I’ve Paid For This Twice Already…

Archive for the ‘goals’ Category

My family has come a long way in the past two and a half years since we started this serious debt elimination journey. When we started, almost half our monthly income went straight to non-mortgage debt, and it had a huge impact on our everyday life. The idea that someday we’d pay off over $30,000 and have less than two hundred dollars a month that *had* to go towards debt was a dream I wasn’t sure we’d realize. But we have, and even though we’re almost done - the journey isn’t over yet.

The final stretch, when you’re at the start, seems like it’ll be the easiest part. As you eliminate debt, more resources become available, and more can be allocated to fight the good fight. Momentum is on your side - the snowball rolls downhill faster and faster until it seems nothing can get in the way.

But, that isn’t always the case. Just as any other part of the debt elimination journey, setbacks can appear at the end as easily as the start. The length of the journey itself can be daunting - that initial adrenaline about completion can only last so long. And as more things creep into sight, debt elimination seems like it might have been the least complex part of the puzzle.

I haven’t completely lost focus - we’re still making progress (which I need to update on the numbers page, we’re closer than that currently reflects). But it has been much easier to get distracted into dealing with other things. As the debt becomes less, it almost seems less urgent - at the beginning, it was so much as to be overwhelming, and put a serious weight on our finances that felt almost inescapable. But as we’ve beaten back that debt monster, the threat of imminent destruction to our finances has become less (or at least, has felt less) because of debt. It has been easier to prioritize other goals before the final debt elimination. It has, in a word, become less urgent. Not in fact, but in feeling.

And the less urgent the debt elimination feels, the easier it is to not focus on it when other things get in the way. And that’s how the home stretch becomes an endless silent struggle. A lot of things have changed for us in the past two years. A lot of good, and some bad as well. But even though there may be other things affecting our lives that we never anticipated, this final debt elimination stretch will not continue to drag on. The refocusing of our finances back to where it began starts now.

First on the list - making this month’s student loan payment and then updating the neglected numbers page. Nothing like a Tell All Thursday to get things back on track. I doubt we will completely eliminate the non-mortgage debt by the end of 2009, but I’d like to beat the original December 2010 goal by as many months as possible. And figuring out where we are is how we’ll get to that point.

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A while back, I talked about The Prioritizer, a tool I first read about on The Simple Dollar used primarily for comparing different financial goals. The tool asks a series of comparison questions to determine the order of priority among a number of specified goals, and although it was designed as a financial tool, it can be used to compare any set of stated goals, financial or otherwise.I’ve received emails since from a readers discussing balancing divergent goals, such as debt reduction vs triathalon training, or saving for retirement vs starting a business, and asking for feedback about how to prioritize these unrelated but important to them activities, and I was instantly reminded of The Prioritizer and how I had used it to compare a number of my own goals in terms of my financial commitment to each of them. The goals were not necessarily all directly financially related, although each had a financial component and ramification to it.  So I thought I’d run through what The Prioritizer is, and how it can be used to understand what is deeply important to you and how to find balance.

Using The Prioritizer is pretty straightforward. You begin by entering up to fifteen goals by name, one per line. These are just simple descriptions of each goal, such as “Retiring at Forty” or “Vacationing in Rome”.  Once you’ve entered your goals, the Prioritizer gives you a list of pairings of your goals, and you rank one of each pair as the more important to you.  Think about each pairing before you choose - really decide which of those two things is more important in your life.  This is the key.  Comparing the goals two by two is much less overwhelming than trying to compare everything at once.

Once you’ve done that, the Prioritizer uses the data you’ve entered to rank your goals from most important to you to least important, with a percentage ranking next to each.  the higher the percentage, the more important to you.  The beauty is in the simplicity.  This isn’t anything you couldn’t do yourself with a number of pro/con lists, but it does it automatically for you and gives a simple list ranking your goals for you.  From this, you not only know how your priorities rank - but how much more (relatively) important one priority is than another.

Is it perfect?  Of course not.  It is a tool like any other - but it may give insight to you when you’re stuck trying to compare apples to oranges.  When I’ve been stuck looking at a number of different goals and not sure where my priorities truly lie, I’ve been able to use this tool to make things a bit more clear cut.  And readjust my financial focus (and otherwise) appropriately.

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When we originally started seriously getting out of debt, we set our emergency fund at $1000 kind of arbitrarily.  There was a reason specific to our family - I had had about $1000 for the past two years in our savings account and it was usually enough to bail us out of any problems, but mostly, it was honestly because I’d heard that number thrown around so much (thanks to Dave Ramsey) that we chose it.

When $1000 was serving us as a default emergency fund in the two years prior to this blog, our family and home situation was quite different than it is now.  We had one child and we rented an apartment.  Now we have two children and we own a home, which adds its own set of challenges.   Several times in the past two years we’ve been hit by unexpected situations that the $1000 wasn’t enough to cover (new furnace, replacing car engine), and a few other times we’ve completely emptied the fund to meet the challenge of an emergency (when my dad passed away, different car repairs, home repairs).

So we made the decision for 2009 to raise the emergency fund to $2500.  I naively thought that wouldn’t be too difficult - it hadn’t taken too long to get to $1000 and when we’d had to use it we’d built it up again quickly.  But almost like the world was challenging us, increasing to $2500 has been full of setbacks.  Not only in draining the emergency fund when emergencies have happened, but also having to divert money that would go towards the emergency fund to pay for things that have come up (most recently, taxes that I’d underestimated, and a repair to our front porch which had a rotted-out post so the roof would not start to sag.)  And with the worsening of the economy, we’ve had income setbacks - I am earning less than I was a year ago with my different freelance efforts, and my spouse’s salary has been frozen for the forseeable future.

We’ve been able to maintain the status quo without going into more debt, for which I am thankful.  And I’m not unhappy or complaining - it is more bemusement.  And we forge on!  However, my priorities for after the emergency fund have begun to shift.  The emergency fund stands at $2200 as of now.  Will it stay there?  Who knows.  But I anticipate being able to reach the desired $2500 in May.  At that point, we were going to start saving for a new-to-us car.  But I think we’re not, yet.

I started this blog to help us get out of debt.  And it has, greatly.  I’ve shifted priority in 2009 from eliminating debt to saving money, and I’ve come to the realization that it is time to shift it back.  We’re on the home stretch, with one non-mortgage debt remaining of about $9000.  Yes, the Saturn could die.  Yes, we could need to replace it.  That is still true - but at the same time, eliminating our debt is also an important priority and for now, we’re going back to it.  Finances is part practical and part psychological - and my brain needs to focus on debt elimination right now for the simple fact it is concrete and in the here and now.

So the student loan will soon come under attack.   We’ve been paying $300 a month towards the loan so far in 2009.  The rest of our budgeted towards debt repayment amount, at least $500 and sometimes more, has gone to the emergency fund.  But now we’re going to flip that.  $300 a month will go into our “long term savings” which is a new-to-us car fund right now.  And then, $500 or more per month will go towards the student loan.  Hopefully more, but that depends on my income earning ability.  I’m working on it, though.  :)  Viva la snowflakes!

Debt updates and a new timeline next week!  I need to play with numbers and work out some scenarios.  :)  I know that many of you will find this crazy, and others will find it right on, and that is okay - agreement is optional.

What’s your emergency fund minimum magic number and what factors play into that?  What comes next - debt repayment or other priorities?

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Setting goals keeps me motivated and helps me see where I am headed, as well as allows me to track my progress.  I am a big fan of setting goals and therefore, I like the idea of resolutions.  Yes, nothing magical happened between December 31st and January 1st - but the arbitrary designation of a new year gives one’s brain the idea of a fresh start.

I’ve already detailed my dual plan of paying off debt and saving for a new-to-us car this year, but I have some smaller goals related to our budget that, if I can stick to them, will help me to reach those more lofty goals.   I like to think of these as my New Year Resolutions, and they are:

1.  Spend $0 out of pocket at CVS and Walgreens this year.  Last year I really got into playing the Drugstore Game, which is using sales, coupons and rebates to get many items free or almost free at CVS and Walgreens.  In total, looking at my budgeting sheet, I spent less than $200 total at the two stores combined, but this year I want to keep that to $0.  I received a gift card to each store for Christmas for $50 (each) and combined with the ECBs (CVS) and rebates (Walgreens) I have already saved up last year, I am going to continue to get great deals and pay almost nothing for many toiletries but this time, with no initial or continuing investment (no matter how small).

2.  Stick to a $100 per week grocery (including household items and toiletries) budget.  My actual spending has wildly varied in the past on groceries.  Some months it was easy to stick to my grocery budget, and some months it seemed impossible.  The prices of groceries in my area, according to my price book, have gone up about 15-20% in the last year, so I have raised my weekly budget, the key is going to be consitently sticking to it.  I am going to look at it on a month to month basis ($400 or $500 per month depending on how many shopping weeks there were).  But the key will be to only by items we need, even if they are a good deal.

3.  Spend less than $100 out of pocket all year on clothing for the entire family.   This excludes socks and underwear.  I originally was going to set this number to zero, but I know there will be some unforeseen needs that I can’t set myself up for absolute failure.  We did get a JCPenney gift card as well as two Target gift cards for Christmas, so we can spend those on clothing before we spend any money out of pocket.  I have been an avid yard sale and thrift shop shopper in the past, and the kids both have plenty of clothing in their current sizes, and a lot of clothing in future sizes as well.  I really shouldn’t need to get much in the way of clothing for them this year.   My spouse has gotten a lot of new clothing in the last year due to his weight loss, and I did a lot of Goodwill shopping, so I think no one actually needs anything.

Related to that third resolution, I was also going to set a resolution to sell all of my kids’ outgrown clothing, but I read that laws are changing that all kid clothing has to go though lead testing to be sold, even old clothing.  This goes into effect in February.  Even if I donate my kids’ old clothes instead of sell them, they will probably end up just getting tossed after February.  It makes me sad.  I have a lot of kid clothing my kids have outgrown that are destined for a trash heap.  Sigh.   I guess I have to try and find some people with babies who want my hand-me-downs, because I can’t bear to just throw them all away.

Did you make any resolutions for this year?

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Last year, all the goals I set were based on debt elimination and how much per month we could pay to debt.  Even though last year was full of financial challenges, it also had many financial blessings.  When I set the goals, I wasn’t formally employed.  But soon after, I started tutoring chemistry online, and then a few months later, I started teaching taekwondo at night - first three nights a week and now 5 nights a week.  So the goals I set in December 2007 for 2008, that I thought at the time were a stretch based on 2007, ended up being easier than I imagined to hit.

My goal was to pay at least $1100 per month to debt, which would cause:

• Eliminate credit card debt by March 2008
• Spouse’s student loan under $5500 (snowball calculator says $5847)

I more than met both these goals - our credit card debt was paid off in February, and my spouse’s student loan was paid off completely in October, and then paid off our remaining car loan in November.  The only non-mortgage debt we have left is my student loan, which has a balance of slightly over $10000 and a $145 minimum monthly payment.

Our financial goals this year are slightly more varied than debt elimination.  Circumstances dictate that we prepare for the inevitable demise of my primary vehicle.  Our responsibilities dictate that we become more prepared for emergencies.  And we are going to try as hard as we can to do it all without adding new debt.  We’ve decided on three major goals (that even in our current financial situation, are a stretch) :

• Pay off student loan
• Save $10000 for new (to us) car
•  Save a $2500 emergency fund

Our plan is to save the $2500 emergency fund first.  I’m not sure what our starting point is yet - once the car is back here at home and the broken tree is dealt with ($200, they are coming early next week) I’ll look at our checking and figure out how much can be moved to savings.  Our emergency fund has $300 in it right now and I think, if the car behaves, we can get it up to $1000 again rather quickly.  Once we save the other $1500+ (hopefully, by February) we move on to phase 2.

Phase 2 is saving for the car and paying off student loan simultaneously.  For six months, we hope to pay $300 to the student loan and save $1500 towards a new vehicle.  Anything we have for snowflaking above that $1800 total goes towards the new vehicle saving.   This $1800 goal per month will include our budgeted minimum debt payments of $810.41.  This will be a stretch to meet every month and will necessitate us spending as little as possible and saving everything we can.  Which is how, frankly, I operate best.

(I got Walgreens and CVS gift cards for Christmas to let me continue to play my Drugstore Games so I can shop.  My goal is to make the $50 on each of them last all of 2008.  )

After 6 months of this payment schedule, we are entering phase 3 and flip-flopping them.  $1500 per month to my student loan and $300 towards a new car, with any available overage going to my student loan. At the end of twelve months, if we hit both these every month, we’ll have paid off my student loan and saved at least $10800 towards a new car.  If we could start this in January then it would be done by the end of 2009, but since it will most likely be at least February if not March we start, it will go into 2010.

If the Saturn behaves that long.

My ultimate goal is to have the student loan completely paid off in 2009, and save $15000 to a new (to us) car as well.  I’d like this car to not just be a stopover car but be a 10-15 year car, which $15000 to $20000 will accomplish.  That timeline’s not impossible - my GEO Tracker was still going strong at almost 14 years old when we replaced it for practicality reasons (I was having a baby and the back seats were not car seat friendly, or even safe after years of weather abuse from my convertible days).  The Corolla we have is still going strong at 13 years old.

But if the Saturn bites the dust before we can save for a new used car, we’ll probably go with something older and cheaper that won’t last us as long as I’d hope, but will be more reliable than said Saturn.  And avoid a loan as much as possible, or at least make it as small as possible.

And then the priorities shift to paying off said loan quickly and efficiently.

Here’s to 2009!

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