Tell All Wednesday: Debt Down, Savings Up Edition
Usually, it is Tell All Tuesday, but I had a dentist appointment yesterday morning that put me in a foul mood for the rest of the day, and I wasn’t feeling quite well on top of that. So Tell All Wednesday it is!
Generally, the news is good. Although we are not making progress at the rate we did in 2008, we are still making slow and steady progress at reducing our remaining non-mortgage debt. I paid my $300 budgeted minimum payment to my student loan this week, which brings the overall balance to $9313.94 (which, since that is the last debt left, is also the amount of our remaining non-mortgage debt). I also moved $500 into our savings account last week, which brings our emergency fund balance to $1500. I have a little more than that available that I could put into savings, but we have a repair to one of our porch pillars we need to do next month so I’ve started budgeting extra money that comes in towards that. I don’t want to pull money out of our emergency fund for something that I know is coming up, but if I put all our available money into savings, that is exactly what I will end up doing. So it is just being budgeted separately and our porch won’t slide off its foundation this year. :) We also owe about $500 in taxes that we’ll have to pay in April, so that is also being saved for separately and is affecting the amount I put into our emergency fund right now. There is, as many people have observed in life, always something.
Our number one focus right now as far as finances is getting our emergency fund up to $2500. Our goal is to accomplish that by the end of April, which may or may not be doable depending on what else life throws at us in that time. I’ve kind of come to a sort of peace with that, though. I’ve been fighting and fighting in my head against the goals I’ve set up for us, and although I still believe in our goals and working to accomplish them, I’ve also realized that sometimes, life just keeps throwing things at you. It has taught me a bit about being flexible and making decisions based on the big picture. Our first goal, when I started this blog, was to have all of our non-mortgage debt paid off by December 2010, and even with our series of setbacks and uncertainty, we’re still well able to make that goal. Obviously, in a perfect world I’d like to accomplish things sooner than that, but we’re taking it one step at a time right now.
I’ve been asked a number of times about our current payoff strategy with my student loan and why we continue to make $300 payments to it when the actual minimum amount due each month is around $145. And the answer, honestly, is simple - motivation. Paying double the minimum payment each month is much more motivating to me than paying just the minimum. And with motivation, I become less discouraged even when we aren’t making the level of progress I’d like. A lot of this entire debt elimination journey has been learning how to negotiate the balance between what makes the most sense strictly from a numbers standpoint, and what keeps us motivated to keep making progress and continue. Sometimes those two things have been the same thing. And sometimes, we’ve made adjustments to keep things going even when we’ve felt discouraged. It is all a balance, and a learning experience, and to keep my own financial sanity, I make double minimum payments. We could, of course, stop doing that if we needed to, but for now it is what makes the most overall sense for us. Motivation.
Don’t let me get started on the financial ramifications of the dental appointment. Let’s just say a few snowflakes will be flying towards the dentist office this spring as well. But they did say that my flossing skills have greatly improved. 
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March 18th, 2009 at 3:18 pm
I’ve got to tell you I’m concerned by your plan to pay of your student loan at such an extreme rate - at the expense of an emergency fund. Your student loan interest rate won’t increase, if you had an emergency you could always get a deferment or forebearance on your loans, or negotiate a lower payment. However, you won’t have any cash! That extra $150 a month could fund your emergency fund - and truly, $2500 in a fund is far too little. You should aim for a minimum of six months of expenses.
March 18th, 2009 at 10:17 pm
Interesting to see where people choose to pay off debt. My school payment is roughly $150 a month and I pay only a little more than that. I have an interest rate around 2.9% so I am not the motivated to pay it off quickly, mostly because it has saved me at tax time every year.
March 20th, 2009 at 6:09 am
Don’t worry about the dentist too much, they were able to pull me in for some “extra work” last month. I too have improved my flossing.
Thanks for sharing your finances with your readers. I draw inspiration from others that are so active in keeping their finances in order.
March 22nd, 2009 at 2:18 pm
Only floss the teeth you want to keep.
I piled up cash through a crisis–cancer treatment and uncertainty about what kind of bills I’d end up with. As soon as I was done with treatment and more confident about my insurance covering the bills, I paid off the student loan, my last debt.
Yes, it’s an above the line deduction, but let’s examine this.
If your 1098-T (?) form says you paid $300 in interest, the IRS may adjust that figure down with their worksheet to calculate the deductible amount. They did to me. But even overlooking that, if it’s not adjusted down, the tax you save is your marginal tax rate times the amount the IRS lets you deduct.
Let’s assume you have a salary like mine and your marginal tax rate is 25% like mine.
So you pay $300 in interest to the US Department of Education to avoid paying $75 to the Infernal Revenue Service.
I decided that being debt free and getting William D. Ford out of my life was worth more than the relatively tiny difference in tax savings.
I used that piled up savings and paid it off.
I might not do that in this current crappy economy. Uncertainty makes piling up cash a good idea.
(My analysis of my own situation involved a much longer, more complicated spreadsheet of tax data and ripple effects like AGI figures rolling into the Schedule A–and that difference was negligible too.)
Invest in your debt. A 2.9% rate of return is beating your equity investments with a stick. LOL
March 22nd, 2009 at 7:03 pm
Two things.
One, you haven’t changed the “current numbers” since you made your last SL payment. We love to see those numbers go down, lol!
Two, I’m sort of embarrassed at posting this, I certainly hope you don’t take it badly or get offended, that is not my intention. I don’t know you mom’s situation, and I don’t know whether your parents owned their cars or leased them. But MIGHT it suit both you and your mom for you to buy either your dad’s car, or her car, if she doesn’t want to hang onto both?
The only reason I’m mentioning this is, my sister and I both inherited equally from our parents. Except for one thing. Since I’m much further away, and my sister was local, our dad named her executrix, and left her his car. She got great joy out of driving Daddy’s car, I got great joy out of getting into it for years every time we visited her.
March 23rd, 2009 at 10:47 am
Darnit, I forgot to update the numbers page! I shall do that sometime today. Thanks
As for the whole car thing - I don’t remember what I went into and didn’t here. But my “dad’s” car is actually my brother’s car. My dad financed it for my brother and my brother paid the payments each month because doing it that way got my brother the employee discount my dad has. (The dealership was well aware of what they did and actually refer to the car as my brother’s car, but I digress). My dad drove a car “given” to him to use by the dealership, it was part of his compensation plan.
So my mom has a car (which is paid off and has been for a while), my brother has a car (which, if the insurance company stops harassing me, should get paid off by a policy my dad had on it), and there is no “extra” car, or I would have thought of that idea I think.
March 23rd, 2009 at 5:34 pm
Paid Twice
I don’t recall ever reading that info about the cars, but I could have missed it.
One last thing. Have you ever thought about approaching the dealership and offering to buy your dad’s car? (I mean the one he drove, not your brother’s car.)
I’m glad you were not offended, and I hope that continues to be the case.