by Matt Fildes
I hope everyone is having a fantastic week thus far!
I want to start doing a “month in review” here on BAD to clue everyone in on what’s occurred during the previous month. I think this will help summarize what’s going on in my life as we move forward on my debt reduction journey and allow people to quickly get up to speed that didn’t catch my weekly updates.
To summarize, A LOT occurred in April:
- I began the month (technically it was March 31st, but let’s call it April) by telling you what’s been bothering me even since I started my hardcore paydown (read it here). This was the hardest to write but most heart felt post to date. Update: I’m starting to realize time is more important than money and or gifts, and spending time with people and giving them a minute or two every couple of days is priceless.
- I vowed to help my sister by contributing to a 529 in my nephew’s name (read it here). Update: I officially opened up an ESA (not 529) account in my nephew’s name over the weekend. The first contribution will be this Wednesday.
- In the same post, I decided to re-contribute into my company’s 401K plan (read it here). Update: All the paperwork has been filed and I’m set to start contributing 4% (giving me the max. 2% company match, as well) of my paycheck this Wednesday.
- I also decided to start budgeting for $50 of “fun” money per month to use to go out with friends (read it here). Update: I’m going to set the $50 aside on the 2nd Wednesday of every month for the following 4 weeks. I don’t have any other bills, except my electric due at this time.
- I came across a roof leak in our house and freaked out! (read it here) Update: I haven’t opened any ceilings yet (mostly out of fear) but it’s been dry now since the day I ventured upon it. We’ve had some pretty good rainstorms already this year, so if it was from rainwater, I feel it would still be wet. My hunch is still ice dams.
- I got a work bonus and a raise! (read it here) Update: The bonus was quickly put into my savings account. The raise has amounted to $17 a paycheck, but every additional penny helps.
- We (GF and I) finally got around to celebrating Valentine’s Day, while also doing a fun little getaway up in Buffalo, NY (read it here).
- Lastly, I got around to putting our summer plans down on paper (read it here). It may not seem like much but I have a feeling it’s going to be a busy one this year!
For those interested in where my budget shook out:
I had some major expenses this month: 1) a tax bill close to $200. Since my I didn’t pay enough taxes last year to match my income (which was greatly increased due to pulling out my retirement fund), I owe the state of PA estimated quarterly taxes this year. 2) Our get-away cost nearly $400 in total 3) I spent more for groceries and dinner than I normally do. After my post to kick-off the month, I’m not too upset about this.
In debt reduction notes:
I reduced it by OVER $2,500!!
Pretty exciting stuff.
However, all good news aside, I had thoughts last week of stopping my debt reduction pay down altogether (obviously I’d still pay the minimums), which would have also meant writing for BAD, too. As I was sitting my car thinking about everything, I couldn’t help but wonder if instead of throwing every extra cent at debt, if I threw every extra cent into my savings. It would build quickly, giving me a large enough windfall to get through any obstacle, and when the balance was big enough, I could use it to pay off all the debt at once, alleviating my stress while giving me comfort that I won’t be in debt forever. After talking it over with GF, the feeling came to pass. With savings interest rates so low, it wouldn’t make a ton of sense mathematically, but, as I’ve always said, being in debt is a psychological, as well as, financial burden.
But what do you think? Do you ever get feelings like this? If so, did you suddenly change course, or did you let it pass? Let me know in the comments!
Have a fantastic week!
It sounds like you’ve hit a wall in your debt repayment lately. But, it also sounds like you are pushing through.
It makes sense that you’ve hit a wall – you are more than halfway through and dreaming about what’s next. You’ve also been paying hard core for how long? People often hit walls around the 3 year time frame.
While we are paying down our loans, we aren’t settled in to a regular debt-paying-off pattern and so while we are making progress, it feels so fragile, like we could regress in an instant. But we need to make so much more headway before we pull back.
Yep, a pretty big wall, lol. The numbers are decreasing, but not as quickly as they once were. This is the boring part of debt payoff, I guess. What’s you get things figured out, all you’re doing is humming along until it’s paid off. I’m been doing the hardcore thing for a bout a year a half, but I’ve had to maintain a tight budget since I graduated college- which was 6 years ago.
My situation also feels fragile, as my slush fund only has enough to cover me for a month if something were to happen. Just know that you aren’t alone!
I think the doubt of “Am I doing the right thing” is valid regardless of whether you are focusing on debt, emergency fund, retirement, whatever. It’s important to identify when your priorities change and set up a time to review your goals on a periodic basis.
DH and I spend a lot of time thinking about our annual goals. We usually set a net worth number and then try to figure out what changes we need to get there. A big priority for us this year was to take some of our savings and more or less lock it away in a very low risk investment account. The problem we had was that it was so easy to raid our savings account for planned spending and other splurges/expenses.
You are likely getting into a debt fatigue rut and maybe just feel like you don’t have a penny of leeway. After loosening the strings a bit in April, I would encourage you to step back and feel the changes out for the next few months.
Thanks Walnut. That’s what I’m going to do. Maybe sometime this summer I can evaluate if putting money aside towards fun and to helping out my sister is helping my anxiety at all. If it is, I can see if I can set a little more money aside when the time is right.
Paying 3k to loans every months for years on end loses its appeal. It took us around 7 years of extra payments, but once we paid off all loans above 5% I pretty much stopped our student loan paydown. My thinking was that our top income is in the 25% bracket+state, so technically the rate is 70% of the actual interest rate. Also, as I see it, minimum payments on loans will stay the same for the next 10 years. When you consider inflation, the $600 minimum will be “less” money 5 years from now relative to my income/spending versus $600 of todays dollars.
Instead I started to max out our 401k’s and start up Roth IRA’s to max out. At 30, with multiple years of unemployment, I felt really behind in retirement savings and stuck in my job because of it. Any excess cash above that we are then diverting to a brokerage account.
My intent is to keep adding to the brokerage amount any excess (which previously would have gone to loans). I’m expecting the brokerage account will earn more than the 5% interest our loans are costing. My goal is to get the balance in that account to match the outstanding debt balance by YE2016. Then I will have the flexibility to cash it out to pay off the loans if needed. 25k of our loans are tied to the LIBOR and currently only 3.1%. This has the possibility to rise back to its previous glory of 8+% so I wanted to have the flexibility to pay it off if the rate increases.
Because I needed some type of goal, I started tracking the difference between the debt and brokerage balance. I’m calling my method “close the gap!”. Right now we have 56500 in loans and 20000 in brokerage, leaving us with a gap of 36,500.
I LOVE seeing my retirement number increase so rapidly! Also, I like the idea of superboosting my retirement accounts now while we are making a lot of money. It saves a TON in taxes too almost 8k/year that is going into my account vs the government’s.
What you’re saying makes a ton a sense, especially when you look at it strictly from a numbers standpoint. It looks like you were/are making some sound financial decisions.
Your rationale was one of the big items I was thinking when I was tempted to go the savings route vs paying off debt- if I can save a large enough amount, I can always just pay off the debt in one shot if I ever got into dire straights. However, I just can’t see having the debt hang around longer than it should. I don’t want to look back in 2 years with 30-40K in student loans and say “if only I stayed the course, these would be gone already”, if that makes any sense to you.
I’m sure it’s exciting to see the retirement numbers increase! I can’t wait for the day I can say that, too.
I completely understand! I just couldn’t do the debt paydown anymore. I think we were around 7 years into payoff with 3 more left and I gave into hitting the wall. It really is difficult to send the majority of your paycheck to someone else for that long. Bloggers with only 20-30k in debt can do it because it will only take like 2 years. But with 5x that amount its really hard to stay motivated that long.
The market is ready to tank any day now supposedly. So my approach may not be the best. But if I ever change my mind I can.
I’m glad you’re not going to build up your savings instead of concentrating on your debt payoff. Being uncomfortable will help you stay motivated – once you get comfortable it’s easy to justify paying less on loans, etc…..plus this is the best time in your life to get rid of the debt. Once you are married, own a house, have kids, etc your ability to pay these off quickly will greatly decrease.
You are so close – just keep going and you will be so glad you did!
Congrats on all the progress and positive steps – bonus, raise, 401k, finding balance!
Completely stopping your debt payoff would be pretty extreme. As Den pointed out, this is the easiest time in your life to throw massive amounts of money at your debt. Marriage, kids, etc. all make big demands on your paycheck. And as many financial advisors say, you are still used to the frugal lifestyle. As time goes by, your willingness to bypass most treats and luxuries may diminish.
Maybe the roof situation has you a little on edge, subconsciously, about other potential emergencies. Perhaps you would feel more comfortable with a larger emergency fund. I recall you having a “slush fund” of a few thousand dollars. Is this all the cash you have on hand for emergencies (besides the bonus you just saved)? There are different perspectives on emergency funds (Dave Ramsey advocates $1000 or so; Suze Orman usually says 8 months of living expenses). Knowing that you have the cash on hand to financially manage any catastrophe life throws your way is very comforting…e.g, knowing you could go out and buy a new car tomorrow for cash if yours is totaled, or that you have the resources to cover an extended period of unemployment, etc. I wouldn’t advocate completely stopping debt pay-down in favor of accumulating a huge pile of savings, especially with current interest rates as you point out. However, if a sizable chunk of change in the bank gives you greater peace of mind, it may be worth adding to your slush fund. Maybe in the 8 months of living expenses range, not the entire balance of your debt.
Another option, which Angie’s post reminded me of…Roth IRA contributions can be withdrawn at any time, without penalty or taxes (because you contribute after-tax money). You could max out a Roth IRA and know that this money is always there to assist you if absolutely necessary. Withdrawing retirement funds should be an absolute last resort, but you are so responsible and frugal I don’t think this would ever be a concern for you. My intent is that it would give you more peace of mind and be a “whoa-the-worst-case-scenario-just-happened” fund – something extreme goes wrong that was completely unexpected.
Man….I got nothin…..these people are brilliant!!!! Keep going strong!!!!
I love the idea of a month-in-review post every month! I’ve certainly felt the same way before (regarding saving vs. debt payment). I’m a natural saver so it’s been a tough instinct to break and one that I continue to struggle with. For me, I’ve found that continuing to save a small amount has helped me to still feel “ok” while in debt-paydown mode. I’ve been saving $100/month for a Roth IRA and $25/month toward our 3-6 month EF (with the exception of a couple months where I’ve eliminated extra savings due to having lower income and, therefore, not enough money for savings). But having that little bit of monthly savings has really helped me from a psychological perspective. Maybe you can see how you feel in a couple months after you’ve gotten used to changes you’ve implemented (e.g., the retirement savings, fun money, etc.)
I think your approach is fine. It would be great if we could all live like monks or something while we’re in debt, but it’s not a realistic approach–it’s like people who go on a crazy strict diet or hardcore exercise regimin. Sure it works for a while, but you can’t really keep it up. Taking a little out for fun may keep you more dedicated to the long term goal.
You’re a bit of an all-or-nothing guy, aren’t you? 🙂
The key here is moderation. It isn’t easy, especially with competing goals and demands, but the ramifications of going all in on one option can be problematic. If you find yourself wavering between saving and paying off debt what you could do is look at the total amount you want to put towards debt/save. Then, divvy it up. Even go 50/50 if you want. If one goal has more priority then tilt the amount towards that, say 60/40 or 80/20. And then follow that and don’t think about it for a while.
I will add, and maybe you already do this, is keep a line item in your budget for contributing to savings. Even if you’ve reached your emergency fund goal at some point you’ll draw from it – a car repair, housing issue, job loss – and you’ll have to build it back up again. If don’t have a regular contribution in your budget when you need to build it up, then it will hurt when you do build it back up. Keeping that line item in is like a place holder – it keeps you from budgeting that amount for something else.