Would Love Feedback on Our Debt Repayment

How has your week been rolling?

We are setting into the second quarter at this point. Doing well.

We kicked our second quarter off with a field trip, which the kids adored. Oh, my gracious the amount of work for me was insane but seeing the pride of accomplishment on the kid’s faces was well worth it.

So, I know a while back I spoke about how some relatives of mine passed away about a year and a half ago, at this point. They, kindly, left their estate to me- per their will. As part of this, I have received a fairly substantial amount of money. We have already set aside 10 percent for ourselves. I know my aunt and uncle knew I would be responsible with their gift, but I also know they would want me to have a little fun too.

The short of this is, the sum would pay off the bulk of our debt leaving us with around $10k and whatever is left of our car (I really should know what that is but I really do not). The car is around 15k or so. Anyways, we also toyed with the idea of setting aside 15% to put into an investment account.

Really, the point of this post is; if you had around 120K in debt and received a sum that would wipe out most of that, what would you do? Keep reading for some of our other ideas.

I already talked about the take the 90% that is left and just get rid of the bulk of the debt. I have also covered the invest 15%. This leaves us with more debt to continue to pay on. Another idea we bounced around was paying off everything with an interest rate of 4% and higher; since, in theory, money would more wisely be utilized in an investment account that has a historical return rate of, around, 8%.

I don’t know. Money shouldn’t be emotional. But it is. Being debt free has a million and one great opportunities before it. But, so does investing (ie. Retire early).

What would you do?

Our Financial Plan: How We Do It

030TCBJQ8C.jpg

I have spent the last two years working on refining how we do our budget. Reading blogs, reading books, watching shows, listening to family members and friends.

The list continues to grow every few months.

Our financial plan is ever evolving and changing. I think that is a good thing.

When we first started out we read the Total Money Makeover because, Lord, have mercy all I ever hear is Dave Ramsey all over the interwebs.

We read it, we liked some of it. And, wow, oh wow, did we not like other parts.

I had been using YNAB since, 2010 or so. I knew their methodology a little and so we borrowed from there as well.

Then, more recently, we watched a TV series called Life or Debt. He mentioned a principal that we found to be interesting and have just recently began to apply that to our monthly budget as well.

I am going to walk you through these three tid bits: YNAB, Dave Ramsey and then Life or Debt.

Jumping right in.

You Need a Budget: YNAB

I have written about YNAB before so I am just going to leave it at; it is a pretty kick awesome budgeting software. I have a comprehensive review on my list of posts to do! I will be working on that once I return to Hawaii.

There are a few things we have taken from YNAB’s methodology and applied to our financial plan.

  1. Give Every Dollar a Job

Seems so obvious doesn’t it?

When a paycheck hits the bank I allocate it to a category called Buffer for Next Month. Then once all our paychecks for the month have been deposited I release that category and begin to budget.

By giving every dollar a job I know what my money is doing. I don’t “lose” money through random spending.

2. Live off Last Months Income

This is simple to say and harder to get to doing, but possible with some hard work.

Anything that comes in as income for this month (June) is budgeted for July’s expenses.

Some months are leaner. Some are not.

We were lucky enough to be able to pull from savings to be able to get to this point. Some suggestions to get to living on last months income are to save up your tax refund, extra paychecks, or anything leftover at the end of the month.

This just gives us peace of mind and makes us more conscious of what is coming in. We have a fairly variable income.

3. Do Not Carry a Negative Balance Month to Month (Roll with the Punches)

Life happens. Sometimes you forget to budget an expense.

Sometimes you spend more at the grocery than you meant to.

Sometimes you say screw it and buy something you couldn’t afford.

I’m not saying the above is okay, but it isn’t the end of the world.

YNAB taught us to roll with the punches. If we overspend a category then we play whack a mole by “borrowing” from other categories, or on the rare occasion next month, to make the current month even.

Logically, you shouldn’t do this too often because at some point you will be robbing Peter to pay Paul, so it really isn’t doing you too much good. If you find yourself playing Whack a Mole frequently, it may be time to revisit the budget and make it more practical to your daily needs.

Dave Ramsey

I like Dave Ramsey…but I don’t.

His information is good but I really cannot listen to his radio show. I find him to be rude and condescending to a lot of callers. Granted, they guy has answered most of the questions people ask on the show in a previous show or in his books.

So, what have I learned from Dave Ramsey.

  1. Snowball vs Avalanche

Neither is wrong. Do what one makes the most sense to you. As long as you are sticking with the program that you choose you will make great progress.

The Snowball method is paying your debts from the smallest loan balance to the largest loan balance.

The Avalanche method is paying your debts from highest interest rate to lowest interest rate.

We chose to do the Avalanche method because we are paying back Mr. Wanderlusts Parent Plus Loans, that are in his parents name. They have an interest rate of 9 percent, and are some of the largest individual balances. In theory, we save some interest by paying off our loans this way compared to the snowball method.

However, the snowball method is good for people psychologically because you make small wins, for many, right out of the gate.

2. Credit Cards Are Bad….

If you do not use them correctly.

If you are using a credit card like the average American, then you are hurting yourself by taking out a high interest loan on your groceries.

We pay our credit card off each month and now we do not pay any fees. I had some random fee that I elected to pay, when I first opened the credit card not knowing what it was. We recently took that off of our card. Now, our credit card is a fee free card that gives us cash back rewards for our everyday purchases.

If you know you cannot or will not (for whatever reason) make payments on your credit card, on time and in full, then you should avoid credit cards until you have that discipline. It is hard, but it isn’t worth the interest.

3. Have a Zero Budget

This is very similar to giving every dollar a job.

You take your money for the month and budget until you hit zero. That way you know what you have to spend on what categories and, potentially, where you need to make cuts in your budget to come out even for the month.

Life or Debt

This is a TV show, where a guy named Victor Antonio goes out and helps families get back on track.

At some point in the series he brings up his 30/30/30/10 methodology.

I have seen those charts where they tell you, you shouldn’t spend more than x% in these dozen categories.

Frankly, way too many categories for me. I just, don’t have the patience for that. I’m sure it works great for some people.I mean, that theory has existed for a long time.

Just not for me.

Life or Debt’s breakdown is just simplified but ends up doing the same thing. You take your income and allocate it as followed:

30% to debt/savings

30% housing

30% expenses

10% to fun/you

Since we are a military family we are provided a housing stipend. I subtract the cost of our rent out of the total income for the month and then use these percentages. We just started this for the month of July (so next month).

Since our housing is covered we are putting that 30% towards debt at the moment. It will eventually transition over to a down payment for a house.

This seems really straight forward to me. Which is part of why I like this.

Debt/savings is exactly what it sounds like. When our debt is gone 10% will be liquid savings and the other 20% will go towards investments.

Housing we will only include our housing payment (rent/mortgage).

Expenses are all bills and that type of thing.

10% is our date, entertainment and personal money.

I really like to use this because it makes me really think about what my money is doing. I have to be more conscious about what I am spending in categories rather than just aimlessly plugging and chugging, which I was doing.

For next month, using the above percents we were left with around $900 dollars that needs a job.

I don’t think that would be the case if I had just plugged and chugged like I normally do.

What is your Personal Fiance Plan?

May 2016 Budget Review

May 2016.jpg

Ahh!! Another month down! How about those cookies!

May was a good month for us. We are finally into a routine and are getting the ball rolling with our life. Things have been good.

I am just going to jump right in here so that I can finish packing for my trip home. (Pre-schedule blog posts…so technically I am talking to you from the past oooOOoooooo).

That is a ghost noise.

Roll with. Kay, thanks!

For more information on the layout of this post and to view previous months Budget Reviews here you are; April.

Age of Money: 21 Days

Age of Money is it is the average age of your last ten cash transactions within the budgeting software, YNAB (You Need A Budget), that we use.

So, this means that our oldest dollar is 21 days old. That is pretty cool. I still don’t really understand this metric. I will put some effort into learning more about it.

Buffer: 32 Days

The Buffer is an old YNAB term used to show if you are living on last months income. If you have, for example, a 30 day buffer, you have 30 days worth of expenses in your accounts. To get the Buffer with YNAB you have to install the YNAB Toolkit Extension. 

I am happy with this. We are officially living on last months income in full, now. I don’t really want to see this number much larger, at the moment, since we are still in debt payoff mode.

Income

For the month of May’s income we use April’s paychecks. We live off last months income.

April’s income: $5,006.13

Unfortunately, I just started working in April, so all my paychecks started coming in, in May.

Expenses

Debt: $715.84
Food: $367.64 (Not 100% accurate, but this is all that is recorded in YNAB)
Housing: $2,367.27 (This includes rent. We live in a HCoL area)
Transportation: $86.98
Cell Phone: $126.00
Entertainment: $68.08 (Includes our personal money)
Travel: $87.90 (some things I needed in preparation for going home)
Gifts: $44.76 (Graduation gift for Brother in Law)

Total: $3,864.47 (If you include about $500 more for groceries it would be $3,364.47)

The reason the groceries aren’t accurate. Mr. Wanderlust and I sat down to rework our budget so we wiped the info clean to make sure that we could afford to get our pets back here. We figured it was much easier to do with a clean slate. We also had to change some things around for my self employment stuff. We did this about halfway through the month, and lost that data. We spent around $800 or so a month. Our accounts are set up just how we want them.

Expenses do not account for sinking funds or savings. It is only categories in which an expense was deducted.

Net Income: $1641.66

Honestly, this would normally go towards debt, primarily. But, because we started ‘over’ we filled in our savings categories to be reflective of the year in addition to any leftover income was placed in our travel fund to cover those expenses for June.

Kind of sad to see this number, to be honest. But the traveling is necessary and we are looking forward to having our cats back home with us.

Debt Repayment

We pay based on the avalanche method, meaning highest interest loans to lowest. The Parent Plus Loans we pay for Mr. Wanderlusts parents sit at 9% interest. Our Perkins Loans sit at 5% interest. This number, currently, doesn’t include our car payment which is in our Expenses at a debt. It also doesn’t include the lovely fees that are assessed by one of our loan provides. Thank you ECSI, just love paying a transaction fee each time I pay my bill.

Total towards Debt: $499.88

Interest Paid: $184.39

Total Paid 2016: $3,266.74

So, same as last month. Creepy.

Again. Not being aggressive on loans as I had to return home to pick up our cats and to attend a memorial service for two of our family members that we lost last year. Family trumps debt repayment at the moment.

This is definitely and introspective and forced reflective experience.

Life or Debt; Best TV Show Ever?

Life or Debt

I really do not watch too much TV.

I try not to anyways.

Mr. Wanderlust and I have gotten into a pretty bad habit of vegging out before he reports for work. He comes home from PT, showers and eats with me. If I don’t have a client to run off to visit.

Then we sip our coffee and binge on a TV show. Lately, it has been Grey’s Anatomy because that show is just amazing and we are trying to get caught up to the new season.

I try to be productive by working on blog stuff, doing chores and stuff. But, sometimes I just snuggle in and enjoy the time. Our mornings, are kind of your after work evenings. It is our time to spend together for the day.

I stumbled across the show Life or Debt about two weeks ago. Someone mentioned it on Facebook and with it being personal finance related, I just had to check it out.

Basically, this guy named Victor Antonio goes to these ‘average’ American families and takes over their ‘home’ for 4 days. In that four days he has or helps the people develop a budget, determine how much debt they really have, find their true expenditures and their true income.

He then tells them their magic number; how much they need to make to break even. From there he typically gives them a challenge to go through their house to find things to sell. This is always related to something.

For example, there is an episode where a lady buys designer and high end items and her husband loves to buy the newest tech stuff.

He blames her shopping habits for their current situation and sees no fault in his own.

She blames him for their current situation because of his spending habits and sees no fault in her own.

He has them gather up a bunch of stuff each and tally up how much they spent. It basically went to show that yeah, the wife smaller, ‘cheaper’ things more frequently than the husband but his larger, infrequent purchases were of a similar figure to hers.

He then challenged them to get, I think, a month or two, of their house payment from their goods that they didn’t need, to help them get ahead.

After the 4 days are over he leaves them to, what appears to be, on their own. He promises to return in 90 days to see how the did.

When I first started watching this show I was skeptical about how it would be helpful to anyone. The dude is only spending 4 days with the families…so how are they expected to make changes that quickly.

There are some failure episodes, which just make you mad. But, overall his methodology seems to benefit people and help them out.

While, I doubt that there will be a second season (I really hope there is) I do think the show is good. It has gotten Mr. Wanderlust and I to talk about our finances a little more, in a much more casual way. We can compare to some of these people and it is nice to see some succeed and see why the ones that failed, failed.

It has provided us more motivation to crack down on our debt and get it going, going, gone.

If you would like to watch the show you can log into Spike via your cable provider; Here.

Or you can watch it on Hulu. I am not 100% sure if you need to be subscribed or not. Hulu does release the episodes 21 days after they air…so there is a bit of a delay if you get caught up.

It airs on Spike TV. I have no idea what time though.

Totally not sponsored by anyone or thing mentioned in this post.