The slow March begins...

The last 4 months have been great, haven't they?  In each of the last 4 months we've paid off a loan!  It seems so crazy sitting here thinking about it.

In November we paid off the truck.

In December and January we paid off two of the Gate loans .

In February we paid off the ECSI loan and the third Gate loan.

In short, we killed it.  We really focused, even while going through the holiday season, and we met our goals.  And now comes the hard part.  

The remainder of our loans are all multi-month projects.  We knew this was coming, but it does derail the momentum a bit.  Paying off a loan was a nice way to end each of the last few months.  It allowed us to build a lot of momentum and fine-tune our spending habits that will propel us through the slow March that's upon us.  (See what I did there?)  Our next estimated payoff date (EPD) is April, and that will be one of Kristi's Stafford Loans ($4600 @ 6.8% Interest).  

Let's recap The List, shall we?

The List

1. The Truck
• $2,256 - PAID! (Nov 11)
2. Gate Loans
• $2,604 - PAID!! (Dec 11)
• $2,628 - PAID!!! (Jan 12)
• $2,799 - PAID!!!! (Feb 12)
• $4,978 - EPD:  June 2012
3. ECSI
• $5,486 - PAID!!!! (Feb 12)
4. Stafford Loans
• $4600 - EPD:  April 2012
• $5848 - EPD:  October 2012
5. Federal Direct Loan
• $22,495 - EPD:  July 2013

The more observant of you will notice a large gap between EPD of the Gate and second Stafford loan.  In previous years we stored money over the school year to cover the two months Kristi doesn't get a paycheck.  We realized that this money we were saving would almost all go to loans anyway, so we decided to stop saving and start using it towards loans now.  However, the drawback is that in August and September we won't have a snowball.  We'll make the minimum payments, but that's it.  Kristi is doing summer school this year, so that may change, but right now we're not planning having large snowball funds in August and September.

I'm incredibly happy with our current progress.  In the last 4 months we've paid off roughly $15,780 in loans.  I am amazed at that total.  I knew we were capable of this, but seeing it in print is still jaw-dropping.  It's also amazing that we're in month 5 of a 22 month plan, almost 1/4 done.  I say 22 months because with our progress so far we've cut a few months off the total time (even including the Aug/Sep no extra payment months).  


I want to thank everyone for the support.  It's really great to know we're on the right track and that everyone understands and supports us.  It's been hard saying no to a lot of the fun stuff we've had to cut back on, but in the end we'll be able to do so much more that it'll all be worth it.  Besides, we still have Alaska 2012 to let our hair down a bit on, so we can recharge and refocus when that trip is over.  It's very exciting to see where we were, and where we are headed.  Let's do this!

November's Budget

I promised I'd go into detail on our budget at the beginning of each month and so here I am.  Most of the Total Money Makeover is about discipline, self-control, and sticking to your well laid plans.  This involves sticking to a budget each month so that all the extra money is focused on your debts.

I'd like to state that we are in remarkably great shape compared to the average person on Ramsey's plan, at least in my opinion.  Kristi and I have began the habit of listening to his radio show podcast on the way to work and it seems to us that most people are in a much worse situation than us.  For example, we have $0 credit card debt, whereas many people seem to have ten, twenty, or fifty or more thousand dollars in credit card debt alone.  A lot of people also seem to have giant car/truck payments, a home equity credit line, or even a second mortgage on their home.  I feel lucky, honestly, that up to this point we've been relatively responsible with our money.

That's not to say I was responsible all the time.  In college, and while I lived on my own, I wasn't always the best handler of my money.  I spent money on all kinds of things, and usually there was always too much month and not enough money.  Because I was irresponsible, I racked up some credit card debt, to the tune of about $2500 or so.  Again, not a crazy amount, but still more than I ever plan on having again.

The budget, I've found, has really helped me stay focused, and instead of spending money frivolously and on impulse, it's made me examine my purchases more closely.  The first thing that pops into my mind is board and video games.  There are several games I know I would have bought in the past that I have refrained from buying because it's not in the budget and because I have a goal to work toward.  I plan on saving a portion of my budgeted money each month to buy things for me, and I'll write a post about some of those things in the coming weeks.

Now, to the budget:

Pets - $35.00

• We dropped this budget down to $35 mainly because we no longer have to buy a bag of dog food each month.  A bag of food for Kitty lasts a very long time, so we will adjust the budget during the months we have to buy a bag for her.  The same is true for liter, as we usually buy it when it's on sale at Costco and we stock up.  
• We plan on buying Sam a new bed and some new toys this month with the money.
• Any money at the end of the month gets put into a larger pet fund that would be used for bigger purchases or vet visits.

Clothing - $50.00

• This is a budget item that is a little different from the rest.  Sometimes this is used, and sometimes it's not.  For example, in October we overspent the budget buying costumes for Halloween, mainly because we didn't think about costumes at the beginning of the month.  We use this for any and all clothing purchases.
• What differentiates this from the other categories is that it's a rollover budget.  Any money unspent is added to the category for next month.  So if we don't spend any money in November, we'll have $100 to spend in December, and so on.

Recreation - $125.00

• This drops from $180 in October since we don't have Halloween and we aren't hosting Wine and Dine.  Recreation covers pretty much everything we do for fun.  Whether that's buying a Groupon, going to a movie, or going wine tasting, this has us covered.  We overspent in October, so this month we'll make a more concerted effort to stay on budget.  We'll be helped by having family in town for one weekend and won't be going out and spending money.
  

Personal - $150.00

• This budget covers our household expenses like toothpaste, dish soap, and the like.  It also covers personal wants like boardgames and supplies (for me) and tea cups and books (for Kristi).  We use this budget up regularly at Costco buying our supplies in bulk.  
• Each month we get a "Personal 25" so that we can buy things we want individually.  This helps us in 2 ways: It lets us buy a little something here and there for each of us so we can prevent splurge spending.  It also let's us save up for things we want down the road.  I want to get a tablet, so in a few months of saving I'll be able to get one.  I can easily get one tomorrow, but I'd have to not pay down debt as much to do it, so with the slow trickle of savings I can get something I want without sacrificing our ultimate goal of being debt free.

Food - $400.00

• This, along with our Transportation budget are the two largest budgets.  We usually spend about $250-$300 on our food each month since we plan our meals (most of the time) and can buy food in bulk and on sale in order to stay on budget.  This budget also covers any food I buy for lunches at work since we have a full kitchen it's super easy to buy a bunch of lunch foods and store it at work to make during my lunch breaks.
• This month we have increased the budget to cover Thanksgiving purchases. Mainly delicious jellied cranberry sauce, not that whole-berry blasphemy.  And a turkey, I guess. A big one. For the leftovers.

Transportation - $300.00

• This is our other main budget area.  We have been able to cut this down significantly since Kristi started school again since we can carpool to work again which greatly reduces our transportation costs.  Softball is over as well which has cut out 1-2 long trips a week out of my driving and saved a lot on the gas budget.  
• We also incorporate maintenance and parking into this budget, so sometimes this budget will be four, five, six hundred dollars when we know there is a maintenance need like oil change, new tires, etc.

November Budget Total: $1060

At the end of the month I'll post an accurate breakdown of our expenses and how we stayed on budget.  I'm hoping that being out in the open with the budget will help us stay on track, as I really don't want to be writing how we went over budget each month because that won't help us progress towards our debt freedom.

October Debt Process, October Budget

October Snowball Progress

I plan to update each time we make a payment on a debt and to update the remaining.  This is the first of such updates. 

This month, as the previous list of debts indicated, we paid money toward the truck.  $1,420 to be exact.  As I said in my post about Riley, this is less than our goal of around $2,000 towards debts each month.

After the payment processes, we’ll have just about $940 left to pay on the truck, which we’ll finish up in November.  This is very exciting as not only will we own the truck, we’ll be able to adjust our insurance on it down from full coverage, which the bank requires for the loan, which will save us some money each month.  It may not be much, but every dollar counts when it’s going towards debts.

Also, we plan to make the trip to Salem to the Oregon Community Credit Union (the closest branch of the bank that our car loan is through) to pay the final $940 and be done with it.  I think it will be valuable and important to pay the final payments on each debt (whenever possible) in person for the sense of accomplishment and pride in our achievement.  I know it doesn’t seem important, but I feel like taking the final step in person will provide a much better sense of fulfillment.  We plan on doing that next week, so stay tuned for that report!

October Budget

I’ve been meaning to write a post about our Monthly Budget for some time now, but the end of the month is coming quickly so I won’t bother with a full post this month, but I will outline the budget we’ve lived under this month.

Typically our total spending money for the month is about $1,000 to $1,100.  This amount fluctuates up and down depending on the planned and unplanned activities over the course of a month.  Each month we sit down and see where we’ll be spending money and plan accordingly.  Unfortunately we didn’t adequately account for Halloween so we’ve over spent a bit on our clothing budget this month for our costumes.  I think also the trauma of re-homing Riley caused us to not want to cook and we ate out more, which literally ate up our Recreation budget.  However, being able to adjust the budget each month helps us to plan for events like holidays/birthdays so we’re not constantly overspending or eating out all the time since we have a budget to live within.

Budget

Pets                     $50.00          (food, toys, etc)

Clothing               $50.00          (sundries, clothes)

Recreation           $150.00        (eating out, movies, date nights)

Personal              $150.00        (household items, toiletries, etc)

Food                   $300.00        (breakfast/lunch/dinner items)

Transportation     $300.00        (gasoline mostly, parking, maintenance)

That is a typical budget we work from.  I’ll post a full overview of November’s budget next week so I can report at the end of the month on how we did.  Currently we’re not doing that great with October, having gone over budget in a few categories, but we’re still overall on track with our budget (we can shift some money from unspent categories to cover the over spending in others, but we try to avoid that since we’re overspending). I’ll post a recap of October next week as well. 

The Loans

The List

1. The Truck
• $2,256
• Estimated Payoff Date (EPD): November 2011
• We decided to upgrade my truck from a 1993 GMC Sonoma to a 2001 Chevy S10.  It's bigger, it has 4WD, and it can get us, our stuff, and the dogs around easily.
2. Gate Loans
1. $2,604
2. $2,628 
3. $2,799
4. $4,978
• These are some small loans from Willamette that were mostly for living expenses and books.
3. ECSI
• $5,486
• This is a student loan from Willamette
4. Stafford Loan
• $10,942
• This is Kristi's loan for her MAT program at Willamette.
5. FSA
• $22,495
• This is several federal student loans consolidated into one loan payment.  Had I to do it over again I wouldn't have consolidated and kept them separate as they would have been smaller loans we could have paid off individually as time goes by to keep us motivated.  As it stands now this loan looms large at the end of trail. 

Grand Total: $54,000 and change

This is the goal: Debt Free in 2 years or less.  Piece of cake.

Each month is a new challenge, especially as the holidays approach.  Kristi and I recreate our budget each month based on upcoming events and past budget history.  For example, next month we'll increase our food budget because we'll be hosting Thanksgiving for Kristi's family and therefore will have to buy turkey and most of the food to make the side dishes.  In December we'll increase our Auto Expenses because of our planned trip to California to visit my family.  

However, the plan each month is to contribute about $2000 towards loans.  This includes their minimum payments and our Debt Snowball money.  The minimum payments are fixed, but the Debt Snowball will fluctuate each month depending on our budget and if any needs/emergencies pop up.  This month we had to take Riley to the vet, so our contribution will be about $1500 instead of $2000, but hopefully we'll average $2K and above.

As we work our way through the list I'll make a post when each debt is paid off and how we reacted to paying it off.  I'll also update the remaining debts and post a goal for the next pay off date.

Feel free to play the home game along with us as we begin our Oregon Trail to Debt Freedom.

Welcome Aboard!

Welcome aboard our travels along the Oregon Trail to Debt Freedom.  My wife, Kristi, and I have recently re-motivated ourselves to follow Dave Ramsey's Total Money Makeover to pay off our debt as quickly as possible.  This blog will cover any and all topics related to our journey towards our ultimate goal: debt freedom.  I'll post about our progress, our trials and tribulations, and our wins.  Feel free to follow along, or better yet, hop on board and complete the journey with us.  The destination is financial freedom, and the more the merrier on the trip.

The Total Money Makeover

Let's take a quick moment to talk about the Total Money Makeover.  The author, Dave Ramsey, will be the first to tell you his idea's aren't new, but they are successful when done right.  The key, as Ramsey puts it, is the focus behind the plan.  You must be "gazelle intense" for the Total Money Makeover to work perfectly.  If you're lackadaisicle, haphazard, or uncomitted, it will fail and you'll end up back where you started.  The key principles of the plan are as follows:

• All Debt is Bad: Ramsey believes that all debt is bad, with the exception of a house that's payments are 25% of your income or less AND on a 15 year mortgage.  The goal of the makeover is to 1) eliminate the mental reliance on debt, and 2) eliminate all debt from your life.
• Your are the Problem: It's not the car's fault, it's not the credit card company's fault, it's not the bank's fault.  You are the cause of your debt, and only by modifying your spending behavior can you fix it.
• Baby Steps are the Key: Ramsey names his 7 steps to financial freedom Baby Steps after the fake book in What About Bob? a hilarious movie starting Bill Murray and Richard Dreyfuss.  He quotes the movie and believes "you can get anywhere if you simply go one step at a time."  That's the key to the whole plan.  Attack each step with incredible determination and unflappable focus and you'll succeed.
• Baby Step 1: Save $1000 Emergency Cash
• Baby Step 2: Debt Snowball
• Baby Step 3: Finish the Emergency Fund
• Baby Step 4: Invest 15% into Retirement
• Baby Step 5: Save for College
• Baby Step 6: Pay off your Home Mortgage
• Baby Step 7: Build Wealth
• Money has 3 Uses: 
• Spend: You need to spend your money wisely, on housing, bills, food, transportation, etc.  Eventually when you're debt free you'll be able to spend money on FUN things, too.  While you're eliminating debt fun is cut way way down, but not to nothing because everybody needs to enjoy life, not be so guilty about going to a movie.  As long as it's budgeted for and accounted for, go for it.
• Invest: The second use of money is to invest in your retirement.  This is where the phrase Ramsey likes to use comes up often "live like no one else so later you can live like no one else."  The first step after you eliminate your debt and build an emergency fund is to invest 15% into your retirement.  He loves mutual funds because they have a high average gain over their lifetime.  What he also suggests is to learn about investing.  Always manage your money yourself, even if you have a broker, always research and be sure the decision is sound before signing the check.
• Give: Ramsey's last use for money is giving it away.  Whether that's giving your time at a soup kitchen, buying bikes and coats for kids in need at Christmas, or giving to charitable organizations, the point is to give.  The peace of mind you feel from giving helps.  I know right now I'm not in the financial position to give money, but I do give blood as often as I can.  Hopefully in the future I'll be able to start a scholarship at my high school which is one my dreams.

Those are the key principles that I took from his book, The Total Money Makeover.  The book is full of quotable sentences and success stories.  At it's core it's a motivational book that seeks to change the readers behavior about and towards money.  If you can look yourself in the mirror and change your behavior, you can be successful at anything, especially becoming debt free.  Finally, there is one principle that get's it own category:

The Debt Snowball

The debt snowball is Baby Step 2.   Baby Step 1 is accomplished by saving an Emergency Fund of $1000.  Baby Step 2 is getting rid of your debt once and for all.  Many of you already know what the debt snowball method is, but for those that don't here's a quick description:

1. List all your debts in order from lowest balance remaining to highest balance remaining. Do not even look at interest rates unless you have two loans that have approximately equal balances, then list the higher balances first.
2. Make minimum payments on all of the debts except for the debt at the top of the list.  This debt you attack with all the spare money you can muster every month until it's gone.
3. As you pay off each debt, take it's minimum payment along with what you were paying on top and apply it to the next one down the list.  In this way the payments will grow as you pay off each debt.
4. Watch as each month you knock off debts and your payment gets larger and larger, creating a cash snowball that obliterates all debt in it's path.

If you have the determination and the focus, you can pay off a lot of debt in a very short amount of time.  That's what we're trying to do now.  We've been loosely following this plan for a few months and have paid off some debts, but haven't been as aggressive as we need to be.  

We're changing that now.  Follow along and see our progress!