Fall is in the Air

As summer comes to a close, I have a few things to be thankful for. The most of these is the fact that the girls have been well for about five months! This has been a huge relief to us emotionally as well as financially. Recently, they did have a cold but they were able to kick the fever in four days which is unheard of around here.

So, what have we been up to this Summer? Well, more of the same it seems :). We have been able to pay everything down across the board. No new things have been paid off, but the entire mess is lower. One good thing is that we have been able to keep Terra's check out of our budget so it is truly extra income when it comes in -- which rocks. We also have our emergency fund almost completely built back up :)

Speaking of the emergency fund, there was one thing with Ramsey's plan I didn't think I needed to do, and that was the envelope system. It's a simple enough concept -- you make a budget, then withdraw the money you need for each category and put it in separate envelopes. Then, when you need money for something in that category, you just take it from that envelope until it is gone. I thought to myself "hey, I have Quicken, I don't need this, I can keep track of it." The problem was my rational brain was making that decision, not the irrational, hungry, I want side of my brain that apparently can't estimate well :).

So, after stumbling with a few problem areas in the budget, I pulled those out into the envelope system to better mange things. In particular, the Food (out to eat), Fun, and Clothing categories where the problem children. We would always go WAY over in these areas by underestimating how much we had spent earlier in the month. By pulling the money out ahead of time, it's something you just don't have to think about. If there's money there, awesome. If not, you're brown bagging it. I personally like not having to deal with those receipts as well. I've got one transaction in Quicken instead of 14.

Because of this, we now have a bunch of extra money in the Fun envelope (who says you HAVE to spend it, right?). As that money piles up, we are planning on a cool trip later to take the girls out and pay cash for the whole thing. Amazing what you can do when you plan for stuff :)

I've got three bills in the snowball lined up for the next 6 months depending on how things go, but I think 6 months is a reasonable goal. One of the items in there is my car, so that's got me pretty excited :).

Fun With Stimulus

I just got my first paycheck containing our tax cuts. Yes ladies and gets, I'm now the proud recipient of a whopping $33 more dollars a paycheck. Seriously? That's almost not worth the effort of updating Quicken and re-doing budgets. But hey, I'll take what I can get considering how we are going to be screwed later with other hidden taxes.

Things have been a bit rough around the house lately. We still have medical bills trickling in, so my monthly budget is still getting beat down. That, coupled with Terra not working anymore has made things tough. The extra $33 helps, but still doesn't mitigate the problem, just makes it a bit less of a problem.

I've actually been trying a lot harder these days to pick up side work, and finally landed a decent one last night. It involved making a co-op website for 2-4 companies so I think it will probably be a pretty stable gig worth a decent amount of billable hours. I'm going to be billing it out in chunks to hopefully help with the cash flow nightmare I keep getting caught in.

I did realize last night that I probably need to look into quarterly taxes now as well. Before, my side stuff really didn't amount to much and when I turned it in, I was never penalized. This job though, could be worth enough that I might get fined if I don't turn in some sort of taxes on it. I haven't ever had to do something like this before, so I'm not quite sure where to turn. Looks like it may be time to consult one of Dave's ELPs to figure out what to do :).

Anyhow, that's what we've been doing lately -- treading water. My main problem now is time. Working full time, and doing this side stuff is very taxing. I still have some other projects I want to do, but they won't necessarily be bringing in a lot of cash right away. Gotta concentrate my efforts on what will pay the most, even though they aren't on the top of my "this would be cool/fun" list.

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 :).

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!

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 :)

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.