Well that's a record for silence. I've not been especially busy over the past seven months, just dealing with feelings, and not in much of a mood to go broadcasting it to everyone I know. I spent most of the second half of 2010 dealing with the pain of the breakup, and annoying my exceptionally patient friends about it. I met an incredible woman in September, and we enjoyed the time we had together until January, when she moved away to accept a gigantic job out of state. So, I've been trying to keep my head up and see my friends when possible.
I'm still employed, and earning the most I've ever made. I've devoted the majority of this new income to paying off the very significant amount of debt. The job I had before didn't pay well enough to allow me to make any real headway against the five figures of debt that I had-- quite the opposite. I actually picked up some debt there. But as it is now, I've actually managed to take the five figures down to four figures, and I put together an aggressive payoff strategy that has me completely out of debt by the first of July(this year). Excitement about this fact has occupied a great deal of my attention as of late.
I wanted to share with you what I think is a really simple method that I've put together for debt payoff that I'm confident would have been effective even with the lower income at my old job. I spent all but two weeks between the 4th of July and Labor Day in Dallas, and my presence there was largely unnecessary, as the planning and meeting that was going on there was for Windows stuff. Not my area of expertise. That meant I spent a great deal of time looking for work to do.
In this search, I formulated a plan to simplify my bills, debt, and budget. I get paid once a week here, as I'm still an hourly contractor. This means that there are sometimes bills that are larger than my paycheck. A notable example of this is my mortgage. For a long time, I've struggled to create a situation where the money that gets deposited into my bank account is mine to spend, and spendable. I wrote and continuously improved my ledger app for this purpose, under the idea that if you have a rough idea of what your expenses and income will be, you will know how much money you have by looking and seeing the lowest balance in the future.
I've conducted my financial affairs under that understanding for several years, and it's worked well enough for me to avoid overdrawing my checking account. But what I really want is to normalize my finances so that every paycheck I get has roughly the same result. The same impact on my check account balance. In this way too I can get a better idea of what I'm spending on things. I decided that what I needed to do was set up a second account, and divide my direct deposit between my checking account and the second account. I settled on the ING Direct account that I've already had for several years, and with which I've on several occasions made a half-hearted attempt to create savings or contingency funds. It was ideal for my intended purposes in this case.
I started a spreadsheet, and it has grown from this point, but it began with an itemized list of all of my monthly expenses, including debt payoff itemized at at least $1000 a month. I added all the items up, and divided that number by the number of times I get paid each month, and rounded up. I took this rounded up number and changed my direct deposit setup to take that number and send it to the ING Direct account, and dump the rest into my checking account. This means that my mortgage, HOA dues, electric bill, phone bill, cable bill, insurance bill, and debt payoff are all paid automatically from this second account, and my own spending money is constant from check to check.
Using this method, I don't have to put a great deal of effort into paying bills on time or getting out of debt. I don't have to make sure I have enough money by the 13th. It's all taken care of by the separation of my accounts. All I need to do is pay the bills that fluctuate, and dump the remaining balance each month into debt repayment. As such, I've been able to draw up a debt payoff schedule, which indicates at any given time when my debt will be paid off.
And when that happens, drinks are on me.
I think a big key is building up your buffer. The general advice I've heard is that you should have 6 months salary saved up. Granted, I've been working on that for years, and am still not there, but I have several months saved.
Once you have much buffer at all, the regular ups and downs of the paycheck/payments cycle just go away.
As for a second account, I do keep a my own ledger/register like, but I only split things "virtually" in that ledger. Saves the hassle of transferring to and maintaining an actual distinct account.
Anyway, good luck.
10:05 AM, Feb 17, 2011
I have been a follower of the Dave Ramsey plan. He puts savings and debt obliteration into perspective. Some people save up 6-8 months of savings and not apply that to debt. That is like taking out a 6,000 dollar loan when you are debt free to have some cash in the bank. Doesn't make sense.
Financial Peace University was great (steps down from soapbox...)
10:59 PM, Apr 14, 2011