I’ll keep this short and sweet. Just a few lists showing where we spent our money, how much debt we reduced, and what went right and wrong. So let’s get to it. Here is my post-January FI report.
If you haven’t followed my journey so far, check out my Financial Independence Page to see all the posts.
- Savings 4.4%
- Housing 27.9% (A bit higher due to having to buy some furniture)
- Utilities 10%
- Food 5.9% (lower than usual by about 13 dollars)
- Transportation 6.7%
- Health 3.3%
- Children 2.9%
- Obligations 28.2% (See heading below)
- Entertainment 10.8 (See heading below)
First off we had some additional income and some money left from the prior month. So that helped cover some of the extra expenses. Which was great. Most of it went into debt, but we also had some unexpected expenses, as we almost always do at the beginning of the year.
I’m continuing to pay down my debts. By the end of last month, I had the credit card down to 2800. Based on my last statement only 300 of what I put towards the credit card went towards unexpected expenditures that our budget couldn’t cover, like the first of the year medical gap, car problems, etc. That means that I paid down my debt by 1350!
Fairly sure I won’t be able to put that much towards it this month and I’ve already had some expenditure flubs, but like I’ve said before, life is a learning process…..and I’m definitely still learning.
I have both done better and far worse than I did in January. We had an additional expenditure for my parents anniversary, eating out, and both entertainment budgets. In short, I failed a bit here. However, that was okay as well. It gave me a chance to see my own spending cycles and to learn where I need to be more careful. And that is what this tracking project is all about.
- Anniversary 90
- cigarettes (for dad) 15
- Eating out 159
- My spend 241
- Parents spend 147
The anniversary I planned for.
Same thing for the cigarettes. I’ve tried to get him to start, but that just makes everyone in the house miserable. Frankly, at this point, so long as he doesn’t smoke in the house I’m good. I neither want to anger our landlord or smell it and have it mess up my sinuses.
Eating out was bad this month. Between being off-diet for Dec and Jan and my usual winter struggle with depression, I actually did better than I have in the past, so I suppose that is progress, even if it’s still frustrating. But there’s no point in beating myself up about it. The past is past and there’s nothing I can do about it. It won’t help me to lament only to learn from my patterns and mistakes. And if you’re tracking your own I suggest you do the same. Don’t take it as a true failure. Take your mistakes as an opportunity to learn.
My parents spending budget was out of control. To put it into perspective we usually only spend maybe 30-60 on eating out. I try to make sure everyone gets out of the house once a month to do something, even if its just an unwhich at Jimmy John’s. My parent’s entertainment budget is usually around 80-100.
My spending was actually in range, but my spending is a weird subcategory of our budget. It’s the money that I have to spend on myself, the Valkyrie, our homeschool endeavors, my clothing, etc. While I have budgeted 300 I usually only spend 100-150 and put what’s left towards debt. Unfortunately, I have a feeling this one is still going to be a bit out of whack this month as well. I may have to spend a bit more on my clothing, but next month I’ll try to break down my spending a bit better.
Overall I’m doing well. I’m on track to have the debts paid off by November 2014 putting me 5 months ahead of my original schedule. Hopefully this month I’ll get my tax check (just waiting on approval from the IRS) and I’ll be able to get even more ahead.
My current plan is to pay for two events, my parents taxes, a hotel for an event we’re going to in July. After that I’m trying to decide if all of it is going towards debt or if some of it is going to send me to a weekend retreat for my sanity. Even if I go to the retreat that means another 3000 or so towards my debt reduction endeavors!
Well, that’s it for this months update. I can’t wait to see how I do next month!.
Everyone knows its nice to have more money, but what you do with your money is just as important as having it. A budget is the best way to help you do that.
So today we’re going to talk more about budgets and how to manage them. If you missed my first post you can find it here. I’m going to give you three examples of how I could be using our money and what that could lead to in terms of our financial goals. This post is going to be a bit more visual heavy than usual. I’m going to make some visuals to really show you the difference between these three different levels of spending.
In the process maybe I’ll be able to kick my own butt into gear while lowering my financial independence date. (DEC 2024 as of right now)
- AVERAGE American Family. Overpaying for services and things that we simply do not need. Spending money frivolously and without any thought for the ultimate future. These individuals would be putting nothing towards their retirement or savings. No investments. No financial plans for the future.
- The Middle Ground. At least 30% of the income coming into the house is going into savings. This is approximate to the recommendation put out by financial advisors today. Notably that most people are not following. There may be some savings, but likely there will still be debt and they will have a nest egg, but not the one that they like.
- Mustachian Savings. I am aspiring towards Mustachian levels of savings. The term comes from Mr. Money Mustache and his blog. He advises saving at least 60% of your income towards your savings. If you like his budget he has plenty of advice, most of which I’d highly recommend.
A few notes before we continue
- My rendition of a mustachian budget is not nearly as far as one could go. I suggest you check out this post if you want to see the yearly mustachian budget from the man himself. Just their basic living expenses are under 25k per year!
- The following example is to show you how powerful controlling your budget can be.
- The following budgets are based on things my family would buy and probably don’t include everything else that others might include on their list.
So let’s get to it. Below is a chart showing three different budgets.
Now you notice that in Budget one, there is little concern for paying off the debt in comparison to the other two options. Honestly, even putting that much extra is probably more than the average American family can put towards extra. They are spending more on food, gas, and well everything. They find a way to spend nearly all of their money on something. Their personal spending is high.
Budget 2 exemplifies something close to our current situation. I save a bit back each month (though I will likely change that soon). I pay off a decent chunk of debt each month. We’ve curbed back how much we spend on sitters opting to use my homebound parents for shorter outings and sitters for prolonged absences. We don’t have the best insurances, but we have a little extra since we just paid off a car, which a mustachian would call a bad buy. We also make sure to turn off everything we aren’t using and we even keep somethings unplugged or have surge protectors turned off.
The third budget is cut the most. The cell phone is a small carrier, barely any babysitting time. They dry their clothes on the line to save electricity. They may even keep their heat and air conditioning lower than their peers during their respective seasons of use (I wish I could do this, silly medical problems). Less spending. Lowest coverage on the insurances. They probably don’t have cable at all, though they have internet and maybe Netflix or Sling. They save a lot of money to put towards debt and to later put away.
So what does all that mean in terms of their debt?
Well, nearly every American has debt and many of us have it in spades. It seems inescapable. Most households are in the negative if you count their debt. So let’s look at what would happen if you took all that extra money you saved each month and put it towards lowering your debt.
The following image is based on results from the debt calculator I shared. It shows how much they paid toward their debt and how that affected the date they finished paying off the debt.
(Again based on my 80k debt)
We have four debts
- Credit Card 3000
- Monthly Payment: 100
- Navient 5800
- Monthly Payment: 100
- Perkins 5700
- Monthly Payment: 80
- Fed Loan 64500
The first budget is looking at another 11 years to pay off that debt. I don’t even want to think about how much interest would be accrued and applied at that rate. The second budget will take another 6 years, over half that of the first. The final approach saves yet another three or so years. The difference between the first and the third is over 8 years.
This alone should be enough to prompt you to put as much as you can towards your debt.
What about Interest?
Interest plays a large factor in how much you pay over the course of your loan. The longer you have to pay the more money they make off you. So let’s take a look at how much each budget pays in interest over the course
- Around $36,300
- Around $17500
- A little over 9,000.
So not only do you get out of debt more quickly but the more you cut, the more you save in interest costs. If I could cut my budget this much, I could be saving 27k over the course of my loans.
That is mind-boggling to me. The massive amount of savings is enough to help me aspire to spend less and save more.
What would you be willing to do to save 27,000 dollars?
The point is, that we can bargain our future or save ourselves now. Why make just the minimum payment when we can take much larger chunks out of our debts? Paying off debt just makes sense.
The Next Step
Where do we go from here?
To the next step of course. But first, let’s take a step back and recap what we’ve talked about so far. We’ve:
- Made a Budget
- Started an Emergency Fund
- Paid Off Our Debt
In the next post, I plan to continue with the theme of financial independence. I hope to cover the following:
- Building the full emergency fund
- Starting Your savings
Until next time, I hope you enjoy the links and have a wonderful day. Maybe some of the content here will lead you to financial peace.
Well, my grand plans to work on my teeth project has fallen through. I’m still waiting on the book. In the meantime, I want to talk to you about something else extremely important to you and your family…financial independence.
What is FI?
All of us want to be able to spend our money as we want. And none of us want debt or even bills. While it may be impossible to be free of all financial obligation we all can work towards freeing ourselves. Financial independence is making the hard decisions now so that you can create a better future for yourself later.
It’s a journey I’ve been on for about a year now. And starting today I want to share my experiences with you.
My Journey So Far…
Long, long ago, in a city far away I took a course called Getting Ahead in a Getting By World. I learned a lot about communication, expectation, and how to begin pulling myself out of my slump. I had just had a baby, moved in with my parents, the father left. He was not mentally prepared for a child. While he loved her, he had asked me to give her up or abort her and we were on the outs.
I had no job. No prospects. I was lost.
The class was just an excuse to get out of the house. It helped that I got a gift card that we could use for gas. My parents were paying for everything. I was on food stamps. I had a disastrous experience with TANF that will never allow me to recommend that program to anyone. On top of that, I was on WIC…a wonderful program that you should use if eligible.
I was going nowhere fast.
That class changed my life and got me a scholarship to do Dave Ramsey. Now, you might think that I’m about to tell you to go do the whole Ramsey thing, but honestly, Ramsey is a conservative way to start. Still great if you aren’t really to make a big leap. It will give you the information and a general plan on how to fix your situation. But since I took that class nearly two years ago now, I’ve found bigger and better ways to fix my financial situation.
What I do agree with Ramsey on is the idea of baby steps. And I do agree that his first couple of steps are beneficial, maybe even essential to what I’m about to tell you.
Step 1: The budget
My first suggestion is to figure out where you spend your money. Knowing where your money is going will tell you if that is in line with your goals and priorities. If it isn’t, then maybe you need to make a change. When I started budgeting, I found out that we wasted a lot of money. I realized that my parents were underwater on our house, their bills, and they were in danger of losing it all. To the point that I ended up filing bankruptcy for them just to give us some breathing room to get us back on our feet.
Now I budget every month. I use Dave Ramsey’s free version of Every Dollar. It’s a great and simple program. It lets me track my spending. It categorizes your budget into sections so that you can balance where you’re spending your money.
For example, for a rough estimate:
- 20% in housing
- 30% in bills/food, essentials
- 20% in lifestyle (food, gas, babysitting money, dad’s cigarettes, and our entertainment money)
- 30% debt or so.
These are all rough estimates. As I share my journey I hope to get a better idea of exactly where I spend everything while helping you determine where you may need to make some changes. All of this involves both of our incomes (my parents and mine) which total around 5k a month combined.
Our budget could be estimated to be close to this:
- Household (Rent, utilities, internet) 1800
- Other BIlls (insurances, cell, etc) 300
- LIfestyle and Entertainment (food, gas, household expenditures, and luxury). I plan on giving a better breakdown of this at the end of the month. 1150
- Debt: 180
- Savings/Investment (IRA/Index Fund) 200
- My spending 300
- My monthly payments 100
- Debt Reduction: EVERYTHING LEFT (approximately 900-1000 per month)
In addition, anything left in my spending also goes towards either small events I save up for or paying off more debt.
Step 2: Partial Emergency Fund
The first thing I learned in Dave Ramsey is that you need an emergency fund. I suggest at least 500-1000 to start. Just enough to keep you afloat is something goes wrong. This is in following with his teachings as will most of the next step.
I urge you to do this.
Everyone needs to have just a little bit of money held back. I learned this lesson pretty quickly. Right after we got ours funded, the roof gave. While we did it ourselves, even with insurance paying us the money, we still needed $1,200. With that emergency fund, we only had to scramble for an additional 200 instead of the whole amount.
It was sad to give up that money right after finishing it for the first time, but it was amazing to not have to entirely freak out about how I was going to pay for that roof repair.
Now, if you look above at the prior section, you will see that I do save/invest some money each month. It is entirely up to you how stern you want to be with the rules here. Personally, I want to make sure I make my max contribution to my IRA each year and that requires me to not put quite as much towards debt. The sooner you begin to build your retirement fund the larger it will be. So keep that in mind when planning for your future.
Step 3: Debt Snowball
I completely agree with the idea of the debt snowball. However, I couldn’t do it exactly the way Ramsey suggested. Do what works for you. If you want immediate rewards to build your momentum, then do the debt snowball.
Ramsey suggested that you start with the lowest balance. That is where I started and it served me well for at least the first year of my debt reduction. After a while, however, I became more interested in the interest I was paying. I realized that for me, at least, it was better to go from highest interest rate to lowest.
I would much rather pay off the debts that incur more debt (in the form of interest) than those who are creeping my numbers up.
My situation looks something like this
- Credit Card: ~3200
- Monthly Payment: 100
- Interest Rate: 11.99%
- Perkins Loan ~5500
- Monthly Payment: 75
- Interest Rate: ~8%
- Navient Loans: ~5700
- Monthly Payment: 100
- Interest Rate: 6.8%
- Fed Loans: ~65000
- Monthly Payment: 0 (It’s on an IBR and I’m putting it off for now)
- Interest Rates: Between 2.5% and 6.8%
Currently, we are putting between $600 and $1200 towards debts each month. Based on the debt reduction calculator I use I will have it paid off By December of 2024 unless I can find more money to put towards it.
I could, of course, stop saving that would change my date to October 2024, but two months isn’t enough of an incentive for me to stop saving for my IRA. A better solution would be to look at what you can cut. The more fat you can cut from your budget the easier it becomes to kill that debt before it can crush you.
A Friendly Reminder
I hope that my journey so far can help you find that freedom as well. In the past two years, I’ve eliminated 2 credit card debts and a car loan freeing up over $400 dollars. We were able to move which lowered some of our payments for insurance and utilities. I also managed to get paid more for working at home by moving to the Indy area and gained more hours.
None of these things would have likely happened if I hadn’t started on this journey.
Also, realize that as time goes on your family’s needs may change. I hoped by this point that I would also be putting all of that 400 or so towards paying off more debt. But that hasn’t happened. Things have changed. While we have lowered many of our expenses, changes in health have caused some of that money to go towards other endeavors.
You wil have setbacks, but financial freedom is a journey not a destination. It takes time, patience, effort and persistence to make it through to your ultimate goals, whatever they may be.
Which Leads Us To…
The next post!
Next week we are going to focus on how to break down your budget and see where you are wasting money. There are tons of things you can do to lower your costs by a little or a lot. It won’t be easy, but I hope together, we can take a look at our finances and lead ourselves towards a better future.
I want my child to know that she doesn’t have to rely on credit cards. I want her to realize we can sacrifice now for a better future later. By changing my habits now, I can be a better financial example for her than my role models have been for me.
If you want more information on this topic…I recommend a number of blogs. Check out the main page to see which ones may help you find your way to financial freedom.by