The Impact of Financial Lock-In

As I’ve discussed many times before, the low point for Sarah and I (in terms of our finances) came on a beautiful spring day when our oldest child was still an infant, when we realized that we didn’t have enough money in our checking account to pay our bills and we wouldn’t receive a paycheck again until several of the bills were past due.

For some, that’s a far more precarious financial situation than they’d ever want to be in. Others have been through far worse. For us, it was enough to force us to sit down and really re-think our financial situation.

At the time, our incidental spending was pretty bad, but that really wasn’t the worst part.

The worst part was the “lock-in” – the sheer number of bills that we had to pay each month.

We had our rent, due every month. We had our electricity bill and our sewer bill and our cell phone bill and our bundled landline/internet/cable bill. We had several different student loan bills. We had two different car loan bills. We had several different credit card bills. We had a bill for furniture that we bought on credit. We had a Netflix bill and a couple other subscription and membership bills. We had a child care bill – that one was big and it was weekly. We also had to keep food on the table and clothing on our back and gas in our car.

We were locked into most of those bills. Every month, we had to write what seemed like an endless list of checks just to meet our obligations and maintain what we thought of as the backbone of the life we had.

Those bills added up to thousands upon thousands of dollars each month, and that lock-in had some serious consequences.

For starters, it meant that we had to keep earning more than what our total bills were. It wasn’t really a choice – to pay back what we had borrowed for schooling, for our cars, for the furniture, and for the tons of dumb things we had put on our credit cards, we had to have some money coming in each and every month. To keep a roof over our head and food on the table and clothes on our back, we had to have some money coming in each and every month.

The thing is, a lot of our bills were the result of choices we had made in our past, most of which were pretty awful ones. We were locked into a lot of debt as the result of spending decisions we made at earlier points in our lives. We started making decisions that saddled us with student loan debt when we were 17 and 18 years old. In our very early twenties, we started accumulating a lot of credit card debt and then, soon after, car loans and furniture loans.

On top of that, we had become accustomed to a certain standard of living. We went out to eat at nice restaurants pretty regularly. If we wanted something like a book or a movie or a video game, we just bought it without scarcely a thought. We bought everything name brand and thought store brands were to be looked down upon. Our standard of living was expensive and the thought of trimming it seemed like a very painful endeavor.

All of this added up to a pretty high monthly financial commitment. In order to continue to live this lifestyle, we both needed to constantly earn a pretty good salary, and disruption of that salary was a frightening proposition.

To make things worse, we often splurged beyond this and put it on credit cards. In the first two years of our marriage, we went on trips to Mexico, the UK, the Pacific Northwest, and to Las Vegas, and those are just the ones I can name off the top of my head. We would splurge on things like new video game consoles and expensive shoes, and those purchases would go straight onto credit cards, cards that we were merely making minimum payments on.

Thus, as this went on, our minimum bills creeped higher and higher while our spending really didn’t slow down much at all. It got much worse with the birth of our first child and the additional baby costs and child care costs that he brought with him.

All of this added up to a state of financial lock-in. We had a pretty hefty stack of bills that we were obligated to pay each month and we lived a lifestyle that added to those financial commitments. In order to keep those bills paid, we had to both earn a pretty good income, which meant that any unexpected waves at work were pretty scary. We were under the thumbs of our bosses, as we didn’t have any financial leverage in our life to put our jobs at risk in any way.

As a result, I found myself doing a lot of things at work that I would have otherwise balked at. I did a lot of traveling that I didn’t want to do. I kept getting handed more and more responsibility and being asked to take on more and more commitments without any financial compensation to match. While there were some limited opportunities to jump to new positions in my field, I was fairly scared to rock the boat at all with my job and risk losing it without having a strong job offer in hand and I knew that if I interviewed elsewhere, my current bosses would find out (the size of our field is pretty small and word got around fast).

We were locked in place, or so it seemed. And it was miserable.

Being locked into your situation adds a certain level of constant background stress to every aspect of your life. You feel stressed at work. You feel stressed at home. You don’t sleep as well or feel as good. Often, it’s pretty subtle – you don’t particularly notice it, but it just quietly drags everything down a notch. At other times, you really notice it – for example, when you emotionally respond to typical situations in a strong way that isn’t normal for you. You get sick much easier when you’re stressed out. You feel like you need more sleep and you don’t sleep quite as well. It just hangs over you.

So, what exactly did we do when we realized we couldn’t pay the bills any more? We went to work breaking that lock.

It wasn’t easy to do it. It required us to readjust some of our ideas about day to day living. We had to do a lot of things that we perceived as lowering our standard of living, even though it didn’t really turn out that way when we actually did them.

Here’s how we broke that lock.

First of all, we sold off a ton of our less important possessions to immediately right our ship. I spent a few months selling off a bunch of vintage trading cards and sports cards, video games, DVD box sets, and other items. I mostly used eBay for these sales; at the time, that was clearly the best option, but today there are many tools for this, including Facebook groups, Amazon, and Craigslist.

We used that initial money to make sure all of our bills were paid and that we had a small emergency fund, and we also paid off a couple of credit cards. That was a really big boost in the right direction. Not only did we reduce our total monthly bills, we also had a bit of a buffer against unexpected events. A job loss would not be quite as devastating, though it would have still been a strongly undesirable outcome.

We started questioning every purchasing decision and experimented with lower-priced options and periods of no spending at all. We switched to buying mostly store brand items and learned pretty quickly that most of them do an excellent job for our needs. We stopped going out to eat very often and started making a lot of meals at home, which were pretty simple at first but gradually became more varied and robust as we built up our cooking skills. We abandoned some of our more costly hobbies (like golf) and found lower cost ways to enjoy our other hobbies (like visiting the library for books instead of the bookstore). We started taking lots of walks around town and that gradually led us toward getting more involved in our community as we discovered things going on that we didn’t even know about before, and that became a far less expensive source of entertainment, socializing, and belonging than anything we were doing before. We did a lot of “money free weekends” and “money free weeks,” where we aimed to spend no money at all just to see if we could do it, and along the way we found lots of ways to enjoy life without spending money.

With our incidental spending rapidly declining, we took that extra money and used it to pay off debt as fast as possible. We just started knocking off our debts, starting with the highest interest rate debts. As they went away, our minimum monthly bills became lower, which meant that we had even more money the next month to apply to the next debt.

Over time, the financial “lock-in” gradually disappeared. It wasn’t an overnight thing – there wasn’t this magical moment where we went from locked in to being free – but over time, we began to realize that our life had breathing room again, that a job loss wouldn’t kill us, and then eventually we began to realize that things like a career switch wouldn’t kill us, nor would buying a house, nor would Sarah taking a year off after the birth of our third child. The background stress melted away.

Did it really cost us anything? The thing is, for everything we gave up, we eventually found meaningful and valuable things in our lives that replaced them without the financial cost. Again, this wasn’t immediate – we fumbled in the dark for a while and lamented the loss of many things and ended up eventually restoring a few meaningful expenses here and there. However, we eventually realized we could have a pretty meaningful and enjoyable life without spending nearly as much as we once were.

Ending our financial lock-in was the best move we’ve made in our marriage (aside from having children). It ended and prevented tons of marital trauma and stress, gave us a sense of having a powerful future together, and gave us incredible options going forward that we could scarcely have imagined. All it required, in the end, was the serious decision that ending our financial lock-in was an extremely high priority for us, and the rest just followed.

Good luck.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.