by Ashley
Since I’ve started working full time (and having the steady full-time paychecks that come along with it), I’ve noticed one BIG change in hubs’ and my mentality toward debt payments: We’re a lot more eager than we used to be.
Now, don’t get me wrong. We’ve always been eager to get out of debt! But what I mean is that we aren’t taking as many precautions and have a little bit dangerously low safety net in place currently.
Prior to landing the full-time job, we had extremely variable income. In hubs’ job, alone, he’s had months where he’s made nothing and months where he’s made nearly $10,000! That’s a huge fluctuation! While my income was always a little bit more stable (in terms of the same amount of money almost every month), it was an adjunct position so there was no stability in terms of long-term job security. I sign a semester-by-semester contract so I only ever have a guarantee for just a few months at a time.
My full time job now fills that void. It offers safety and security. I know that, no matter what, I’ll be getting a paycheck every two weeks for $X amount (of course, this is assuming I fulfill my job duties…I’ve never heard of anyone being fired mid-semester but I presume it could happen if one were to just drop off the face of the Earth or something drastic happened). But you get my point. This steady money provides a bit of a safety net that, otherwise, we had to do ourselves through savings.
So, although I don’t like how thin we’re running on money right now, we’ve been making some much riskier financial decisions than we have in the past.
All of our savings accounts are dangerously low. Under a thousand in our emergency fund. Only a couple hundred in our car repair fund, a couple hundred in our health/dental/vision fund, a couple hundred in our annual expenses fund. All of our savings are grossly under-funded right now. Plus, we’re slipping into a limbo of living on last month’s income. Basically, I still use my full-time paycheck to live on last month’s income, but all of my part-time pay I’ve started using toward the current month to boost up our debt payment figures. Same thing with hubs. He had a no-income month in August and, since then, I’ve been using his pay for the current month simply out of necessity! It’s a slippery slope and I know that we’re sliding a little bit.
I know all of these factors combined (very small EF and other savings, smaller safety net through “last month’s income”) can come back to bite us in the butt. But my thought process is this:
I really want to pay off our car. Like….I really, REALLY want to pay it off.
There are two ways that this could go:
- We have a super small safety net until the car is paid off. Then we bulk back up our savings and everything is fine. No big deal.
- We have a super small safety net and something happens that requires immediate money and attention (e.g., big car repair, unexpected health issue, etc.). We divert the money we WOULD have put toward car debt toward the new issue. The car isn’t paid off as quickly, but we all survive.
Maybe I’m missing something, but this is how it seems to me. Even if (knock on wood) we suffered some unforeseen financial blow, we have the funds to deal with it…it would just require us to put less toward debt. So it would blow the goal of paying off the car by December, but we would still be able to weather the storm.
To try to make sure this is the case, I’ve been putting off debt payments until late in the month when I know, for sure, exactly what hubs’ income is for the month, how much money we’ve got for the next month (from our now modified living on last month’s income fund), etc.
It certainly feels risky at times, but my hope is that this is only for three months. By the time the new year rolls around I hope and pray that we’ll be consumer debt-free (meaning, the car has been paid off). If that’s the case, then we may take January “off” of debt-payments (aside from minimum obligations) so we can re-stock some of these savings that really should be funded at a higher level.
That’s the plan anyway. We’ll see what curves life throws our way.
Have you ever lived with a super-low financial safety net for a period of time in order to try to meet some financial goals? If so, did it work for you?
We’ve done this once before. Back when we paid off our Wells Fargo credit card (in May 2014), I made a a giant payment (like $3500) to pay off the card in full before I even knew if we had the money available. To clarify, that’s when we had a 100% variable income (no steady pay), so we literally had the money in a checking account but I didn’t know if we’d have enough money coming in to cover the rest of our bills for the month! I made a giant leap and just paid the bill in full and crossed my fingers that it would all work out. Thankfully, it did. We earned enough to cover the rest of our bills and all was fine. I’m hoping for a repeat situation now. I want this car loan debt gone NOW!
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
Ah yes, that line between thin ice and literally being in the water was where I spent a lot of time while paying off debt. I don’t recommend it for long periods of time, but in the short term it was really effective for me.
The challenge will be maintaining liquid savings if you’re falling into the thin ice game. Right now I have more liquid cash than I’ve ever had and it’s burning a hole in my pocket. I can’t help by look at the mortgage interest I’m paying and thinking, “man, that liquid savings is COSTING me ‘$x’ per month.
That’s another good point (regarding the cost in interest when cash is sitting in the bank). Really, what I’m thinking (ideal terms) is that we’d like $4,000 in cash – that’s about one month worth of minimum expenses. Our car repair fund needs to be $1,000. I haven’t taken the time to link back to posts, but I know that basically every time we hit the $1,000-mark we have some type of repair that costs exactly that amount. It’s happened 3 or 4 times now since I’ve been blogging. And the annual fees fund should have about $500-ish revolving (being replaced as its being used). So, to me, these are still relatively conservative savings in terms of the amount being set aside. But also just the perfect sized safety net that we need when stuff goes down (and, as I’ve had to raid these accounts for past emergencies – like no income months – I know they’re pretty realistic figures of what we need)
It might be scary, but I think you are doing a great job! Maybe the not being 100% comfortable is a good thing. I’m rooting for you to get that car paid off by the end of the year- you can do it! I just found out that my work offers an HRA with up to $1600 towards your deductible. Since I paid my deductible this year (having a baby is expensive!) I am going to see what I can get back. My fingers are crossed to get the full $1600 and become debt free when I get the check!!!
Wow! That would be incredible! Fingers crossed for you!!!
I might extend the car pay off til January. I know you want to gone, but it’s only one month, and if your savings are that low, you might end up delaying it anyway. With your dad’s health issues, you could have some unforeseen expenses, and the holidays always end being a little more expensive than we plan. Give yourself the gift of a month extension and beef up your savings. You’ve had so many ups and downs that only a one month delay is actually pretty good!
I can only offer my experience with my own gazelle car payoff earlier this year. Due a drastic increase in my income starting at the beginning of the year, my original plan of paying off my vehicle moved from Dec 2015 to May 2015…which, PTL, I was tired of those payments.
A lot of my disposable income went to the car payment. Not all of it, but a lot. It was nerve wracking at first, but once I started, it was pretty much smooth sailing. Now if my AC/Furnace disaster (I call it that because an AC going out in the middle of August…in south Texas…Ay dios mio), had happened within the first five months of the year, I know I would have reverted back to normal car payments, and would’ve paid of the HVAC expenditure. Once that was done, I would’ve tackled the car payment again.
I completely understand your logic and in theory I (probably) agree with it. However, if the last 2 years have taught me anything (started 3 separate jobs that should have been secure but were not for a host of reasons out of my control) I feel more comfortable with the buffer immediately in savings.
I have been in this place and am there right now. We are trying to pay off our $200,000 in debt and it’s quite a process (as I’m sure you understand). And care payments definitely don’t help with that. Right now, we have less than $20 in savings for an emergency fund. In 2 weeks we’ll have it back up to $1,000 because we have made the decision to get it up to $1,000 before making any more debt payments… but we don’t want to make it much higher than that. It’s scary, but worth it I hope! Thanks for sharing!
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I think it is relative to everyone’s situation. If you rent or have a low house payment it might be stressful, but manageable to live on a $1K EF. I live in one of the most expensive cities in the country and our mortgage, taxes, and utilities on our home are $5K a month. We have a nice middle class house, but it is not a mansion or anything-just the cost of living and very high real estate taxes (2nd highest in the country). I tend to be fairly aggressive about debt payoff too, but a relocation and higher living costs in the last year has made me less aggressive and a little more conservative about saving vs. aggressive debt pay down. I feel nervous if our EF is below $5K and feel even more comfortable at $10K to know we could at least cover some of the home costs.
Wow! That’s a high living rate. I can definitely see why you would be nervous about having a lower emergency fund. I’m grateful to live in an area that has a low living expense. And even more grateful that my job pays my housing. I think that’s the only reason we can manage with only $1,000. Definitely high risk though and I imagine even more high risk in your situation! If you ever need anyone to chat with though, I’m all ears!
www.diyjahn.com
I am not sure that your idea of working with last month’s budget is the best way to go given your highly variable income. You might want to consider doing a set budget based on the minimums to live for the month and then take the extra for debt. This might give you more peace of mind and less stress in your life.
That said, my advice is to build up the emergency fund for the ‘rainy day’ that will happen even if you have to extend the car payoff into next year.
Yep, I hear you on this one, Ashley. I’m so eager to pay off these debts, that my EF dipped below $500 at one point for 2 days before I was able to get it back up to $850 and now $1,300. Couple more weeks I should be back around $2,000 and back to paying off my SL’s.
If you have credit lines available to you, you don’t have to keep your EF too terribly high if you can pay off an emergency with a credit card and pay it off with your next paycheck. I recently got a credit card through my bank with a $1,500 limit just for this reason- just a little extra of a safety net, just in case. I know all the financial guru’s say to keep an EF so you don’t use credit and get back into the debt cycle, but I disagree with that since it’s obvious you can cash flow the payment with your next paycheck and you’ve built up a ton of discipline to not get in that cycle.
Good luck getting that car paid off by December! We’re rooting for you!
Thanks for the kind words! And, you’re definitely right that having credit lines available can also help serve as a bit of a buffer!