Posted by: Brookhaven | September 2, 2008

ING Account

Taking the advice of several other finance bloggers I opened an ING Savings account as a place to park my Christmas fund as well as my vacation money. With so many reccomendations it seems like a great account and a 3% return means it is basically keeping up with historical inflation rates. Once I get the account working and have used it a bit I will decide what other things to save for using the account and will post my experience using it as well.

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Posted by: Brookhaven | September 1, 2008

Two Month Update

It has been two months since my last post. Things have been busy and I have been reading everything I can get my hands on about money and finances.

I am excited to say that baby step 1 is complete. I decided on $2000 as my emergency fund as $1000 just doesn’t seem like enough. Christmas is also fully funded as well as a vacation to Cancun. Now that I am pretty well buffered against any new debt it is time to aggressively work on baby step 2: the debt snowball.

The most remarkable thing that has happened in the last two months is that I have not borrowed a single cent! This is the first time I can remember I have not incurred some kind of debt for any measurable period of time. It has been very difficult to stick to a budget and live on a cash only diet. At some periods I felt like it was impossible to continue but the dream of being debt free kept me going. Changing from living beyond your means to living below your means overnight is an awakening experience. I now fully understand just how much debt really costs.

Posted by: Brookhaven | July 1, 2008

The Plan

Well July 1st is already here and it’s time to officially start the plan. In reality I started creating and living the plan a week or so ago but I like dates that are easy to remember and the math is easier to work with as well by starting the counting today.

After reading Dave Ramsey’s book, Financial Peace Revisited, I have decided that I really like his baby steps for the most part and his plan seems fairly simple which is important to my success. I am going to modify his plan slightly though to better fit my needs.

Step One: Budget, Budget and more Budget!

For me the most important step right now is the budget. The only way to get out of debt is to spend less than I earn and the only way to do that is by sticking to a budget.  This will also be the hardest step for me. I shredded several credit cards and froze the rest so new debt is really not an option. I travel occasionally for work and am reimbursed for everything so I like to float the expenses on a card so I can’t shred them all.

I am using Mvelopes to create and manage my budget. I have to have things that I hate simple or I will not do them and I hate budgets. Mvelopes is pretty straight forward and I love GUIs so that helps. I’ll post more about my experience with Mvelopes after I have a few months of real experience.

Step Two: Create an emergency savings fund of $2000.

Dave recommends $1000 but on my income, about $100k, that doesn’t  seem like enough. $2000 should cover most things if the need ever arises. I also like having a cash cushion that is there to avoid any new debt. I’m currently looking at the best place to stash this cash. Several bloggers are using ING due to the referral bonus and the decent rate. I will likely do the same but am open to options. I like the idea of keeping this money separate from my regular financial institution so it is a bit harder to get my hands on should the urge to spend it arise.

Step Three: Eliminate Debt using the debt snowball

I waffled a bit on Dave’s recommendation to payoff all debt before saving living experiences. 3-6 months of living expenses would provide a huge amount of financial stability and peace of mind. I originally thought I would save up the expenses before paying off the debt until I ran the numbers. 6 Months of living expenses for me would be about $39,000 and at the $200-300 a month available to save for this it would take 195-130 months to save, not accounting for interest. Obviously unrealistic. By eliminating all debt but my mortgage my 6 month expenses only need to be about $22,000 and instead of $200-300 a month I will be able to allocate about $2,300 each month towards this goal which only takes 9-10 months instead of 9-10 years! Talk about a wake up call. This is a powerful example of being enslaved by debt. My job and career field is pretty stable so I am comfortable paying off the debt without the safety net the expenses fund provides. Besides, I have never worried about that yet right?

Step Four: 6 Months expenses in savings

I would feel the most comfortable with 6 months of expenses saved up. That would buy me plenty of time to find the right job and not be forced to take the first one, or two, that comes along. This will be a significant amount of money so I’d like it to work for me while it is waiting. I will need to do some serious research at this point to find the best option.

That’s all the steps I am going to outline for now. It will be several years before I complete step four so I will worry about the last steps a bit later on. I like Dave’s other steps and will likely follow them but I will cross that bridge when the opportunity presents itself.

Posted by: Brookhaven | June 30, 2008

Mvelopes

In my quest to get a better grasp on my finances I signed up for mvelopes a few months ago. Mvelopes is an on-line envelope budgeting tool. It connects to your financial institutions and downloads all of your transactions. You create envelopes for all your spending categories and also create funding plans to fund the envelopes you have created. Then when your paycheck is deposited you have the choice to automatically fund your envelopes according to the funding plan you created or you can manually disperse the money as you see fit. It is a great way to keep your spending in check because it offers a visual representation of how you spend your money. When an envelope gets in the red it really bothers me which causes me to spend less in other categories to make up the difference. I used Microsoft Money for years to track my spending but it did just that, track my spending. It is completely reactive. To control your finances you must be proactive. The envelope budgeting system and Mvelopes is just that. It allows me to give every dollar a purpose before I have a chance to spend it. There are also great reports that I can run to see if I am on target for my goals or to catch where I am overspending. It also offers free bill pay so I can do almost all my financial transaction in one place.

Mvelopes offers a free 30 day trial so you can see if it could work for you. I get nothing for posting this but I think it is a great tool and one that could really help those of us that struggle with a budget. Give it a try and let me know if you find it useful.

Posted by: Brookhaven | June 28, 2008

Debt reduction calculator

In researching the debt snowball and looking for a way to play with my numbers I stumbled across a free Excel spreadsheet that is awesome. It allows you to enter all your debts, the interest rates and your minimum payments and then shows you an payment schedule for each month. You can decide any extra snowball money and even add snowflake money on individual months.

You can download it here.

Know of any other good debt reduction calculators? Please let me know.

Posted by: Brookhaven | June 27, 2008

Financial Peace

Today I picked up Financial Peace Revisited from the library. I stumbled across Dave Ramsey’s show about a week or so ago and he has been the inspiration I needed to get this journey started. On his show he has talked about baby steps and snowballing and other things that got me interested in learning more about him and his ideas so I decided to checkout a few of his books and see what I can learn. His positive attitude and what seem like simple proven ideas are just what I need.

In my past attempts at eliminating debt I have read many books by Mary Hunt and Suze Orman , among others, and I liked many of their ideas. I just didn’t have the discipline to follow through with everything. I like what I have learned from Dave so far, I’m about half way through the book at this point. I think I will ultimately use a combination of ideas from several places to create my debt elimination plan.

In a previous post I talked about Fear being my biggest problem in confronting my situation. Later that evening I was watching the Dave Ramsey show and he said something to the effect that any financial decision made in fear will yield poor results. What timeliness! Since I have made the commitment to eliminating debt and have started making a plan to achieve my goal I have felt less fearful about my situation. I have gained a bit of confidence and am seeing that there is light at the end of the tunnel. Of course the tunnel is really, really long and awfully dark still.

I will post a summary of my thoughts on the book as soon as I finish it. I am also looking forward to reading The Total Money Makeover as soon as it becomes available at the library. I am number 70 in line though so it seems that many other people are in the same boat I am and desperately looking for a way out.

Posted by: Brookhaven | June 25, 2008

Financial Freedom

At my current point in this process it is difficult to really understand what financial freedom means. My imagination has become limited and beaten down by debt. I find it difficult to fathom what it would actually feel like to be debt free and in control because I have been so conditioned by my situation. I am sure that I will revise my definition of financial freedom as I continue on my journey towards debt elimination.

For now though I think that financial freedom represents choice. Even the option of having a choice. The choice to do whatever I want with my life (within reason of course) without money being the deciding factor.

Posted by: Brookhaven | June 25, 2008

Enslaved by debt

Sleepless nights, financial anxiety, feelings of helplessness. All symptoms of being enslaved by debt. Living paycheck to paycheck and worrying how to cover the “unexpected” expenses that always appear at the worst times; a clear sign of being enslaved by debt.

There are a multitude of symptoms associated with being enslaved by debt and I am afflicted with all of them. But for me Fear is the worst affliction. I realized that the feeling of helplessness over my dire financial situation was really just masking my fear of taking responsibility for the mess I created. Fearful of making the needed changes to fix the situation. Fearful of the long term effects of each financial decision. Fearful of making the necessary sacrifices to live within my means. Never realizing that in reality living beyond my means was actually causing me to have to make all kinds of sacrifices, like sacrificing my time with family because I have to work extra hours to payoff that “necessity” purchase.

 

For me, being enslaved by debt ultimately means not having freedom of choice. I no longer have choices when it comes to my finances. I must make drastic changes to dig myself out of this hole and to be financially free.

Posted by: Brookhaven | June 24, 2008

Been there…Done that..Still paying for the T-shirt!

July 1st 2008 will mark the 2nd or 3rd time I have attempted to dig myself out of debt and live within my means. Maybe it’s the more like the 4th or 5th time. But this time is going to be different. This time I am going to chronical my success, or failure, on this blog.

My previous failures have consisted of feeling stressed and helpless about my situation which caused me to obtain large amounts of cash, from bonuses or stock proceeds, to pay off all the credit cards and then going right back to my old ways as soon as the pressue was gone.  Wash, rinse, repeat. You get the idea.

Last time I paid off the credit cards I even managed to close several of them so I wouldn’t be tempted to use them, which was difficult due to credit card companies purposefully making it difficult. Then something magical happened. The credit limits on the cards I kept open doubled or tripled. Thanks Mr. Predatory Lender!

The stark reality: Total debt (not including the mortgage) $116,597.01!

The Breakdown:
Line of Credit: $239
Discover: $3,562.74
Mastercard: $1,358.65
Visa: $5,044.86
Auto Loan: $25,390.74
Auto Loan 2: $10,435.96
Student Loan: $31,736.95
2nd Mortage: $38,828.11 (I include this because this is about 50% old credit card debt)

Quite a mountian to climb and the stupid thing is that I have had most of this paid off several times over.

 Stay tuned for The Plan

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