Cash Only Christmas

I have to say, I was a bit worried about doing things this way, but I feel a ton better knowing that I won't have a huge bill after the holidays :). We got all of our shopping done on black Friday, and have just been sitting back waiting on the fun to start.

I have been watching some deals and ways to save out there, and it looks like a lot of places are offering big discounts and cash back if you use your paypal account to pay. Check it out :)

Tis the Season

With the holidays approaching, some of you may be thinking ahead to all of the fun things you are going to buy, or perhaps the credit card bills you will be left with after things are over. Being a tech junkie myself, I've been greatly tempted by some of the gadget Black Friday deals. So far, I've been able to show some restraint, and my plan for the shopping season should help me continue that trend.

I've decided to do a wholly cash Christmas this year. Sure, it won't be quite as extravagant as previous years, but I'll also not have any after Christmas buyers remorse when those bills start to show up. For friends and family, we are going to do a very small card/candy type of deal saving the bulk of the money for the girls. We're even not really doing anything for each other this year either (our iPhones were our present this year). Although, I am hoping that we'll get enough cash from family for me to go buy a toy of my own :).

We did pretty much the same thing last year and people in the family didn't really complain about it (which is the common fear I hear from people). This year, we actually have a higher budget due to the full year of planning.

Here's to a cash only Christmas and continuing on the debt snowball! Just think of what I'll be able to do next year!

November Update

Not much has been going on since I wrote last, aside from picking up some side work. Payments for our hospital bills will start in Dec at around 150 a month, so I've got THAT to look forward to :).

The side work I just did has just about replenished our emergency fund. The good news is that there is probably some more to be had there, so I'm hoping I get some more work from that client. In the mean time, I'm still working on that project I mentioned earlier. Hopefully I can make some progress with it and get it out for all of you wonderful people to try :). It will be a free service that is ad based, so hopefully it will do well. Actually, I really want to be able to sell ad space to people after it takes off (a bit more money there than google ads).

Here's to scheming!

Quick Money Saving Tip

I was in Target the other night picking up a few things, one of which was diapers. If you have kids, then you know how many of those bad boys you end up going through and how much of a drain on the budget they can be. Anyhow, after I found the size 5 diapers, I noticed something a bit off about the price. I wasn't exactly sure what it could be, but the numbers just didn't sit with me.

The smaller pack was listed at $9.99 for 40, and the Super Jumbo Mega Value Pack was $18.99 for 72 diapers. It must be the little bit of OCD in me, but the numbers didn't feel right. I pulled out my trusty calculator to figure out the cost per unit of the diapers I was about to purchase.

I looked at the Jumbo Pack first, figuring it was going to be the best deal. The cost per diaper is $.263 per diaper. I thought that wasn't too bad, and checked out the smaller pack. To my surprise, the 40 pack came out to being $.249 per diaper.

So, I bought two 40 packs and went on my way :). The moral of the story is that the large bulk packs aren't necessarily the best deal. Always check the price per unit to make sure you're not that hapless victim of a marketing gimick.

Medical Bills Are Fun - Update 2

Good news!!

We got approved for the 0% financing for 18 months. I've got the paperwork here to sign and send back, but this is good. I don't have to take out money from any other credit lines and get screwed in the process. Sure, this will slow down our snowball a bit, but that's ok. In the grand scheme of medical expenses, this is minor :).

I'm actually working on a fun side project that has some serious potential after I get it up and running. I'll keep you all posted on the progress :).

Medical Bills Are Fun - Update 1

Well, there is a silver lining. I called the hospital to try to negotiate the bill down some if I paid them in one lump. They said that since they already discounted it from insurance they couldn't discount it again -- Whatever :). I'm sure that if I was able to prove I had no ability to pay they would drop it down some -- but that's a rant for another time.

I did find out that even though they have a couple different payment plans, the one I'm going to apply for has 0% for 18 months. This is actually a pretty sweet deal. Sure, I'm taking on more debt, but I'm not getting hit with any interest. If i did the same thing with my line of credit, I'd be paying nearly 10% on the money for an indefinite amount of time since it is the last on my snowball. With the payments on this being split to 18 months, it makes it a reasonable $139 a month. I've got more than that dedicated to the snowball, so it is going to all be piled on this debt. I should be able to pay this off in about 13 months if I can stick to it.

After that is paid off, then I'll have about another 13 months to go on the Van, so I should be able to knock out two major debts in 26 months. I really sucks thinking about things like that, but I made this bed, so I've got to sleep in it. Thankfully, after I get some traction going the rest will go fairly quickly.

On a side note, I've already burned through $1200 of my $2000 FSA... in 2.5 months. This thing is going to be burned out well before the year until it resets. Hopefully the coming months won't be nearly as taxing as the last year has been with medical expenses.

Medical Bills Are Fun

Remember back when I was talking about our hospital visit that we never got billed for? Well, the nice folks over there must have figured out they never billed us and sent us one -- for the expected amount of around $2,500.

I definitely don't have enough in the emergency fund to cover this (or to really begin to cover it), so I'm left with two choices. Get a personal loan to cover it, or use a line of credit I already have available to cover it. In dealing with hospitals in the past, they will usually allow for 3-4 months of payments to be made without interest, but if you need more time than that they insist you go with an outside credit agency of some sort. Since I can't afford an extra $600 a month (blasted current debts), I'm forced to go the route of financing this expense.

I suppose the route I go all depends on the interest rate and terms of the loan I might be able to get. My line of credit is set for 9 years at 9.9% interest. Technically, this is the last thing on my debt snowball, so this $2,500 will be lingering for a while. On the flip side, a separate loan I would get would most likely be on the 3-5 year term and add about as much to my monthly payments as the increase on the line of credit. The only downside to that plan is that this new debt would be at the bottom of my snowball, and would take president over my lowest item now. This in theory should make it go away faster, but then again, it will push off the current loan I am working on eliminating for another couple years. come to think of it, that loan will probably be gone in two years if I keep paying the minimums.

I'm still not sure what to do, but I am leaning toward getting a separate loan. sure, It is a bit psychologically defeating to know I'll be "taking a step back", but then again, I should be getting a raise soon and that will help knock this stuff out.

So yes, Medical Bills are fun. Fun indeed....

Market Woes

In today's climate of large corporations like Merrill Lynch and AIG going bankrupt, all I have to say is DON'T PANIC. The last couple days on the Dave Ramsey show, callers have been calling in freaking out about what is going on, and it just shows how uninformed the general public is.

Let's take Merrill Lynch for instance. They were mainly a brokerage firm. A lot of people were worried because they managed their 401K's and other investments. Caller after caller kept asking if they needed to pull their money out and put it somewhere else. Short answer: NO. Long answer: you own stocks in your 401k, not stock in Merrill Lynch. If they go away, you still have your accounts safe and sound.

The AIG thing is a bit more complicated. As much as I hate that the government keeps bailing these people out, it was a needed evil to prevent the rest of the housing market to collapse. As much as everyone wants to blame the Bush Administration for this (even though the Democratic controlled congress is the ones who pass the laws), it simply boils down to mis-management of resources. Ideally, Fanny Mae and Freddie Mac should have gone out of business and the market would have filled the gap with other, more stable corporations. However, due to the sheer volume of loans they had out, it would have devastated countless families had they been allowed to go under.

So, to all the regular people out there -- DON'T PANIC. Economic slowdown can be more of a self-fulfilling prophecy than an actual event if allowed to be. If people panic and start pulling their money out of the market, then yes, it will slow down. To be honest, now is the best time to get in the market -- everything is on sale :) . Talk about your perfect BOGO deal. Hang in there, and things will pick up and carry on just like it always has. The American people make it happen, not politicians, not figureheads, not evil corporations. We control what is in demand, and we make it happen.

Revisiting Your Budget

After a few months of both of us working, we realized that we should have a LOT more money left over than we were netting. We had a basic budget, but figured we could handle some of the non-budgeted items on a case by case basis. Let me tell you, that DOES NOT work :).

We decided to sit down and completely redo the budget, and account for all of the out of budget items we could think of. We calculated it by looking back at averages to better estimate some of the over budget categories. Writing all of this stuff down was a very good exercise for the simple fact that we found the $800 we were missing (and it was a bit frightening).

Doing what Dave says by writing every dollar down before the month is something you REALLY need to do. I thought I could manage the extras, but there are too many extras that can creep into the picture and pretty soon you're missing a large chunk of money. Thankfully, after doing this, we came up with an extra $200 to put toward toward our debt snowball.

Here's to keeping that snowball rolling!

A New Month, A New Start

I've managed to partially re-fund our emergency fund with August's leftovers, so now begins the uphill battle to round that fund out to begin to make progress again. Being responsible is hard, but we're slowly doing it.

I've got some quotes out, and Terra is still picking up extra hours, so hopefully this month I'll have more surplus to attack these things. More to come :)

New Month, Same Problems

This month has gone by way too fast. Unfortunately, the extra money I had been looking forward to is being mostly used to break even. Our budget is STILL out of wack -- mainly groceries and gas.

On paper, I'm trying to be conservative to free up money to pay down some of this stuff, but the reality is that I've got four mouths to feed and two cars that need to go quite a ways every week. One thing we are really trying to do is cook more at home and take leftovers for lunch. I've gotten my lunch routine down to a very small amount a day, but it still isn't in the budget. Our emergency fund is still under funded at the moment as well. All I need to do is get ONE thing paid off to gain some traction.

Fortunately (or not) a big medical bill from a hospital here in town has not arrived yet. I got the EOB from the insurance in May showing we owed around $2000. However, it is almost September and I haven't gotten a bill yet. I'm guessing now that it will show up after quarterly review, or at the end of the year when they do their books. There is an off chance some nice person out there just picked up the tab, but that's being too optimistic I suppose. I honestly expect it to hit right around Christmas :).

Throughout all of this, I'm still going to have maybe 600-800 I can put on the Van. Just need to bite the bullet and get that sucker paid off. If anyone wants to use that fancy donate link above, I'd be very appreciative :)

Until next time...

End of July Update

Things have definitely been interesting this month. Tomorrow we get our first big check for my wife, so we are excited. I've actually had some things come up and had to dig into our emergency fund a little, but that's going to be replenished tomorrow. Hopefully we'll have enough left over to actually pay down more on the Van.

The budget really felt some strain this month. Most of which was the extra overhead of two people driving instead of one, but now that we're starting to get checks coming in it is balancing out. After the dust settles I'll post the outcome :).

I'm actually working on a write up between traditional IRA accounts and Roth IRA accounts, so after I've done enough research I'll post my thoughts. Short answer -- Roth's are the way to go. Find out why in detail soon. :)

One Card Down...

I am happy to report that we have paid off one of our cards! No more Khol's charge! Now to tackle the next smallest debt in our debt snowball -- our van. We've got roughly $4900 to go on it and I think we can do that by the end of the year, but probably sooner if we play this right.

Check back later, I'll keep you updated :)

Major Milestone In Sight

My wife and I spent some time the other day to go over finances since she's been working again. Instead of working her extra money into our monthly budget, we decided to apply her money directly to our debt snowball.

Even though the likelihood of her working more than two days a week is fairly high, we decided to go on the conservative and only do our calculations based off of two days. With this in mind, we will be able to pay off one of our cars in six months. What's exciting is that if she works more than two days a week, or if I get some extra money with my side jobs, we can reach this goal much faster.

We also extrapolated this out and found that we would be completely debt free except the house in three years. Factor in raises and extra income and this snowball is starting to get really exciting :).

Flexible Spending Account = Awesome

I know a lot of people know what a Flexible Spending Account is, but for those who don't, here is a brief rundown. You can allocate a set amount of money (up to $2000) to come out pre-tax to be used for qualified medical expenses. The glorious part of this is that you can use all of the money all at once because it is coming out of your regular paycheck for the entire year.

Some of the downsides of the FSA is that if you don't use it, you lose it. Also, they have been implemented in various ways -- most involving manually sending in receipts to your insurance provider to be processed as a claim.

In a previous post, I talked briefly how Aetna handles their FSA claims. Basically, you don't have to do anything to get a claim processed. If a provider sends in a bill, they look to see if you paid a copay. If you did, they check your account to see if you have funds available, and if you do, automatically send a check to you. This gets even better when you get a perscription filled. The pharmacy AUTOMATICALLY GETS PAID at the point of sale. This means that if you have funds available, you don't pay ANYTHING to pick up your scripts. This, is absolutely awesome :).

To top it off, Aetna has probably the tightest integration between their business systems and online presence that I have ever seen in an insurance company. EOBs notifications are sent via email at the time of processing and are availble the same day in your online account. Similarly, anything that is processed through your FSA generates the same kind of notifications and you can view your balance onlne in realtime.

How does this tie to getting out of debt? I'm glad you asked! :). Basically, if you know what your medical expenses are going to be (a year of having small children will let you know that pretty quickly), you can consider that a sunk cost -- a cost you are going to have regardless. By using the FSA, you can make that cost a dedcution, lowering your overall taxable income and thus paying "less" for the medical expenses incurred. It isn't a TON of money you'll save, but when you are fighting to climb out of the pit of debt, every little handhold helps :).

June Update

It has definitely been an interesting couple weeks to say the least. The good news is that my wife was able to start working part time again to bring in some extra money. That, and we're going to be able to pay off one of our credit cards this month. The BAD news is that the added expense of lunches and gas for her to go to work we have to eat until she gets paid. I'm on a bi-monthly pay cycle, so we have been in an interesting funk waiting on paychecks to come, while being in the middle of extra expense.

With the amount of hours she will be able to pick up, we could theoretically pay off the Van in about 4-6 months if we can push all her money onto it. Again, there is the extra expense of gas for her to commute and lunch (whether she buys it or takes it), but I think we can make a pretty good dent into things.

I did, however, manage to reduce our monthly outlay by about $100 so far. I canceled my Rhapsody service, and re-negotiated terms on an unsecured loan I have. I'm going to be forcing that excess into the snowball to get it rolling. All I need is to get some traction and this is going to take off.

I also got something interesting in the mail today from Chase. They are trying to get me to refinance my 2nd mortgage. I've got multiple accounts with them, so the rate is going to be about half what I have now, and thus the payment will be about half (freeing up more money for the snowball). The only problem is that my current 2nd has a pre-payment penalty if it is paid off in less than 5 years. I've technically got 4 years left on that loan, so I would essentially be borrowing money to help pay off other debt -- which is never a good idea. I'm sure the percentage is fairly low (still need to look it up), but combined with the $44,000 loan, that could add up to be quite a bit. I still need to do the math on it, but if the savings in monthly outlay could pay the penalty in under a year, I may go that route to free up the cash to help the snowball. After I get just one of these larger loans paid off, I'm really going to make headway.

I'm looking into some other ideas on how to generate some extra income as well, so maybe I'll hash some of those out on here later, but for now I'm off to get some much needed sleep.

Until next time... :)

Is it worth it to pay off debt?

I recently got into a few lengthy discussions about whether you should pay off your house or use that money to invest in a retirement fund. The scenario we were talking about was if you had a lump sum drop in your lap, would it be better to get out of debt or simply invest the money at a higher rate than the debt you were carrying.

All of you Ramsey fans out there would know he would ask "If you were debt free, would your take a loan out on your house to invest for retirement?" -- which is what I asked during my discussions.
Surprisingly, the answers I got back were in favor if investing the money. Even with the risk of the stock market, those involved in my discussions were willing to invest the money (to varying degrees of enthusiasm).

Their arguments basically hinged on the fact that mortgage rates are fairly low, and investment returns are rather high. So, based on this, I decided to crunch some numbers to see exactly how this would break down.

The hypothetical situation is as follows:

You have a $150,000 mortgage at a rate of 5%. You have an investment that will give you 10%. You have $150,000 cash on hand... what do you do?

The first scenario is to keep the house and invest the money over the 15 years. First off, paying a 15 year fixed mortgage at 5% on $150,000 would result in a monthly payment of $1186.19. Over the lifetime of the loan, you would pay back $214,054.20 in principle and interest. Now let's take the $150,000 and invest it at 10%. Without adding any money to it and letting it build over the 15 years, you would end up with $446,274 after taxes (at a 28% tax rate). So, to summarize, we have the following:

• $150,000 Mortgage, 15 year fixed at 5%
• $1186/month payment
• Cost of $214,054.20 over 15 years

• $150,000 Invested for 15 years at 10% with a 28% tax rate
• Gain of $446,274

So, after you subtract out the cost of your house from the gain of your investment, you have netted $232,219.8, not a bad little investment.

Now, let's examine the second scenario. This time, you take the $150,000 and pay off your home. However, instead of pocketing the house payment, you put it into that same investment at 10% for 15 years. After the 15 years and 28% tax rate, you end up with $378,339. The first thing you should notice is that this number is substantially less than the $446,274 you gained in the investment in the first scenario. However, after you subtract out the cost of your mortgage, you have actually GAINED $146,119.20 after paying off your house. To summarize:

• $1186.19/month invested over 15 years at 10% with a 28% tax rate
• Gain of $378,339
• Net Gain in Scenario 1: $232,219.8
• Difference in Scenraio1 vs Scenario2: $146,119.20 in favor of Scenario 2
  

So, by paying off your house with $150,000 and investing your would-be house payment, you end up almost $150,000 ahead of where you would have been if you had gone with the first option. Notice that this is essentially the principal that you were initially thinking of investing. Just at looking at the value of the two choices (aside from investing revenue), option 2 gives you a 100% return over option 1.

Sure, you could find an investment that was over 10% and make the numbers work. However, the risk involved with such any investment that returns a steady rate above 15% would far outweigh the potential gains you would have.

I think the numbers speak for themselves :)

Shopping Around Pays Off

I just wanted to drop in a quick update on the playset. Turns out, with more shopping around, we found a source for a decent sized kit and a source for wood that is substantially less than we had budgeted for the project. The grand total is going to come in around $530 (with me building it all, of course), so the rest of the money can be put toward debt.

This, along with our upcoming budget restructuring should give us some traction to help get things paid down (and to handle the upcoming medical bills).

The Torrent Continues

Well, I thought I was out of the woods until I got an EOB from Anthem today. Piper was in the hospital for three days, and amassed a bill of around $2400. Thankfully, I'm now on my company's insurance so things like this shouldn't happen. Until then, I think I'm going to have to set up payment terms with the hospital. I'm curious to see how much I can spread it out without getting a loan. I would love to be able to make payments on this without dipping into any of my emergency fund.

On a brighter note, I wanted to talk a little about my new insurance. I went ahead and signed up for a flexible spending account with the new plan. Based on last year's expenses, I was pushing 3k in expected outlay. The limit is only 2k, so we will see how long that lasts, but I have a feeling I'll burn through it pretty quickly.

Our insurance is through Aetna, and they have a pretty cool system for the flex spending account. Basically, they try to keep all the paperwork out of it for the members. When they receive a claim from a provider, they look to see if you paid a copay. If you did, they look in your flex spending account to see if you have a balance. If you do, they cut you a check along with the provider -- and you don't have to submit any claims. Things get even cooler at the pharmacy. Since everything is electronic with checking for benefits, the system AUTOMATICALLY PAYS the pharmacy out of your flex spending account and you get your prescriptions for "free".

All in all, after the tax breaks I should net out to having about the same take home pay as I had before when paying for private insurance.

In the mean time, when I get the bill from the hospital I'll be sure to post what I managed to talk them down to. Until then, I'm going to grudgingly wait for the bill to show up.

Crisis Averted

Good news! Yesterday I got a escrow overage check from our mortgage company out of the blue that was for about twice what our medical bills were for. So, not only do I have the money for the playset, I have extra money to use to pay down debt, or to put toward a couple projects we have been saving for. I still need to look to see where it would be best served, but this really excites me.

Between this and some extra work I've been able to pick up, this summer may actually turn out pretty nice :).

Oh well, off to enjoy the rest of my Sunday :)

The Bane of Medical Bills

This always ALWAYS seems to happen. You decide to purchase something large, so you start saving up. You plan, you save, you plan, you save. Finally, you get to the point where you can make the purchase, and BAM -- something unexpected pops up.

For us, this always seems to be medical bills. Granted, with as much as our kids have been in and out of doctor's offices, I should be used to the cycle -- but it still surprises me on occasion. Most of the time, it is more of a "This cost HOW much to get checked??"

We had been saving up for a fairly large playset for the backyard. Our children are starting to get old enough to where one of these would make sense, so we had been planning for about a year. We've had the designs picked out and just had to pick the final level of accessories. Enter new Bills.

All and all, they total of the bills is just shy of what the playset would have cost. On the one hand, it is good that we had the money around and didn't have to get into our emergency fund to pay them off. On the other hand, it is annoying because now I have to start re-saving for the playset.

Ahh, the joys of being responsible.

High Interest Savings Account

When I set up my emergency fund, the first thing I looked at were savings accounts. At the time, the interest rate on most savings accounts in my area were dismal at best. Wanting my money to be safe and to work for me, I kept looking around until I found ING.

When I first set up my account five years ago, the local banks and credit unions were all paying out less than 1% APY (more along the lines of .5-.8%). In contrast, ING's Orange Savings Account was at a healthy 2.5%. Since then it has surged to up to 4.8%, until a recent drop back to 3% as of 3/19/2008.

Wow.. I just looked at a few banks' savings rates... OUCH.

• Chase - 0.10% APY
• Forum Credit Union - .3% - 1.25% (under 0.45% for balances less than $25,000)
• Huntington - 1.99% - 3% (3% for balances greater than $100,000)

The great thing about ING is that there are NO minimum balances to get a return. It works by linking to your checking account and moving money around through ACH transfers. Each deposit or withdraw just takes 1 business day to complete. I can say from experience that I have never had any delays or hiccups with moving money to or from ING.

For those of you who want to be adventurous, they even offer a High Yield Checking account. It has a return of 1.75% for all balances under $50,000, with free ATM access at more than 32,000 locations. I admit, I still use a local checking account for the convenience (that and the money never stays in there long enough to DO any good). However, for those of you in a better financial position, it might be good to have a checking account that gives you a little back.

If you get a chance, give ING a serious look. I've been very happy with them for the last five years and have had a much larger return in that time than I would have elsewhere.

Our Debt Journy Begins Today

Debt is the anchor that holds down our society. It is cast out and allowed to lengthen the chain until it catches and stops us dead in the water. Today, I proclaim "Anchors away!"

I decided to start this blog as a way to keep myself in check when it comes to getting out of debt. It is good to have a plan, but if no one is keeping you accountable, then what good IS a plan anyhow?

Our story stars off a few years ago when my wife and I first got married. We were young and thought very optimistically about everything. To that regard, we got into a bad business deal I cut off after two years. In that time, we were spending money based on what MIGHT come in, rather than waiting to see what actually came in. Sure, we had a few really good months, but most of them were dismal at best.

Fast forward a few more years and a few cars, two kids, and various medical bills, we had accumulated around $50k in consumer debt. In this time, I've managed to pay off and close a couple credit cards. Despite having a horrendous debt-to-income ratio, through clever budgeting we still have been able to give to our church AND pay extra on debt to help get things paid off.

A couple years ago, I started listening to Dave Ramsey who has been a Godsend. Without sticking to his principles (which are pretty common sense stuff if you REALLY think about it), I would be in a far worse position. We have been saving up cash to buy things we want now, instead of using credit and using any surplus to pay down debt to eliminate it. According to his baby steps, we are currently on step 2 "paying off all debt using the debt snowball." For those of you not familiar with Dave, this is basically paying off all consumer debt except for your house, starting with the smallest debt and rolling that payment into the next smallest debt when it is paid off.

Things are progressing, albeit slow, but things are progressing. I've included a Paypal donation button on the site for anyhow who would like to help out :). As with the rest of our income, I will take 10% off of anything donated and give to our Church. If God decides to use you to bless me, the least I can do is give back :).

I hope to try to post money saving tricks and other things that have proven useful as I continue to dig out of debt along with updates on how we are doing. My goal (other than get out of debt) is to show others who may be struggling with debt that you CAN do it. I want to be the example people look to when they decide to stop living on credit and get control of their finances.