I’ve Paid For This Twice Already…

Tell All Tuesday ~ Bye Bye Car Repair

This past week, the big news is we said bye bye to the car repair bill. It was sort of an… adventure to pay off, but we were finally successful after many phone calls and a trip to the dealership the car was repaired at. My spouse then called that evening to close the line of credit account completely, so the car repair is simply a distant memory now.

This means we are done with credit card debt completely. My spouse is really excited about that fact, I am too but I think it hasn’t sunk in completely. I kind of just started setting my sights on dealing with the next debt in line without reflecting too much on the fact we’ve finally destroyed the credit card debt that has been with us for a good portion of our adult lives. My goal is to get us into a stable and healthy enough financial position that it never comes back.

So, how to do that? Well, we need an emergency fund. As the car repair proved, $1000 is not a large enough emergency fund for the place in life we are now. I knew that, but I was playing the odds and this time, I didn’t beat them. So now we are going to take a multi-layered approach. First, we will have the $1000 emergency fund in our savings account that is linked to our checking account for easy access. Just having the money in a separate account is enough for me to not spend it unless an emergency arises, so it is okay that I have easy access to it. The second layer is going to be the student loan payoff account. I am creating an ING subaccount to save up snowflakes for the student loan payoff. I can’t make tiny payments over and over to Sallie Mae each month, because they are a huge pain to get to credit to principal. But I know myself, and when I don’t have a specific place to put all snowflakes, they tend to get sucked up and disappear. So I am creating the subaccount to hold the snowflakes until I use them. Depending on how fast they accrue, my plan is to, once a month, make a significant overpayment to the student loan. I am hoping I can save up somewhere between $500-$1000 per month for this - which is ambitious and will depend on how much alternative income I generate. My spouse may also get a raise in May which would help too. While that money is accruing every month, that will serve as a backup in case of an emergency. It will vary, so it won’t always be a lot of money, but it will help.

My third layer of emergency preparedness while reducing debt is my “long term” savings account. I put $25/month into that right now, it is earmarked for home improvement items (like a new furnace and new refrigerator, both are 20+ years old) but it serves backup to the emergency fund in a pinch. When the car repair happened it had about $250 in it, and I emptied it out and started over this month. I’m at $25. But every bit helps! And my fourth and final layer of emergency money is my blog account - I save 30% of all revenue to pay my taxes. Over the course of the year that will add up and I can also use that as backup funds, as I did when the car repair happened, I just need to keep track and pay it back. When I make estimated tax payments, that will be reduced, but I end up over-saving a bit in regards to how much tax I actually owe, so there should always be some cushion there.

These measures are still not an adequate emergency fund as far as the long term is concerned, but they are acceptable to me for the short term. Depending on the progress we make on the student loan this year, I may start adjusting the emergency fund upwards as well at the end of the year. Our actual “expenses”, not including snowflake debt repayment (but including minimum payments) are about $2000/month, and eliminating the debt minimum payments would reduce that to about $1400/month (including the mortgage). In the long term, we would like 6 months of expenses saved (so $1400 x 6 or ~$9000), plus another $5000 saved for house-related necessary upgrades and repairs. $14,000 of savings total seems like a huge amount to me, but we can do it! Just, not yet. But at the end of the year, when the warranty on the car’s new engine expires and we start a new winter with a 22 year old furnace, we may start upping the emergency fund to a eventual short term goal of $3000 just in case.

With all that said, here are the numbers for this week:

Debt at start of blog (6/19/07) : $36,451.71

Current total as of 02/14/08: $26,311.06

Principal paid to date $10,140.65

Broken down into:

• Auto Repair: PAID IN FULL 2/14/08

• Credit Card: PAID OFF 2/7/08

• Student loan: $11,636.71

• Spouse student loan: $11,537.66

• Car loan: $3136.69

% paid off according to NCN Network Chart: 27.82%!!!

We are over the 25% mark on debt repayment!! Yay. Super-observant people will notice I didn’t add the car repair payoff amount ($800) to the principal paid number, just took it out of the total debt outstanding number. I did that because the car repair was not part of the original principal debt when I started this blog, and since it actually never technically ended up a “debt”, it is simpler to just make it go away completely than have the principal paid plus amount owed add up to $800 more than the original debt.

Over $10,000 of debt paid off. If we can pay off that much in less than a year, it should be simple to save a $14,000 emergency fund when we put our minds to it, right?

Next target, my spouse’s student loan, which is at 9% interest. I’ve started investigating how to pay that off most efficiently and with maximum benefit to our finances, and I will report back with what I find. Our emergency fund right now is only at ~$450, but according to the IRS schedule, we should get our tax refund back this Friday (we filed electronically last week), and that is enough (our return was accepted and we should get back about $680) to restore our emergency fund to $1000, plus buy a new backup power supply for my spouse’s computer, since that committed power-supply suicide this week. It is always something…

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