000 debt with $200 minimum/month at 10% interest:

• Paying simply the minimum: Paid off in 28 months, paid $578 in interest charges.
• Paying $204/month ($1 extra per week) : Paid off in 28 months, paid $567 in interest.
• Paying $240/month ($10/week extra) : Paid off in 23 months, $466 in interest.
• Paying $280/month ($20/week extra) : Paid off in 20 months, $391 in interest.

Here, just paying $20 extra per week ends up with a payoff date 8 months earlier and almost $200 less in interest charges paid. Even paying just $10 per week extra will save you over $100 in interest in the long run.

And finally that same $5000 debt with $200 minimum per month at 20% interest:

• Paying simply the minimum: Paid off in 32 months, paid $1382 in interest charges.
• Paying $204/month ($1 extra per week) : Paid off in 32 months, paid $1343 in interest.
• Paying $240/month ($10/week extra) : Paid off in 26 months, $1071 in interest.
• Paying $280/month ($20/week extra) : Paid off in 21 months, $868 in interest.

Paying $20 extra per week, you pay off the debt almost a year earlier, and save almost $500 in interest! Even just $1 extra per week will save you almost $40 in interest charges.

So you can see that snowflakes, even small ones, can make a difference in how much interest you pay over the life of a debt. The bigger the snowflakes, the more effect they can have, but even the smallest snowflakes can speed up your debt reduction and reduce the total you have to pay.

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Once you get into the groove of finding extra money to put towards your financial goals, the danger becomes that the newfound savings or earnings become routine and part of your normal budget, and therefore, stop being snowflakes and start being part of your expected income or spending.

The key to keeping your snowflakes working towards your financial goals is to make sure that doesn’t happen. Once the snowflakes become part of your everyday budget, they stop being snowflakes and stop working extra for you. For example, let’s look at increasing your income. Say that you add a part-time job for a few hours a week that earns you $200 a month to go towards reducing your debt or increasing your savings. After a few months, you get used to having that money every month, and the danger is that you start depending on it as a normal part of your budget. Once that happens, it is no longer extra money to work towards your goals, it is money you depend on to meet your budget every month.

Don’t let that happen! Be careful to keep additional money classified as additional, even if it is something that happens every month. That way, you are not depending on the money to meet your budgetary goals, and if at some point in the future, you decide to eliminate that money, you’re still working within your budget.

Keep those snowflakes as snowflakes. Don’t let them be swallowed up by the mundane and average. Make sure they stay special.

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