Thursday, February 24, 2011

Day 133 - Step 11: Reassess

February 24, 2011

I have developed a guide to help you (and me!) achieve the mindset and principles required to successfully become debt free.  This is the eleventh in a series of posts about my Twelve Steps to Debt Freedom.

Step 11: Reassess
Photo by

Failure is simply the opportunity to begin again, this time more intelligently.  ~Henry Ford
My job consists of a lot of planning.  I manage training, implementation and support issues for certain IT solutions.  Before the year begins, I am expected to have a twelve month plan that outlines milestones to achieve, tasks to complete and resources required to accomplish my goals.  Every quarter I present a more detailed plan for what will be accomplished in the next 90 days.  I am also expected to outline what was accomplished in the last 90 days. Time and time again I realize I learn the most about how to better accomplish my goals by consistently looking back at what I didn't accomplish and why.
The same can be said for a debt free program.  Now that you have worked through the first ten steps to debt freedom, it's time to take a look back at your successes and shortcomings.

Successes: What went well for you during your first bout with debt?  Figure out why specific actions were so successful. For us, documenting exactly what we spend our money on each pay period - down to the penny - has provided us with a means to see how our money used to "mysteriously disappear".  When we saw (and were surprised by) exactly how much money we spent eating out, we could easily reduce the money leakage in that area after seeing it on paper.  In addition, we now have multiple pay periods to compare because we create a new spreadsheet for every pay period so we have some built in metrics to compare prior periods and measure success quantitatively.  For example, if we spent $500 on eating out in October and reduced it to $100 by December, that is an 80% decrease in spending - a major success in my book.

Shortcomings: One area where we had major difficulty was creating a budget worksheet that worked for us - interesting because this also ties in with our success story.  We wanted some type of tool that would act almost like a check register during the month we use it, but also allow us to plan out recurring and non-recurring expenses we expect to have in the future.  I create a new tab in my Excel spreadsheet (insert nerd joke here) every pay period so I can see the evolution of our budgeting tool from month to month. The first few months are pretty horrible - and coincidentally Mike and I had several arguments during that time period. By December, though, we had really ironed out the kinks and now feel comfortable with our debt progress and also how much money we have available for expenses. We expect no surprises and that results in less arguments.

So now it's your turn. What has gone well for you so far in your debt removal process?  More important, where have you faltered? Remember when you were two years old and you decided to come running out of your bedroom only to realize (too late) that the staircase was closer than you expected?  After making the mistake of falling down a flight of stairs, you probably were a bit more careful the next time you took off at a sprint from your bedroom. If you hadn't made this mistake, you would not have had such a great (and painful) learning experience.

So brush your shoulders off, ice that bump on your noggin and figure out what you can do better this next month.  If you aren't aware of the journey as it happens and learn how to maneuver those stairs, I truly believe you won't be able to maintain a debt free lifestyle once you actually achieve it. Don't be afraid to fail - it's just a bump in the road on the way to your success. Ready, set, go!

Stay tuned,

Wednesday, February 23, 2011

Day 132 - Mid-Month Report

February 23, 2011
Mid-Month Report
The first and fifteenth of each month I will update you on the status towards our goal of paying off $60K in one year.   

** Check out the Real Time Debt Tracker!!!  Keep up to the minute tabs on our debt balance and whether we can pay it off in 365 days!
Present fears are less than horrible imaginings  - William Shakespeare
A lot has happened the past three weeks - writing for the $60K Project hasn't been one of them. I had a birthday, an MRI and two doctor appointments - and that was just one week.  After my brief hiatus, I have a greater appreciation for bloggers who consistently write material day in and day out despite what is going on in their life at the time.  And I am grateful for health insurance and Health Savings Accounts. Without these essentials, our debt balance would be increasing rather than decreasing right now. At this point all I can do is trudge forward and hope for the best. And blog.

This month we were able to put $500 into savings.  Although I wanted to throw this amount at our debt, Mike and I discussed it and thought it would be a good idea to use this money for some upcoming travel we feel is necessary.  Graduation, wedding, birthday, babies - all happening in four different states in the next five months.  Needless to say we may not be able to make all of these events but we will definitely need some travel money.  So into the savings account it goes.

Scheduled Payoff of Mike Student Loan #2: I think we can pretty easily pay off this loan by June. I am hoping that with tax refunds and (hopefully) upcoming bonuses we could move it up to May, but with some significant upcoming expenses it might be difficult.

Increased Income: We now have an additional $134 a month we use for expenses since we paid of Mike's Student Loan #1.  In the future, the minimum payments made from my paycheck will continue to be used to pay off debt.  In addition, I have a side job that brings in $300-$500 every quarter and I'm expecting a check shortly.

Challenges: Eight months left to pay off $35,291 . This equates to approximately $4,411 a month in debt payments.   Last month this amount was closer to $4,152 so we have lost a little ground. We are nowhere near paying that amount each month in debt so I'm hoping these extra income streams and tax refunds will help catch us up.

Upcoming Significant Expenses: All kinds of doctor and vet appointments - trying to keep everyone healthy!!  I'm also in a wedding which means bridesmaid dress, bachelorette party, flight and hotel.

Additional Cutbacks: We are doing really well with our budget right now and usually coming in under what we expected. Mike and I had a discussion tonight about whether we could continue to live like this beyond the initial year we committed to - remember, there is another student loan sitting out there that we have yet to even tackle aside from minimum payments. We haven't even been at this for six months yet so it's discouraging that we are starting to think about going back to our old ways. Eyes on the prize.

Stay tuned,

Tuesday, February 1, 2011

Day 111 - Step 10: Stop Using Credit Cards

February 2, 2011

I have developed a guide to help you (and me!) achieve the mindset and principles required to successfully become debt free.  This is the tenth in a series of posts about my Twelve Steps to Debt Freedom.

Step 10: Stop Using Credit Cards

Although you have completed the first nine steps, I will bet that the tenth step will be more difficult than it first sounds.  I believe that this step is also very crucial to your long-term success.

My Credit Card History
When I was a sophomore in college, I applied for and received a credit card.  I figured this would be a great thing to have in case of an emergency especially since my parents didn't have much money.  Of course, emergencies in college for me usually equated to some type of alcoholic beverage, new clothing or a last minute road trip to Las Vegas.  I also figured out that if I went out to eat with some friends and paid for everyone with my credit card, they would in turn hand over cash and I would end up with some spending money.  Pure "genius" - or so I thought.

After college was over and I entered the workforce, I would diligently make my minimum monthly credit card payments.  I also would use my credit card to pay for almost everything with the intent of paying it off every month.  My justification for using my card was so that I would have money in the bank in case of emergency and also so I could earn points with my purchases.

Prior to the credit card companies raising their interest rates a few years ago, I decided to stop using credit cards altogether and  pay everything off.  As of today, I have no credit card debt and have canceled all but one credit card.  Over the past ten years, my credit card debt balance has been anywhere from $500 to $18,000.

Mistakes I Made
Thinking Credit Cards Create Security.  I think many people believe - and credit card companies encourage - the thought that credit cards create a great safety net if $h!t hits the fan.  I definitely bought into this mindset and would rely on my credit card if my car broke down or I had any type of large expense rather than contributing money consistently to an emergency fund.  Let's take a look at this a different way: suppose you have an emergency expense that costs $1,000.  You charge this expense on  your credit card which carries a 25% interest rate and plan to pay $100 a month until it is paid off.  At this rate, it will take you 12 months to pay off and you will end up paying $200 in interest.  That is one expensive loan!  Consider the alternative - you decide to put $100 a month into a savings account for emergencies.  Although you won't make much money since interest rates are ridiculously low, you would eventually build up a balance to use for emergencies.  Next time you have that $1,000 emergency it won't end up costing you $1,200.

Credit Card Points Justify Use.  Many people, including myself, justify credit card use by signing up for some kind of points reward system.  I am still signed up for American Express Rewards and wondering now if it is really worth it.  My Rewards membership costs $95 a year.  For every $1,000 I spend, I receive what is the equivalent of $10 to spend through the Rewards system.  Therefore, just to break even and earn back my membership fee I need to charge $9,500 on my AmEx.  Charge any amount less than that and you are basically losing money.

What I Have Learned
Be Aware of Spending Behavior. I have realized that I am not the kind of person who can responsibly pay off my credit card debt each month.  I also feel there are better ways to manage my money than to use a credit card that bases its fee structure on the odds that you will screw up and make a late payment or charge too much to pay off at once.  I have read the comments section of other bloggers who have discussed credit card usage and noticed many people preaching about paying your balance off every month as if people who don't are just idiots.  I say kudos to the balance payers but it just doesn't work for me.  And you shouldnt be reading blog postings about credit card usage just so you can post a nasty comment because you don't have that problem.

Read the Terms and Conditions.  Mike and I were reading about the terms of his credit card the other day and the fees they have the capability to charge are pretty ridiculous.  One late payment results in an increase to a 29% interest rate.  If you use the card abroad, they not only charge you a fee EVERY TIME (this is new) you swipe it but they also get to determine the exchange rate for that purchase as they see fit.  Spend a few minutes reading that fine print - you will most likely be disgusted.  If I told you I would loan you $800 at 29% interest would you take that deal?  How is using a credit card any different?

Estimate Your Payoff Time.  I think you will be surprised at the amount of time it will take you to pay off even the smallest balances if you continue to make minimum payments.  Even worse is the total amount of interest you will pay over the payoff timeline.  There are many websites that provide a tool so you can calculate how long it will take to pay off a credit card and how much interest you will end up paying.  Start thinking in terms of total payoff amount rather than monthly payment amounts.  Here's a good example: I used the Federal Reserve's calculator to see how long it would take to pay off $10,000 if I made only the minimum payment and had a 19% interest rate.  It estimated 54 years to pay off and about $35,000 in interest paid!!!!  Yowzers!!

Bank Rate Calculator
Federal Reserve Calculator 

Hopefully you and I can both learn from my past credit card experiences and figure out that credit cards are not all they promise to be.  Credit card debt should not be the norm.

Read About Step 11:  Reassess 

Day 110 - February Update

February 1, 2011

February Update
Image by / Model: Duke

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

** Check out the Real Time Debt Tracker!!!  Keep up to the minute tabs on our debt balance and whether we can pay it off in 365 days!

Scheduled Payoff of First Debt: It finally happened this period!  Two loans down and two more to go.

Challenges:We were really good with our money this period and came in below budget on multiple items.  We also didn't have any significant and/or unanticipated expenses.  My most difficult challenge this period was actually finding time to write posts for my blog.  My day job is quite demanding at times.

Upcoming Significant Expenses: My birthday!! Plane tickets for weddings and birthday parties - can we afford any of them? More vet bills - Duke has some sore old dog hips.

Additional Cutbacks: No additional cutbacks but within some of our budget categories - food, gas - we came in way below budget.  Mike and I both had to travel for work this period.  That always tends to reduce our expenses since meals are paid for by the company and there is no need to fill up the gas tank as often.

Stay tuned,
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