mercurial scribe

Money Mondays, ep 8 - 2007 Summation

Posted on 10 December 2007
Tags: Debt Elimination, Life Goals

Every year I like to set some financial goals and compare to how reality took place at the end of the year. To be honest, I did this in the beginning to make sure I accomplished the rather lofty goals I set for our family. Now I do it as a lesson in crisis management as well as evaluating how realistic the goal was in the first place.

Now, this year was a doozy as far as curve balls went!. Quick highlights:

January: We started out the year in $17,000 in various debts, excluding the $23,000 owed in student loans. The goal was to eliminate $10,000 from this $40,000 total.

March: Husband was hired full-time at the job he wanted to be at and was able to quit the video store he been employed at for 3 years to get him through college.

April: I was injured at the restaurant where I worked. By May, I had hired an attorney to deal with the idiots who were trying to send me back to work while still injured. In the meanwhile, I had no money coming in so we had to take out a horrendous loan to float us.

June: I finally received a state disability check while my attorney fought (and continues to fight) for my worker’s compensation claim. Problem is my state disability only provides roughly $700 a month as income. My old income as a server? Roughly $1300 a month. Yikes.

Also in June: We took a big leap and agreed to make a home with my mother. She left her studio apartment and we left our one-bedroom for a spacious 2-bedroom, 2-bathroom apartment. This cut our expenses by about $400 a month in rent and utilities alone. Side benefit: my Mom is fabulous cook. She cooks half the week and I the other, resulting in very little eating out. That freed up our fun money for things like movies, books, museums and shows which is so much better.

July: We were forced to ask my Mom for financial assistance in order to cover our moving expenses and various bills.

August: Husband secured a type of promotion that added $1,300 to our income per month, as well as eradicating $5,000 of those student loans!

September: We discovered I had a bun in the oven! Note this is only one week after Husband had received his first promotion’s paycheck and we FINALLY were making more than we spent. We’ll call this a happy mixed bag.

October: I really hit high-gear as far as getting my freelance writing career off the ground. Though it hasn’t resulted in much income yet, I am developing a nice portfolio and continue to push for paying gigs. I am very proud of myself.

December: As I looked over our finances, I was surprised to find that we have DECREASED our debts down to just under $13,000 (from $17,000) even though we had to borrow to stay afloat as well as getting the student loans down to $17,300 (from $23,000). That’s nearly $30,300 down from $40,000 despite my gimpy-ness, at only $300 short of reaching our goal! That is incredible.

Despite this surprising result, I’ve decided to take a different approach to our finances in the coming year.

First, I’m utilizing a fabulous budget program called the Pear Budget. It’s a free Excel template that is a comprehensive budget set-up, fully self-explanatory and easily customizable. I’ve already set it up for all of next year.

Second, I’ve created a set of financial priorities I believe was inspired by Dave Ramsey, though I can’t remember. Our financial priorities for 2008 are:

1. Get $500 saved as the beginning of an emergency fund.
Start date: 12/1/07.
Current status: $59.
Estimated goal reached date: 6/1/08

2. Pay off our debt.
Start date: Way back in 4/2004.
Estimated goal reached date: 6/1/11

As part of this program, I have organized our debts (including the student loans) into a Debt Snowball (thank you Dave Ramsey). For those of you unfamiliar with the term, you list your debts smallest to largest and that’s how you pay them. Perhaps it won’t save you as much money as paying them in the order of highest interest rate to lowest, but it is more motivationally satisfying to be able to scratch a debt off as paid, which is why I think it will work for us. It looks like this:

Credit card #1: $300
Credit card #2: $568
Credit card #3: $936
Loan #1: $2,307
Loan #2: $2,500
Loan $3: $2,720
Credit Solutions: $3,630
Student loans: $17,300

Also, I’ve added a new system to ensure our bills get paid on time and our living expenses (food, fun money, gas) do not interfere with our regular spending budget: two checking accounts. Our credit union checking account will act as our regular expenses account which access is only through checks and the online bill pay. Our new Washington Mutual account will act as our variable and irregular expenses account (see the Pear Budget for those terms), for which we can use our debit cards. Also, we have two savings accounts. The one at Washington Mutual will serve as our planned large expenses and general savings account while our ING account will act as the beginning of our Nest Egg. Combine all this with automatic deposit of paychecks, auto-transfers to the proper accounts and automatic savings transfers, all I have to do is stay on budget!

Lastly, I have determined how I will budget any money I make from writing. The breakdown:

50%: to remain in business account for taxes, business expenses, etc.
30%: to highest ranking debt on the Debt Snowball
10%: to our WaMu checking account
10%: to our ING Nest Egg savings account

I figure this way we do not depend on this pay but use it where it is needed most: to grow my business, beef up our savings and get out of debt faster, plus a little extra fun money to play with. One must reward oneself at least a little bit, no?

I am determined to make 2008 a good financial year. Husband will be starting in his chosen career as will I. I should be receiving a settlement as well as all the back worker’s compensation owed to me which should be in the several grand range (that money also has allotments to pay off debt and get us a used second car). Now sure we’ll have another mouth to feed and body to clothe, but that’s why they start out so small, so you can ease them into the budget.