Month: December 2018

2018: Debt Paydown Year in Review

~ Justin ~ Leave a comment

Ali

Up until this point I’ve been a little sheepish about exposing real numbers in our journey to financial freedom. It’s scary to expose your financial self to the world. Some will disagree with this and say that these are personal matters to be kept to one’s self, but I think for this journey to have the most positive impact on others, transparency and honesty are both important.

In 2017, Josilyn and I got married. With it came a lot of changes. We shuffled through a couple of cars. She had a Subaru Outback that had some mechanical issues, so we ended up getting rid of that for the Toyota Prius she now has and we love. I finished my dance with car loans and other vehicle stupidity and landed in my Mazda Miata. We got married in July of that year. We made a multi-state move away from home to Oregon. We got our first apartment together. Jos started Grad school and I was unemployed for the first 2 1/2 months we were there. There were a lot of moving parts and a lot of “firsts” for us as a newly married couple. All in all, it was a financially volatile year. We made a bit of progress, but most of our time was spent just trying to keep our head above water financially.

2018 marked a new chapter and we began to turn a corner. Our budget settled down and settled in. We integrated tools on our phones and computers like Mint, Simple, Credit Karma, and a very cool, little know site called Undebt. We caught a vision for where we could be financially, with a sober knowledge of the not-so-great place we were. Basically, we started to pay attention to our finances. As my treasured and wise mother in law says, “You get what you inspect, not what you expect.”

During this past year, we’ve had ups and downs with finances. There were unexpected expenses here and there, and living on one income proves to be challenging as Jos continues in her studies. But we also had some major victories. During this year I received raises on three different occasions, two bonuses, and I started working in early October as a pizza delivery driver, all helping to bolster our income. We finished paying off our credit card debt in May of 2018, which was a wonderful feeling not being indebted to high-interest rate lenders. Another win came later when Josilyn received a settlement from a car accident she was involved in. Getting a lump sum of cash is great, but it can be very tempting to spend it instead of saving it or applying it to debt. I applaud my wonderful wife for her willingness to apply most of that to her student loan debt.

Well enough hoopla about victories, let’s get down to the nitty-gritty and the numbers (let’s be honest, the numbers are what I live for anyway). Here are some totals of who and what we paid off during the 2018 calendar year, and what we have left to accomplish:

Visa Credit Card – $906.77 – PAID IN FULL

Chase Credit Card – $2,066.86 – PAID IN FULL

Citi Credit Card – $3,399.00 – PAID IN FULL

FedLoan Servicing (Justin’s Undergrad Loans) – $13,880.56

Navient *cringe, I hate these guys* (Josilyn Grad Loans) – $19,542.66

*Side note, this Navient number is inflated a bit because we took out more loan than we needed, so we turned around and paid back some of that disbursement with that money*

Total Debt Paid in 2018: $39,795.75 – Which is probably about $30,000 flat if you subtract out the note above regarding Navient. Still, a bunch of money!

So where does this leave us looking into 2019? Thankfully we only owe student loan debt at this point. Here is the breakdown:

FedLoan Servicing (Justin’s Undergrad Loans) – $7,792.61

Navient (Josilyn’s Grad Loans) – $54,422.22

Projected Loans for final Grad semester – $12,500

Total Debt to Pay before Financial Freedom: $74,714.83

It is pretty intimidating to look at this total. But I look at the year ahead and I have to remind myself of a few key items:

  • This year Josilyn will begin working in May or June so we will have a second healthy income that will all go towards paying off debt.
  • I will work at Pizza Hut two days a week at least until May or June when we might have a potential move. I only worked there for 3 months in 2018.
  • With my raises last year, I will be working at a higher pay rate all of 2019, so my total income should be significantly higher than it was in 2018.

Moving forward, we are focusing on accomplishing this feat one payment at a time. We will apply our entire 2018 tax refund to our debt. We are not going to change our budget when Josilyn starts working, so that will help accelerate the process significantly. We will target our smallest loans first, knocking those out systematically, working our way to the larger loans.

Whew, this has probably been the toughest post for me to write thus far. Lots of emotions as I write this: feeling motivated yet overwhelmed, confident yet uncertain, hopeful but somewhat anxious. Thanks for reading, I hope this motivates you to begin or continue in your debt free journey this new year! Happy 2019!

Using Wisdom during the Holidays

~ Justin ~ Leave a comment

Spending around Christmas, especially in the United States, can get pretty crazy. Some surveys last year estimated many intended or guessed they’d spend nearly $1,000 on gifts. We all want to spread Christmas cheer where and when we can, so how does personal finance fit into that picture?

Some would say that if you are climbing out of debt, you should go cold turkey on the gift giving. I find this to be a little bit extreme. At the same time, we have a goal of shedding debt, not going further into it. So how do we strike a healthy balance?

For us this year, we set a dollar amount on the total that we wanted to spend. We named a number, listed out the people we wanted to buy gifts for, and then divided our gifting total by the number of folks we were buying gifts for. This way, we wouldn’t feel guilty about swiping our debit card over and over again with no spending limit in sight. Budgeting is important year round, but I would argue that it is particularly important around the holidays.

In addition to setting healthy boundaries with our giving, consider what you could do with any cash you get for Christmas. While most gifts tend to be clothes, electronics, home furnishings, or other items, cash is flexible in what it can be used for. Consider setting aside a portion of any cash you might receive from friends or family, and earmark it for making a debt payment. Christmas bonuses from employers are also another good windfall to leverage against debt with.

This year, I received a pretty decent chunk of cash from a very generous family friend. I was taken aback by her generosity, and thankful for the boost that it provided our finances in what is typically an expensive month. I could go out and get myself a nice new gadget (my biggest shopping weakness), or I could use it to get ahead on where we want to be with our debt payments with eyes on the new year ahead.

Paying down debt is an arduous process. Getting out of it takes self-control, and wise decision making down the stretch. Instead of using gifted cash for something you may or may not use in only a few months, give yourself the gift of getting one step, big or small, closer to becoming debt free. Your future self will thank you in due time.

As a reminder, feel free to subscribe to Figuring Out Finances by click the button in the bottom right-hand portion of your screen. You should be able to enter in your email address to receive an email update whenever new posts come out. Thank you for your continued support as we all Figure Out Finances together. Merry Christmas, Happy Holidays, and a Happy New year as we wind down here in 2018.

Attack the Small Loans First

~ Justin ~ Leave a comment

Dave Ramsey has taught me a lot. I listen to a lot of his podcasts and have enjoyed reading his book, The Total Money Makeover. While I don’t follow every bit of advice he has to offer, I do appreciate and apply a lot of what he says to my own personal finances.

One of the things that Ramsey is often criticized for from a financial perspective is that he recommends you pay off your smallest balance debts first. Conventional wisdom would say that you should pay off your loan with the highest interest rate first, regardless of the size of the loan. Dollar for dollar, your most “expensive” money that you are borrowing is that with the highest interest rate.

Being an analytical thinker myself, it was hard to not dive headlong into paying off my highest-interest loan first. But I decided to take Ramsey’s advice, and I’ve been very glad that I did. My college loans are all managed under the same company, but there are nine separate loans at varying balances and interest rates. Early on in my debt repayment process, I chose to target the smallest balance first. It was a little under $1,000 and I was able to pay it off pretty quickly. I paid off a loan! An entire loan, never to be seen or heard from again! This was a morale booster and a psychological victory. And that is exactly the point.

Paying off the small balance debts may not technically be the best way to pay of debt, but paying off debt at all is hard. Really hard. You need every ounce of momentum you can get when you finally say “I’ve had it with these crappy loans!” Paying off debt is exhausting. You feel like there will always be another payment to make on another loan, without an end in sight. But knocking off small loans feels great and gives you the fight to keep on enduring the process.

Beyond that benefit, paying off smaller loans frees up money to pay towards other loans. Of my nine loans, I had spread my payments across all of them. Once I was down to eight, I could pay a little extra on one of those instead. Down to seven, six, well you get the idea. I am now down to only three of my nine total loans to pay off and it feels great! I can’t wait to be done with it.

Perhaps you are just starting out in your quest to vanquish all your debt to “paid off” status. If you have a credit card that has $200 just sitting there, just knock it out before moving onto anything else. Take care of all the little loans and debts first and you’ll feel better about the process, and things will be cleaner as well with fewer debts to pay on.

I’ve had a few people reach out to me as this blog is getting off the ground, and I would love to hear from you! Feel free to shoot me a note on Facebook or Instagram (@figuringoutfinances). I love hearing success stories of those that have made it through the process, and I love offering any help or advice I can to those that are in the process with me now. Do you have a friend or family member who is troubled by their loans or debt? Please share this blog or recommend my Instagram account to them. Thank you!

Someone is taking your money!

~ Justin ~ Leave a comment

How would you feel if a well-dressed guy in a black suit came to your door every day and demanded you pay him $20. He shows up every day: holidays, weekends, your birthday. Hell, he even shows up on February 29th every leap year. He always comes knocking, you always have to answer and you always have to pay. Wouldn’t you despise that guy?

Every day, your student loans experience something called compound interest. Compound interest was best described by a man named Albert Einstein this way: “Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t… pays it.” He was a pretty smart dude so I’m going to take his word for it. This is best described in some short math, so let’s take a look.

Let’s say we owe $100,000 and our interest rate on those loans is 7%.

If we first take 7% (or 0.07 as a decimal, makes it easier on a calculator) divided by 365 days in a year, we will find our daily compound interest rate. It is a seemingly minuscule number.

If you multiply that number by your loan balance, $100,000 in this case, you get $19.18. That is how much the man in the black suit takes from you every day. Ouch.

To further understand this, you must realize that you probably are only making one monthly payment on your student loans. So on Day 1 of the month, the interest that gets added is $19.18. But every day that interest amount grows just a little bit. See, this loan interest is growing not only on the principal amount – the $100,000 – but also on the interest that is added to the total each day. That’s what makes student loan interest brutal.

This can be somewhat depressing to think about, but this concept is exactly what got me fired up about paying off debt in the first place. I was not going to continue to answer the door and hand this “guy” my money every day. I worked hard for it, and I want to keep it. If you have student loans, doesn’t it make you kind of mad knowing someone is taking your hard earned money? Don’t let them do it!

While paying off debt overnight is not reasonable or realistic, starting somewhere is so much better than never starting at all. Take a moment to think about one way that you could make a larger student loan payment this month. If your minimum payment is $300, try paying $320 or $350. Maybe it’s only $100. Try paying $150 or $200 instead. That extra money knocks down the principal amount farther, leaving less principal for the compound interest to feed on as it multiplies. Ew, that analogy kind of sounds like a science experiment, I digress.

Let me leave you with a message of hope. Back in late September of this year, I was growing restless as I felt like my debt payments were not making the progress I wanted. I decided to go find a second job. I deliver pizzas two nights a week, typically, after my regular job, from 5:30-11:30PM. It’s not always fun, and those can be long days. But just from October 1st until today I’ve made almost $3,000 just from that second job. I haven’t touched that income for anything other than student loan debt. I take my direct deposit paychecks and tips from that job and they all go to making additional loan payments. After a payment this week, I will have my undergrad student loan balance down to well under $8,000. If I hadn’t started this second job, my balance would likely be around $11,000. At this rate, I will wrap up my student loans in just a couple more months. It feels great! We will still have my wife’s loans to tackle after that, so the war is far from over. But winning the daily battle is how wars are won. Take heart! You can do this!

Vehicles: Avoiding an Expensive Automobile

~ Justin ~ Leave a comment

A quick Google search will reveal a startling statistic regarding car expenses: the average new car monthly payment is north of $500 per month.

We love our cars here in the United States. We have a wide variety of reasons for loving cars, from needing a truck to haul home improvement supplies, to two-door sports cars for a weekend getaway. There is a lot to like about cars, but they have their drawbacks.

In budgeting, I’ve found it important to identify and highlight high-cost items each month. Before I started budgeting, I was shelling out nearly $300 per month on the loan for my 2010 Ford Taurus SHO. You can read about that car debacle here. Owning new or newer cars can be extremely expensive. But getting into a more affordable car that you still enjoy doesn’t have to be out of reach.

Transportation costs account for a large chunk of most of our monthly expenses. There are probably four main items that contribute to this total cost annually: loans, maintenance, insurance, and depreciation. That last one is an item you may not think about often, but let me explain.

Car loans are brutal, in most cases. Although there are some smoking 0% APR deals out there from time to time (we’ll soon find out that depreciation still makes these a dumb decision), most loans come with an interest rate ranging from 3 or 4 percent all the way up past 10 to even 15% sometimes. I’d consider lending at that rate to be predatory, but that is for another discussion. Interest is a killer. Say you take out a $30,000 loan at a 4% rate for 72 months, somewhat normal loan terms. During the course of you paying off that loan, you will have paid out an extra $3,794 in interest. Interestingly enough, you could buy a decent used car for that interest amount alone.

During that time that you had the loan out on this example $30k car, you drove it around an average amount, putting a standard amount of miles on it. You kept it in good shape, but when you go to check out the value of your car after those six years of ownership, you also find that your car has lost a lot of its value. Your car is now only getting offers from people willing to pay about $9,500 for your used vehicle. Your car has lost over two-thirds of its initial value, and let’s not forget that you didn’t just pay $30,000 for it, you paid $33,794 in total for it! That’s a big loss.

Loan costs and depreciation aside, new cars generally call for higher insurance rates. Since the insurance company is providing insurance on a higher value item, rates reflect that higher value. Instead of paying $50 or less per month for insurance on a car that is a few years old, your premiums could be $100-150 per month or more. That cost stretched out over a year or more really begins to add up.

The last item here, maintenance, is maybe the most interesting. There seems to be a general school of thought that says that older cars, or higher mileage cars, always have higher maintenance costs than new cars. Perhaps I’ve had incredibly good luck, but this has not been my experience. Here is a quick rundown on the cars I’ve had in the decade or so I’ve been behind the wheel:

1995 Buick LeSabre – 229,000 miles

1999 Ford Mustang V6 – 155,000 miles

1998 Buick LeSabre – 145,000 miles

2010 Ford Taurus SHO – 76,000 miles (this is the outlier, the newest car I’ve ever had)

2004 Ford Mustang Mach 1 – 82,000 miles

1993 Mazda Miata – 84,000 miles

Both Buicks were incredibly reliable. In its old age, the ’95 had a transmission that was starting to show signs of getting older, but we sold it before it was truly an issue. It was not far from a quarter of a million miles! The ’98 is still owned by one of my best friends and it is still faithfully getting him around with almost 155k on the odometer. I believe shocks and struts have been the only parts replaced there.

Two Mustangs, both of which never gave me any trouble. Ford’s aren’t even generally thought to be all that reliable in older models, yet all I ever did for either car was replace tires when needed and change the oil, as well as spark plugs.

Most recently, I drive a ’93 Miata with very low miles for the year. This is a 25-year-old car! Yikes!!! Would I trust it on a long road trip? The answer is a resounding yes. It runs like a top. I just took it on a 150-mile round trip this past weekend. When we moved to Oregon, it made the 570+ mile trip without breaking a sweat. The only maintenance on that? Had to replace the AC and serpentine belts for a little over $100. Now comes the interesting part.

The one car that was going to have an expensive repair was the 2010 Taurus. It started throwing engine codes, and from what I could tell, the catalytic converter was in the early stages of failing. I took it to a shop and they confirmed that before too long, it would need a new catalytic converter. For that car, I was quoted over $1,000 for parts and labor to replace it. I ended up selling it before the replacement was needed, but the moral of the story here is that the newest car I have ever owned would and could have cost me the most in maintenance. It’s not always the newest or lowest mileage cars that have the fewest or least expensive repairs. It can be quite the opposite in fact.

My advice is to find a vehicle that can provide for your needs, and do so reliably, without ballooning your transportation costs. Our 2008 Prius has been an excellent example of this. We paid cash for it, insurance is very reasonable, maintenance costs have been close to non-existent. Because we bought it after most of the depreciation had occurred, we won’t lose much at all once we decide to sell it.

In an ideal world, we’d all get to drive brand new cars, fresh off the lot. But for those of us working towards becoming debt free, cars can be a big hurdle in getting where we want to be. What are you driving now? Is it hurting your financial future? Maybe you drive an older car that you love. Continue enjoying it and watch the savings benefit the other aspects of your budget!

Mint Mobile – Saving on Cell Service

~ Justin ~ Leave a comment

Taking control of expenses and trying to minimize them can be a daunting task. Some expenses seem immovable. For example, you will always have to pay your utility bills no matter what. Sure, you can try and trim usage here and there, but the bill is coming around each month either way. Same with things like food, rent, Internet, and other similar expenses. But there are some expenses you can make changes to in order to minimize them.

When I was first looking into saving money in our budget, one of the line items that consistently bothered me was our Verizon bill. We were on a family plan, but still shelling out about $80 per month for our share of two lines. This is very much on the low side. I’ve heard of friends that pay $100+ for Verizon just for their own line. Charges can get out of hand with any of the major carriers when they go unchecked.

I started shopping around and read about MVNO’s, or Mobile Virtual Network Operators. They are cell service providers that run off of large network infrastructure. One of the services I found that intrigued me was called MintMobile (it was actually MintSIM at the time). Their approach is very “Costco” in nature. You buy cell service in bulk. Instead of paying month in and month out, you pay for your service ahead of time, and since you are buying multiple months of service, you get a discount. I had to learn more.

I ordered one of their trial SIM cards where you could try out the service. They have a page where you can punch in your IMEI number to check if your phone is compatible with their service here: https://www.mintmobile.com/byop/

I have a used iPhone 6S Plus, and it supports 4G LTE with MintMobile so I was in luck. You will be too if you have an iPhone, as our experience has been very good overall. I believe it works well with Android too, although I have no first-hand experience with it. When you download their app and then go through the instructions on porting over your existing number, the instructions are fairly easy to follow, and the port is almost instant. I was a bit worried because MintMobile runs off of T-Mobile towers. My wife actually stayed on Verizon for about three months while I was on MintMobile so we could compare service. I had service in almost every place that she did. I ran some speed tests on both phones and MintMobile was actually faster in some areas in and around Portland, OR. T-Mobile is doing a pretty good job of expanding and bolstering their service quality.

Now that we have both switched over, I hardly ever even notice that I am on a different carrier. Speed is there when I need it to watch the latest tech video or browse social media. iMessage works just as well as it did before. Service has been good all along the way from Portland back to Missoula, MT and even to Bozeman. The Idaho panhandle was the only place where service struggled, but that was the case before even when we were on Verizon. Something about mountains and lots of trees that cell towers dislike.

All in all, our experience has been a very good one now that we are almost seven months into it. Would I make the switch again? Absolutely, in a heartbeat. Do I miss anything about Verizon? Mmmm not really. Their current ad campaign has me particularly annoyed, so I smile every time I watch one knowing I’m not contributing to that hot mess anymore.

So, the big question: what does it cost? Well, right now their deal is actually pretty crazy. During this holiday season, you get three months of service with unlimited talk and text + 5GB of LTE data for only $20… total. 90 days of service for 20 bucks. Come on now, that’s good stuff.

Pricing after that intro offer is still crazy good. If you opt for the 12-month payment like I have, pricing works out to $15/month for 2GB, $20/month for 5GB, and only $25/month for 10GB of data. What about overages, you ask? Well, they rock on that too. If you go over your data allotment, your speeds just slow down. No overage charges. And they don’t auto charge you for any data over your allowance for that month, it just comes in at a slower rate. If you need more data at full LTE speeds, you can tack on 1GB at a time for $10 each. Pretty sweet deal.

I realize I am starting to sound like a bit of salesman here, so I’ll cut the crap. I think the major carriers gouge users like you and me. I don’t think cell service should cost an arm and a leg. We have saved a lot of money making this switch, and I don’t imagine we will be going back anytime soon. Feel free to reach out to me in the comments or the Contact page and I’ll do my best to answer questions you may have.

As one last plug for MintMobile, they now have a referral program. If you are interested in signing up for service, you will get a $15 account credit if you sign up using  this link:

http://fbuy.me/laxO7

If you’ve enjoyed this blog and you want to make the switch, this will help me out too! I will receive a $15 account credit for my account as well. Win-Win!