Month: May 2017

An Epiphany! How I plan to be debt free by Halloween

Truth time: Since I paid off my student loans, I’ve felt like a bit of a debt destruction fraud.

I slayed my student loans, yes, but I’ve had a car loan for the last 2.5 years.  I’ve justified the loan for two reasons. 1) I didn’t have the cash flow or the savings to buy the car when I needed to make the decision. Taking out a loan was my safe option living where I live, working where I work. 2) I was okay with the concept because the interest rate is incredibly low. 1%. I could easily justify putting my money elsewhere when my savings account was earning what my loan was charging me.

I’ve accepted that decision and I’m okay with it.

Today, I face a different decision. Hubs has leased his car for the last 3 years. He likes the car and we plan to keep it. If we follow the same path as last time, we’d take out a loan for the balance, the interest rate is still good and we’d ride that for the next 3 years.

But what if we did something different?

Since I got my car, I’ve been setting aside, $50/month to cover car expenses. My car is still relatively new, and we haven’t had to use this money. The account grows every month.

On top of that, we have an emergency fund. We’ve never had to use the money in this account. We’ve had it for years and the money sits there. We save a large portion of our take home pay and in that time, we’ve never had to touch this money. We’ve been able to cash flow any expenses that come. *Knock on wood*

What if we used this money to pay cash for Hubs’ car?

Between the two accounts as the accounts sit today, I’m $1500 short of being able to pay cash to cover the cost of the car and the estimated taxes and fees. I have 2 months to save and next month is a 3 paycheck month. That seems incredibly doable.

Then his car would be paid for, and my loan would be done in October.

Here is where things get extra exciting. My last scheduled payment is October. With just a little bit of effort, my favorite birthday milestone is only 3 weeks earlier. Debt free by my 31st birthday? HECK YES! (minus the mortgage of course!)

SWEET! Right?

The biggest down side of this plan is that it would leave us cash poor in the short term. Potentially, “I don’t even want to look at my bank account” cash poor. I’m a little nervous about the cash levels, but we still have a good buffer in our checking. I wouldn’t have my emergency fund and my car fund would be $0. But if we do this, we’ll have an extra $200 to save immediately plus an additional $400 in October. I can use that surplus to fill up the Emergency Fund back to a safer level. In addition, I’ll continue to put aside $50/month for car expenses.

This feels like the best thing to do right now.  I haven’t felt this excited about a financial plan in a long time.

Debt free is to be the way to be. Right?

Am I missing anything? Please poke holes in my plan.

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Learning from New Barriers

I’ve been lucky when it comes to savings and investing. Lucky and without barriers. I didn’t realize how lucky until recently.

I’ve always been a saver. I’ve had role models in saving and frugality. I’ve also had incredible motivation. In high school, I only worked during the summer. I had to make my money last!

I opened my first savings account when I was very young. I stashed away any dollars I got my hands on, so the minimum opening balance was never a problem. Most banks are lenient with minimum balances for youngsters anyways.

After a few summers of working, I started my first investment account. The $3000 minimum wasn’t a problem. I was so good at making my money last through the years that it piled up. I had the cash sitting in my savings account. At least this would allow it to grow.

When I started my IRA, I was consolidating bank accounts. One happened to have exactly $5500. I had no other plans for the money. An IRA felt like destiny.

My 401k didn’t offer any barriers to entry either. I could put in 1% of my salary. I was just starting my student loan destruction journey and I wanted as much as possible going to my loans. 1% was the minimum I could invest without unenrolling from my 401k. Unenrolling felt like a barrier, so I did what I could to avoid it.

Now that is all well and good. I’m 30 and I’ve planted several solid investment seeds. Each of these accounts are easy now. I add to them when I want with an amount I want.

Starting my taxable investment account has been a different story.

We bought a house and that’s priority #1. It needs work. We knew that. I knew that. Taking care of the things we need to do has been expensive, much more expensive that I could have anticipated pre-move.

With that said, I don’t want to get behind on my goals. I’ve set and accomplished a major money goal each year for the last few years. Opening a taxable account is the next step. I don’t want to put it off. However, having nearly all of our money going to house projects has left little for investing.

I want to stay with Vanguard. $3000 is the minimum for most of their funds. I can’t come up with that right now. I’m staying true to my priorities, and there isn’t $3000 to spare after everything else. I lowered my hope to $1000.

I’m struggling to come up with $1000. My saving plan has me getting there in August. That’s what I’m comfortable setting aside. I don’t have the time, energy or resources (still no internet!) to hustle right now. That’s all I can spare.

I’ve never felt a barrier to saving or investing like this before. Most of it is artificially imposed, but I’m true to the jobs I’ve given my money. This isn’t an emergency. It is not a car. It is nothing I’d attempt to justify for the travel fund.

But what if this scarcity was reality?

What if the emergency fund was my rent money? My travel fund was all I had to buy groceries and my car fund had to cover gas until next payday? I can’t set aside any of that money because I need it. I can’t make it unavailable because it is my lifeline until the next payday.

I hate to admit that I’ve never really understood Dave Ramsey’s 1st Baby Step. Whenever someone calls into the show and says they are on BS 1, I didn’t get it. Really, it takes you awhile to set aside $1000? Stop going out to eat! Put down the Starbucks!

Until now, I’ve been blinded by my own privilege to never know what it feels like for it to take a few months to come up with $1000. This whole process of evaluating where I can squeeze out a few extra dollars has been a lesson in empathy.

I may not get it yet, but I’m a few steps closer to understanding.