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I am really enjoying my two weeks of vacation. I don't go back until after the new year and it's been totally awesome. I even got the chance to meet my blog buddy Aaren last week at Navy Pier. Fun!!! I am so glad that we finally got to meet and she is such a sweetie. Come to find out, we even know some of the same people here in the Chi. Go figure!!! I will have to fill you in on that funny story later this week. =)
I have updates!!!
Christmas: I did ALL of my Christmas shopping for $335 this year!!! This has never happened before. Last year I spent $680. Go Chitown!!!
Bonus and Raise: I got a 19% bonus and a 5% raise!!! My salary will increase to $79,400 and my bonus will be approximately $8,500 after taxes.
Snowball: I am still stuck on paying down my credit card first which I know is against Dave Ramsey's plan. Someone talk me off the ledge!!!! This is my reasoning....
First, I am on a graduated repayment plan with my student loans which means that some of my loans are on interest only and eventually will move to principal and interest. I really need to pay off off the credit card balance to free up that cash flow so that I can handle any increases in payment, including increases in the interest rates on the private loans.
Second, I think if I am able to pay off the credit card debt, that will feel like a really BIG no HUGE win for me in Dave Ramsey's meaning. The way that I am feeling about credit of any kind let alone credit card debt is enough to make sure I won't go back into it ever again.
Third, if I don't pay off the credit card debt within the next 14 months, I will have to pay yet another balance transfer fee once the promotional rate on my BofA card runs out. This will be another increase in debt and that feels so upstream.
Fourth and Final point, the balance is currently at $19,240 thanks to the $740 in balance transfer fees added to the balance. If I put the entire $8,500 towards the balance, then I would be left with $10,740. Assuming that I at least pay $2,400 towards the balance in 2011, then the remaining balance at year end would be $8,340. I have been with the bank since 2000 and I have always received a bonus and and increase. Assuming I receive the same thing next year, then I can pay off the balance in full and begin a complete snowball of my student loans.
I would love to know your thoughts!!! Thanks in advance!!!
2011 Framework: The budget and debt repayment framework is coming along. I have my ING checking account and savings accounts set up. I did that last week and I am just waiting on the new debit card to arrive.
The sub-accounts for savings that I set up are as follows:
Auto Fund - For annual state and city registration.
Christmas Fund - For Christmas 2011.
Clothing Fund - For purchases and dry cleaning.
Gift Fund - For regular monthly gifting for birthdays, showers, etc.
Home Fund - For regular furnace and air conditioning maintenace.
Home Insurance - Annual premium is due in mid 2011.
Vacation Fund - I decided to build this into the budget -- nothing major.
Water Bill - This is for my quarterly water bill.
I know it may seem like a lot of sub accounts but these irregular expenses almost always bust the budget. Therefore, I am going to try to build them into my zero based budget monthly so that I can accrue for them ahead of time. Am I missing anything? Do you think this is overkill?
I am going to continue using my Bank Account for my bills and I will used my Bank of America Keep the Change Checking Account for personal spending for dining out, groceries, entertainment and any personal care.
Experiment: I've been doing this fun little experiment with the envelope system this month where I have $800/month or $200 per week for spending. What I've been doing this last month is withdrawing $200 in cash on Friday and using the envelope system with my Dave Ramsey wallet. The wallet which I purchased for $10 and absolutely LOVE is currently replacing my $100+ Coach wallet and has six envelope slots for gas, restaurants, food/groceries, entertainment, miscellaneous and receipts.
Since I pay for my gas and fuel expense with my debit card, I divide the $200 as follows: $100 for restaurants/dining out, $20 for groceries, $40 for entertainment, $20 for miscellaneous and $20 for personal care. This has actually worked out pretty well because I find that I do the majority of my spending on the weekend. So, I withdraw the money on Friday and then I have to make it on whatever is left the rest of the week until Friday rolls around again. No trips to the ATM!!!
At the end of the week, I have allowed myself to allot any remaining cash towards whatever category I want the next week. Then, when Friday rolls around again, I start the process all over again with a $200 cash withdrawal and divide it among the categories. It's actually been pretty fun!!! I am still working on it but it looks like the way my actual 2011 budget will work, is that I won't have $800/month or $200/week but rather $640 or $160/week. This experiment is still a nice way to get my spending under wraps before February rolls around and I am in the true thick of things with my zero based budget.
Okay...this was long. I guess I am making up for my lack of posting. Bless you if you made it this far. =)
9 comments:
I was one of the folks who recommended that you read Dave Ramsey. I think he has a straightforward plan for getting out of debt. And I think it is fine that you are skipping ahead to the credit card debt. It is PERSONAL finance after all. And in case of an emergency (job loss) you can defer student loans. I do not think Bank of A allows that. I do think it is imperative that you continue to not use the credit card. Here's to a successful 2011!
I have not read any of Ramsey's material, but I know the basic gist of it. His argument for the snowball, as I understand it, is that if a person was good with finances in the first place, they wouldn't need his methods.
It seems to me that it's not about "good with finances" or "good at math" (another one I've heard) but about "good at committing and follow through."
So, it seems to me (for what that's worth) that you've got a great plan here. IF you really stick to it. I don't think you have too many sub-accounts; I think you're recognizing that the irregular expenses really kill you, and are taking steps to combat that before it happens again. That's a good thing. I think paying down the credit card before the student loans is, mathematically, 100% the right choice (especially taking into things like possible deferments mentioned above).
I guess it comes down to sitting down with yourself and a bottle of the purest honesty you can find and asking yourself if you can really commit to this plan. Take a week or two to read your past blog posts, maybe, and see if that still sounds like you. Or see what you did right and what you did wrong, and see if you can still do (or avoid doing) those things. Just a couple ideas.
All in all, I think you can do it. (And I apologize for my own lengthy comment.)
She’s A-L-I-V-E! I am giddy for you-“the journey of a thousand miles begins with a single step” (Chinese proverb) WCB - you’re smart, you graduated from law school, passed the bar, and command an impressive salary. All that being said, I don’t think you can intellectualize your way out of debt, if you could - you would have already. Human beings are complex creatures; it’s not all about the numbers. Credit cards are not going to be your safety net; your ingenuity is going to save you. Still, you make compelling arguments, which is appropriate with you being a lawyer and all LOL - I think you should follow Dave’s plan to the letter in the order you have laid out on this blog for six months, reassess then. This blog keeps you accountable. You will be surprised how fast momentum and focus can take you. Don’t underestimate yourself. Good luck with whatever you decided By then, I would bet you could get all the way through Group P. One last point, treat your ING subaccounts like a bill - with a strict amount you allocate to them each pay period, once that account is depleted no more gifts, take out, etc. Listen to Dave's podcast (iTunes) - I swear by it.
Glad you’re enjoying the holidays!
@ Theresa: Thanks for suggesting that I read The Total Money Makeover. It was a good and simple read and the plan is pretty simple too. =)
@ Natasha: I love comments so keep them coming. Thanks a lot!!! I am afraid that he's right and it goes to DreamChaser's point that I should just follow the program exactly. If I was good with personal finance, I wouldn't be in this situation.
@ DreamChaser: LOL...Yes, I'm alive!!! =) I hear you loud and clear and I am in agreement. I will follow the plan and chip away. Also, since I only get paid once a month, I am setting up the budget so that set amounts get transferred to the sub accounts on a monthly basis. It's all done at the beginning of the month so I don't have to try to play catch up later. Thanks!!!
I will say that I disagree about whether you can or cannot "intellectualize your way out of debt"; some can, some can't. In honesty, even following the path Ramsey lays out for you exactly is going to require effort and dedication and follow through.
I do agree with DreamChaser's comment that you shouldn't underestimate yourself. You CAN do this, no matter how you do so. It's just a matter of WILL you do this. Sounds like you really will.
Good luck to you!
I am so glad that you have posted again. I agree with DreamChaser that you should follow the Dave's plan as it is written. Your arguments by themselves make sense, but they don't address the impact on the big picture.
Also, I want to point out one aspect of Dave's program is that you focus on each step with gazelle intensity. With that said I have two reommendations:
#01: Set up a automatic payment to your debt for the amount of your 5% raise. This way you don't get used to living off of it.
#02: Really consider how much you NEED in your envelope for fun stuff. Right now you are using $800 per month ($9600 per year). What kind of dent can you make on your debts if you cut this in half.
I am really excited for you and look forward to following your Total Money Makeover. Meeting Aaren must have been a fantastic experience, she gives such great insight.
Congratulations on your big raise! That is such exciting news, and it will help you in the debt payoff journey. Just to echo what everyone's saying - I am glad you're back to blogging.
@ Broke By Choice: I am actually going to need the 5% raise to make a balanced budget.
The $800/week will be for all of my weekly spending -- food/dining, groceries, entertainment, personal care, and gas. It takes care of the variable expenses that are built into the budget. My goal is to use any remaining left and snowball that on the lowest debt outstanding.
@ Well Heeled: Thanks you! Thank you! Thank you! I am excited about the raise and for 2011.
I have been reading your blog every so often for a while and I have to laugh as you seem amazingly organized now and on top of it all! The plan looks great and practical, and inspires me to read about zero budgeting which I keep meaning to look into. I think if you keep the focus going you are going to make a serious dent in your debt in 2011 !
I do find reading other people's efforts inspiring so good you people are out there !
Heres to a debt free future :)
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