Monday, June 27, 2011

Day 259 - Life After The $60K Project?

As Mike and I excitedly approach the finish line for The $60K Project goal (a few months early, too!), I have been thinking a lot about what should happen next in our personal finance life. For us, this project wasn't about going on a money "diet" for a short period of time and then reverting back to our old ways. The last 8 months have been and will remain a life altering event that will permanently change our financial behavior.

How do we continue our positive momentum and successfully leverage it into a new financial goal? I believe the first step is to try to understand why we successfully paid off $60,000 in debt in less than a year. Aside from a complete commitment from both of us and lots of communication, I think setting a very specific goal had a lot to do with this accomplishment. Having both time (one year) and amount ($60,000) quantified - as opposed to say, "Let's pay off our debt soon" - allows for a specific plan to be formulated right down to the amount of our paycheck that needs to go towards debt on a daily basis. We assigned a responsibility to each dollar we brought in since we knew what amount of our paychecks would need to be used for debt versus living expenses in order to reach our goal. We were also able to analyze our progress regularly and determine whether we were on track. For example, we realized the amount of money we could assign to debt payments each month wasn't enough to meet our self-imposed timeline - so rather than extending the time we figured out ways to bring in additional income.

So what's next? Although undecided, we have come up with a few ideas for next steps. While we don't necessarily need to pick just one of these options, I'm presenting them as separate ideas for ease of explanation.
  • Pay off remaining $51,000 student loan. Yes, unfortunately we are not debt free after paying off $60,000. We still have one more student loan debt remaining and it's a doozie. Ugh. The "good" news (if I can call it that) is that the interest rate is only 3.6% and it's fixed. I expect it would take an additional ten months to pay this loan off completely.
  • Save money for emergency fund. Since we have been throwing all of our extra money at debt we have little to no emergency fund. It would be nice to save for 3-6 months of expenses, but is this a smart thing to do right now since we still have a large outstanding debt?
  • Save money for a down payment on a house. Someday we would like to move out of our tiny condo and end up with a house that allows our bikes to not sit in the living room and parking spots for both cars. But, similar to the emergency fund, I wonder if this is really the right time to start saving for a house?
  • Move closer to the beach. We have always said that there is no point in paying San Diego prices if we weren't taking advantage of the beach culture. We would love to live within walking distance to the beach and be in an area where we can walk to the grocery store and entertainment. My only hesitation is that we will most definitely be spending more for rent - and I'm not sure that is the best use of our income at this time. By sticking it out in our current place - where rent is only about 17% of our monthly take home pay - we will be able to meet our financial goals much faster.
Dave Ramsey would obviously tell me to continue my debt snowball and pay off my last debt. But I think the size of it is quite daunting and for some reason makes me feel a little intimidated to try to tackle it. I just need to keep in mind that, although difficult, having this decision looming in front of us is a good position to be in.

Mike and I will be sitting down in the next few weeks and formulating a plan for our next steps. I would love to hear your ideas so please send me a comment!

Stay tuned,


Adam Underhill said... Best Blogger Tips

Sarah--We too are working towards becoming DEBT FREE! As a Dave Ramsey fan, I've had to make some tough choices when it comes to our student loans. We have three little ones at home and my wife is working full time as a MOM! Thus, we are on one income, leaving very little  in terms of the "snowball." We actually paid off all "credit cards" and then are focusing on the emergency fund.  Only because time out of the market is so costly.

60kproject said... Best Blogger Tips

Adam, nice job paying off all the credit cards and kudos to your wife for
staying at home to take care of the little ones. Sounds like you all are on
the right track. Keep up the good work!

Laura said... Best Blogger Tips

I would keep going with your 'spending diet' for another 2 years; paying the student loans off and saving for a deposit. It makes sense to stay in your current place for now as 17% is quite low, although I fully understand you wanting to move closer to the takes me a lot of willpower to not think about moving to Portugal, like tomorrow, but ideally I want our UK mortgage paid off first.

60kproject said... Best Blogger Tips

Laura, I think you are absolutely right. I think we may just have to suck it up for a little while longer. We've made so much progress already I'd hate to stop the momentum now - how many more times in my life am I going to be willing (and able) to drop everything and live on nothing for a period of time? And good luck getting to Portugal in the near future!

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