Sunday, November 21, 2010

Day 38 - Navigating the Holidays

November 21, 2010

As Thanksgiving and Christmas approach, I am excited by the thought of the holiday season ahead.  As mentioned in an earlier post, I had initially budget to spend $1,000 on Christmas expenses this year - a number which seems rather absurd to me now given my financial situation.  And since I have already spent what I had saved for Christmas so far on extra debt payments, I need a new game plan.  There are really two issues at play this holiday season: 1) Gift-Buying and 2) Travel Expenses.

As far as Thanksgiving, Mike and I bought our tickets long ago and for a good price.  Plus the only gifts we expect to buy are for the people we stay with as a thank you. Other than that, our remaining expenses should be food.  We are fairly confident that we will be able to stay within our November budget barring any unforeseen emergencies.

Christmas is a bit more complicated.  As far as presents, I am considering a gift truce with everyone over the age of 18.  My family has a lot going on this year and I think that presents for the adults are not a necessity.  As far as travel, Mike decided to fly home to see his family after we were able to scrounge up flight credits and credit card points to pay for his flight.  As for me, I am contemplating a drive home.  Given that my current job allows me the flexibility to work from pretty much anywhere, it would be easy for me to go home for a couple of weeks.  In addition, I plan on bringing my dog so that eliminates the cost of a dog sitter.  The problem? I estimate the total cost of driving home to be about $600 round trip including hotels and gas.  Given that this is going to be my first Christmas without my dad and the thought of spending it at home by myself doesn't appeal to me too much, is the cost of my trip justified?  When do you allow yourself to think outside of the financial box when making spending decisions?

I think people too often have a tendency to justify their spending with some kind of emotional reasoning - myself included.  But where do you draw the line when deciding between the logical and emotional sides of a spending argument?  If I were to think with solely a financial mind, I would probably decide not to go home since that $600 could be used to pay off debt faster.  If I think about it from an emotional standpoint, I would most likely decide to go home.  Holidays and family have always been important to me.

Although I try, I am not capable of deciding solely based on my budget and bank statements.  But maybe that is why I am still in debt.  I do think that there has got be a happy medium when these types of decisions come along.  But I haven't figured out what it is yet.

Stay tuned,

Wednesday, November 17, 2010

Day 34 - The Salary Myth Part I: Income vs. Debt

November 17, 2010

I have generally been taught all my life that a larger income allows for greater security and more options. While I do believe there is some truth to this, I also feel that this type of thinking can be easily misconstrued by a person - myself included. I think I have realized the key word is "debt" rather than income. I believe a family with $50k of income and very little debt can lead a similar or better lifestyle than a person who makes $80k and relies on debt for most major purchases. Let's test this theory by putting some numbers together for a very simplified example.

Family A makes $50,000 annually while Family B makes $80,000 (gross). Family A has very little debt - just a small student loan. Family B has two car payments and lots of student loans to pay back. All other monthly expenses are the same.

Family A Family B
 $50,000 Gross Income  $80,000
65% Less Taxes, SS 65%
 32,500 Annual Take Home  52,000
/12 /12
 2,708.33 Monthly Take Home  4,333.33
 (1,250) Rent/Home Mtg.  (1,250)
 -   Car Pmts  (800)
 (750) Food  (750)
 (200) Insurance  (200)
 (200) Utilities  (200)
 (100) Student Loan  (1,000)
 (2,500) Total Expenses  (4,200)
 208.33 Net Income  133.33

This is obviously an oversimplified example but hopefully it makes the point. Assuming all expenses are the same - with the exception of anything debt related - you can see that these fictitious families can live similar lifestyles despite the $30,000 difference in income.

The general takeaway here is that more income does not necessarily equate to more money, things, vacations. It also does not ease that "stuck" feeling in your head when disposable income is eaten up by car payments and student loans. Just Google the many "Real Housewives" who have lost everything in the past few years.

1) Spend less than you make: A very simple phrase but for some reason difficult to live by. Americans at every turn are encouraged to be consumers often times even to their detriment.
2) Think twice before taking a loan out for anything, including school: You may end up with a mortgage-sized load of debt to pay off - with no house attached to it.
3) More income is not always the answer: Explore your spending habits. You may be surprised to find ways to cut back even more than you first imagined.

Stay tuned,

Monday, November 15, 2010

Day 32 - The Mid-Month Report

November 15, 2010

The first and fifteenth of each month I will update you on the status towards our goal of paying off $60K in one year.

So far we have been able to completely live on my salary and put Mike's entire salary towards extra debt payments. A good start to sticking to our budget and cutting back on expenses.

Scheduled Payoff of First Debt: We are currently throwing all of our extra money at our smallest debt - Mike Student Loan #1. We expect to completely pay this off late January or early February if we can stick to our budget
Challenges: Eleven months left to pay off $47,500. This equates to approximately $4,300 a month in debt payments. Right now we do not have that much money available from our current paychecks to put towards debt each month. Mike and I will need to earn some extra money on the side. But how??
Upcoming Significant Expenses: Vet, holidays
Additional Cutbacks: Wine club ($50/ month), online fitness tracker ($17.50/month), office garage parking canceled as of December  ($135/month)

Stay tuned,

Monday, November 8, 2010

Day 25 - The Budget

I hope to share with you some of my favorite blog posts from the last ten months. This post about budgeting was my way of saying I had a real wake-up call happen. Sometimes you can trick yourself into thinking you are "going without" when you really aren't. Enjoy!

 The Total Money Makeover: A Proven Plan for Financial FitnessHow exactly do you figure out what you should and shouldn't budget for? Prior to starting the $60K Project, I was a cult-like follower of Dave Ramsey's Total Money Makeover. I created envelopes for my expenses and stuffed them with cash, canceled my credit cards and listened to Dave's three hour radio show almost every day. I religiously saved up for Christmas gifts, auto expenses and vet bills a little bit at a time each month and had my $1,000 emergency fund in place. But even though I consider myself to have made tremendous progress ($22,000 paid off in 18 months!), I still feel like I may have missed the mark somewhere in the process.

Also included in my budget each month was $120 for spending money, $200 for eating out/entertainment and $25 for gifts. Oh yeah, and did I mention that I thought saving up $1,000 for Christmas presents seemed reasonable? And might I mention that Mike and I were not doing the Ramsey Plan together - it was just me. So I was trying to balance paying off debt while maintaining a life with someone who didn't necessarily overspend (by any means) but also didn't feel any need to be especially frugal either.

In a way, I was fooling myself a little bit. I smugly thought that I "got" the Ramsey Plan and "lived like no one else so I could live like no one else." I realize now that I would pick and choose the elements of the plan that were convenient for me at the time. I was also over-saving and over-budgeting for certain items, resulting in considerably less money to put towards my debt snowball - and living a relatively comfortable way of life. Considering my income and comparing my payoff timeline to callers on Dave's show, my performance was below average.

So what have I learned so far? 

If I budget for it, I will spend it. Whether I saved $500 or $1,000 for Christmas, the total amount will be spent. Same with my "spending money", entertainment, gifts, etc. That Starbucks grande cinnamon dolce latte is a lot easier to buy when in my head it appears to be within the budget. Going forward I do not have a spending money, gift or Christmas envelope that I diligently throw money into. I carry very little cash in my wallet and I only budget for essentials. There is no play money anymore. Instead of stockpiling wads of money for "emergencies" or having a little too much spending money for frivolous purchases, I throw it all towards debt. 

Eating out is not essential. Dave Ramsey always talks about how the only way you should see the inside of a restaurant on his plan is if you're working there. I didn't really take that to heart until this past month. Trust me - it is not easy. I get a lot of enjoyment out of my nights out at great restaurants and this past weekend I was going through withdrawal while watching a 30 Rock marathon (thankful for Internet) and eating a homemade - yet fairly tasty - cheeseburger. But by cutting out the eating out part of our lifestyle we easily save $500 - most likely more when you account for lunch, coffee, dessert. That alone is $6,000 a year or 10% of our total debt payoff goal.

Your family needs to be on the same page. Being accountable to someone other than myself is a real motivator. It makes me think twice about grabbing a slice of pizza for lunch or a coffee and bagel in the morning because now I have someone to answer to other than myself who scrutinizes every transaction. On my own, I wouldn't have thought twice about it. I hate to say it but it's nice to know that Mike will give me a hard time and vice versa. It is a nice checks and balances system.

So I continue to thank Dave in all his infinite wisdom (and superior marketing ability) and have vowed to re-learn what his baby steps are REALLY all about. And some day in the near future I hope to yell "I'mmmmm debttttt freeeeeee" at the top of my lungs.

Stay tuned,

Thursday, November 4, 2010

Day 20 - It's Personal

November 3, 2010

I've never been too good at sharing anything about my personal life - but I'm working on it in hopes that I can learn and benefit from it. I recently lost someone very special to me and he is the inspiration behind the creation of this year-long challenge.  So here goes....

Hi Dad,

It's been a little over two months since you died and I'm still really struggling with the fact that you aren't here. As more days pass, I realize how much I relied on you for support - in good times and in bad - and how much it affects me that I can't just pick up the phone and call you. I realize that my phone calls to you greatly helped me deal with stress in my life - you would always listen to me and what I had to say that day;  you always picked up the phone regardless of how you felt. Unfortunately, talking to mom is just not the same.

I knew you were a great man but as time passes without you, I realize even more the commitment you made to your family - and that you kept it both in good times and in bad. I hope you know how much I love you and how great an influence you have been in my life. I am very proud of the fact that I was raised on classical music, Shakespeare, and changing my own oil. I am so grateful for every day I had with you - even the bad ones. I think you and I have a very special relationship that I will always cherish. I'm so thankful to have had someone like you in my life - I feel like I have learned from both your triumphs and miseries and I am grateful for it.

So where do I go from here? I feel lonely sometimes without you - you really "get" me and always have. I feel like I am somewhat of an enigma to the family sometimes. It's hard to move forward in life without your biggest fan and moral compass. But I am making every effort to get to a better place knowing that you will always be in my heart. I know our long talks on the phone where we would keep saying goodbye but never hang up are now just a happy memory. But I know that you were - and still are - my biggest advocate, my shoulder to lean on, my person to share grand ideas and dreams with. I hope that you are still watching and listening because I plan to keep talking even though I keep trying to say goodbye. I'll never hang up.

Love you with all my heart,

Day 19 - The Start

Nov. 2, 2010

There comes a time where you just have to draw a line in the sand. I'm
not sure what it was that put us there, but Oct. 14 was that time.

Debt is an interesting thing. In some cases, it can be useful.
Investors use debt and leverage to boost their returns, especially
real estate investors. Families use it to help buy homes. In these
cases, you pay down your debt and are left with an asset - a home, an
investment, etc. Debt also allowed us to attend some top-notch schools
and get some top-notch degrees. However, as we pay our debt back, we are left
with what? A piece of paper and an education - the same piece of paper
and education we had before we started paying off the debt. When
paying off a mortgage, you have the end goal of owning your home free
and clear; with a student loan, there's no such carrot, other than not
having to send a chunk of your paycheck into a black hole every month.

I don't think this is the time or venue to discuss the merits or
drawbacks of using debt to pay for school. For people our age, taking
loans to pay for school (often multiple degrees) was taught as the
thing to do. We never really thought twice about it. Similarly, many
people jumped on the bandwagon of buying a home (regardless of their
situation and income) - and we see how well that worked out for a lot
of people.

Looking back, would I do it again? Would I take out loans to get my
degrees? Probably. I think the payback has probably been worth it for
both of us (although I do occasionally have second thoughts). However,
if I did it over, I probably would have worked more during school, saved up more money before hand, or really chased scholarships a lot harder - basically, do
anything to minimize the loan amounts I needed.

Anyway, as a result of our educational endeavors, we’ve been writing checks off
to various lenders each month, eating away at a significant portion of
our take home pay. We try to justify this - saying if we didn't have
these degrees, our paychecks would be smaller. We’d like to hope that the
paycheck increases our education brings us is more than our monthly
student loan payments - although that is not something I can easily
prove, or disprove.

I mentioned we drew the line. Something clicked. Sure, I was tired of
seeing people, who I knew made less than us, buy homes, nice cars, go
on nice vacations, and wonder how they afford it and we couldn't
(although I knew the answer). But that wasn't the tipping point. I got
tired of not being able to move into a nicer house or to go on a nice
vacation. I also got tired of calculating what we could buy each
month, or how much we could save, if we didn't have to make monthly
loan payments. Those weren't the tipping points either. I got sick of
second guessing every purchase we made, wondering if that money would
be better spent paying down debt. I got sick of constantly having that
number in the back of my head - we still owe this much money -
constantly, thinking about all of that money going into a black hole.
It's tough to enjoy a nice meal out or the new bike I
want if I second-guess the purchase - and then feel guilty about it,
knowing I should be paying down debt. It's tough to enjoy a
vacation, if you're worried about every penny you spend and how that
relates to your debt. It just gets old.

Of course, the alternative was to continue to make minimum payments,
budget that into our cash outflows every month, and ride the loan out
into the sunset (20+ more years). But for some reason, that annoyed me
too. I don't think I could stand having to have the annoyance of debt
for that long.

So, if it was going to bother me, if it was going to interfere with my
life and prevent me from doing things, buying things, enjoying things
- why not just bunch the misery into a shorter time period. Why not
just cut everything we possibly could out of our budget for a short
period of time, suck it up, pay off our debt (or a good chunk of it),
and then go on living life as we want to.

Of course, this isn't just about paying off a large part of debt. With
that comes budgeting, understanding where every penny is going, where
we spend our money, where we waste money, and learning how to cut our
costs. When you start looking at these things closely, it's amazing
how money can (and used to) just disappear each month.

I don' t know why we never thought of this before. I guess we kept
tricking ourselves and coming up with excuses. I think we finally
realized we had to make a stand - and that's why we started this


Monday, November 1, 2010

Day 18: November Budget

November 1, 2010

All right, down to business. Mike and I are trying to live on one paycheck while the other paycheck goes completely towards paying off debt. After taxes, health insurance, 401(k) and God knows what else, my monthly "take home" pay becomes approximately $4,350. Sound like plenty? That's what we thought, too! But then we looked at our expenses for November: 

Where did all the money go?  Your first thought: Get rid of the housekeeper and the massage!  Very good points.  The massage is definitely under consideration - Mike gets a massage once a month because of an injury.  He is trying to evaluate whether this is really a "necessary" expense at this point.  The housekeeper is also under consideration although I may have a little more trouble letting it go.  I know, I know.  You think I'm being a little ridiculous - and maybe I am.  But I gladly gave up cable - a "necessary" expense in most households - in exchange for keeping the housekeeper.  Or maybe I'm just trying to grasp at some sort of justification.  Interested to hear what you all think…..

As far as cutting any remaining expenses, I think groceries and supplies might be estimated a bit high.  But I swear every time we go to Target we don't walk out of there without spending at least fifty bucks.  Weird how that works.  Plus we have really cut back on eating out - I think we ate out once in the last two weeks.  Before we cut out restaurants, we would spend about $80 a week at the grocery store for breakfast, lunch, snacks and five dinners.  Now we are estimating $120 a week with no dinners out (plus the $50 Target fee).

There are a few one-time expenses during November: Duke's sitter is only because we will be going out of town for a few days (business idea: dogswap service) and haircuts don't happen every month.  As we go through this process together, hopefully we can figure out a way to bring in more income (insert business idea) or get rid of some expenses we currently have.

Expenses Already Cut: Cable, Spending Money, Eating Out

Additional Expenses to (Maybe) Cut: Housekeeper, Massage, ???

Future Roadblocks: Duke needs a visit to the vet ($); Bridesmaid dress ($$)

Frustrations: We could buy a Tesla with the money we spend on student loans every month.


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