$11,500 richer, incalculably happier

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.

When I started writing this column, about seven years ago, I was hired as money klutz -- someone who didn't know her way around her own checkbook.

I was all debt and no savings. I didn't know how to spell 401(k), let alone invest in one. The idea was that this column would reflect my financial progress, assuming I made some. I have.

Today, I not only have a positive net worth, I know how to calculate it. I use Excel spreadsheets; I can discuss the merits of this type of budget or that debt-payback plan. I've supported my family on my income for the past year.

I'm practically a chief financial officer. (If only I got paid like one.)

So for all you "stockholders" out there who have invested time in reading this column, here is an accounting of my progress during my fiscal 2007. And how, amazingly, all the baby steps I took over time helped to make 2007 my best financial year ever.

Q1: A chaotic start

The first quarter was marked by a sudden decrease in household revenue, as my husband gave up his job and I became the full-time breadwinner.

We had hoped the loss of his roughly $3,000 monthly income would be covered by our move to a rural area, and that did happen, sort of. By giving up our New York City apartment and all of its expenses, including the high price of urban life, we saved close to $2,000 a month.

But we also had a new baby, higher heating bills and more driving just about as fuel prices hit record highs. Our expenses dropped only about $1,500 per month, leaving an approximate $1,500 shortfall.

I thought about closing some of our plants, laying off thousands of workers and cutting pension benefits for our retired employees -- the usual corporate ways of coping with economic stress. But with only three of us, we had to think more creatively.

Our smartest move was learning to take advantage of the quieter country lifestyle. Giving up city life did reduce expenses, but the real change came from a shift in perspective. Urban life is all about spending money to get what you want. Country life is about cooking it, fixing it, moving it, sometimes even growing it yourself.

Gradually our finances began to reflect our new way of life. But we could have set the stage for even greater financial progress had we stepped into 2007 with a clearer financial plan instead of crossing our toes and hoping to survive.

Consumer debt: $8,500.

Emergency fund: $3,300.

Long-term savings: $40,000.

Retirement: $12,300.

Home equity: $40,000.

Net worth: $87,100.

Q2: Blown sideways by the unexpected

Although I struggled mightily in my new role as breadwinner (sleepless nights, constant fretting and barely hidden hostility toward my husband, who was likewise grappling with his role as a stay-at-home dad), my anxiety made me productive.

I took on several freelance projects, I got the final payment for my book, and earnings were unexpectedly robust.

Alas, in May I got hit with an emergency appendectomy, and the medical bills came thick and fast. Including our $3,000 deductible, by the third quarter we ended up owing close to $6,000.

Luckily, my husband and I had started taking our savings much more seriously in the fall of 2006, and we had the $3,000 in our emergency fund to cover the deductible.

Unluckily, we mysteriously squandered two-thirds of it . . . on other stuff. We wound up paying the rest out of monthly cash flow.

This wasn't just a wake-up call, it was a pie in the face. The big lesson of the second quarter was that our budget had large, ugly holes in it, which allowed our worst money habit, carelessness (the eighth deadly sin), to take over.

Consumer debt: $7,500.

Emergency fund: $0.

Long-term savings: $40,000.

Retirement: $14,700.

Home equity: $35,000 (reflecting market downturn).

Net worth: $82,200.

Continued: Becoming more strategic

 1 | 2 | next >