We currently use an Excel spreadsheet for our budget. I took
Michelle Singletary's free budget template (unfortunately I don't
remember exactly where it came from, but you can google for it) and added a
third tab where we enter individual transactions. Then the spreadsheet
adds them up into the "expenses" tab. (If anyone wants this, leave a comment with your email address and I'll send it to you.)
This is working pretty well on the whole, but
what it doesn't have is an easy way to see how much money you still need
to spend this month. For example, we haven't paid our rent yet (it's
due the 1st). But there is nowhere that our budget says, "Be careful!
You still have to pay this bill! That "extra" money is not really
extra!" We considered buying YNAB (www.youneedabudget.com), which has
really good reviews, but didn't want to spend the money right now. So first I'm going to try to edit the spreadsheet
and see if we can come up with something free. I'll post back and update.
Sunday, July 27, 2014
Goal #1 is halfway done!
I realized today that we have enough money sitting around in the bank to destroy all the interest before the loans enter repayment. Because I know we can get rid of the interest, it makes sense to get rid of our first loan as fast as possible. That way that loan won't continue to accumulate interest.
So I just requested a payoff amount and submitted a payment! As of tomorrow, loan #1 will be paid in full! It feels so good to have met that milestone, even though that loan only represents 2.5% of our total debt. (I have to say, I really understand the psychological appeal of the debt snowball starting with lowest balance and why some people would choose to pay their debt down that way.)
So I just requested a payoff amount and submitted a payment! As of tomorrow, loan #1 will be paid in full! It feels so good to have met that milestone, even though that loan only represents 2.5% of our total debt. (I have to say, I really understand the psychological appeal of the debt snowball starting with lowest balance and why some people would choose to pay their debt down that way.)
Thursday, July 24, 2014
Short term goal #1
We have a lot of debt. The big number can be a little overwhelming. I think it's important to set little sub-goals along the way. So here's our first goal (it's a two-parter):
What that means: $5350 in four months works out to about $1337.50/month. This seems perfectly doable to me. We have some extra savings we can use, but I think we can do it without using them. (I'm trying to keep these goals easy enough that they are meetable without being miserable. If it's ridiculously easy, the next goal will be harder.) Maybe we can even start chipping away at loan #2!
- Pay off all the outstanding interest on all the loans. (Right now there is about $1850 of interest that has been collecting on the unsubsidized loans. This will continue to accumulate, I believe to the tune of $1500 before the deadline.)
- Pay off the first loan completely. ($2,000 at 6.8%.)
What that means: $5350 in four months works out to about $1337.50/month. This seems perfectly doable to me. We have some extra savings we can use, but I think we can do it without using them. (I'm trying to keep these goals easy enough that they are meetable without being miserable. If it's ridiculously easy, the next goal will be harder.) Maybe we can even start chipping away at loan #2!
Challenge for this month: Food
Our fiscal months run from the 15th to the 14th because Mr. Dreamer gets paid on the 15th and it makes it easier for me if I know exactly what the income is throughout the month. (We also moved in on June 16th, so that's convenient. That first month actually ran from June 7th (our wedding) to July 14th, because I'm in charge and I wanted it to.) We are still working out the details of the budget because we've only been in Chicago for a little over a month.
Our current monthly food budget is $200. I usually just write this down as "groceries" to make my life easier, but it actually includes all food--groceries and eating out. So far this month we have spent $140.50. That means that we are 70.25% of the way through our grocery budget and 32.26% of the way through our month. Yeah. Not quite on track.
In our defense, there have been a couple of unusual expenditures. We were out of town for a wedding, and about $25 of the amount spent is due to that (travel food, etc.). Also, I have made three stock-up purchases this month: a ten-pound bag of rice, a bag of potatoes, and nine (!) pounds of ground turkey that was on sale for very cheap.
So here's the challenge: No more food buying! That doesn't literally mean no more, because we are going to need produce before August 14th. We may also need dairy (Mr. Dreamer loves milk....) and I am giving myself an exception for yeast so that I can make rolls. So this challenge has two parts:
1. Don't buy anything except the above three categories.
2. Come in under $200 total for the month.
This should be a perfectly achievable goal, particularly if I get my produce from Aldi, not Jewel. (Jewel is much closer, so it sometimes wins by convenience, but I finally dragged myself to Aldi last week and was shocked at the difference in price.) I'll check back in and let you know how things are going.
Our current monthly food budget is $200. I usually just write this down as "groceries" to make my life easier, but it actually includes all food--groceries and eating out. So far this month we have spent $140.50. That means that we are 70.25% of the way through our grocery budget and 32.26% of the way through our month. Yeah. Not quite on track.
In our defense, there have been a couple of unusual expenditures. We were out of town for a wedding, and about $25 of the amount spent is due to that (travel food, etc.). Also, I have made three stock-up purchases this month: a ten-pound bag of rice, a bag of potatoes, and nine (!) pounds of ground turkey that was on sale for very cheap.
So here's the challenge: No more food buying! That doesn't literally mean no more, because we are going to need produce before August 14th. We may also need dairy (Mr. Dreamer loves milk....) and I am giving myself an exception for yeast so that I can make rolls. So this challenge has two parts:
1. Don't buy anything except the above three categories.
2. Come in under $200 total for the month.
This should be a perfectly achievable goal, particularly if I get my produce from Aldi, not Jewel. (Jewel is much closer, so it sometimes wins by convenience, but I finally dragged myself to Aldi last week and was shocked at the difference in price.) I'll check back in and let you know how things are going.
Tuesday, July 22, 2014
The debt strategy
The first priority is paying down debt. (We are doing what we can to bring a child into the world, but right now we can't afford an international or private adoption and don't qualify to adopt from foster care. Homestead is obviously not a possibility until we have money.)
Here's the strategy.
Our student loans are in two major categories: federal and private. The federal loans come with the regular choices of plan. We basically only qualify for regular and graduated. The private loan comes with two options: 10 years or 25 years.
The most obvious option, and the one normal sites will recommend, is to take regular for federal and 10 years for private, slash the budget, and put as much money to debt as possible. Then we'll be minimizing interest paid by paying them off as quickly as possible. Right?
Wrong. What we plan to do is sign up for the graduated payments and the 25-year plan, slash the budget, and put as much money to debt as possible. We'll actually wind up paying less interest if we do it right. (The idea that you pay more interest choosing these plans is only true if you don't pay extra money beyond the minimum, or if at any point you let a month go by where you don't pay all your interest and it capitalizes.)
So how much money?
1. 1000/month. This is a line item in our budget. It comes out on payday.
2. The leftovers. This is whatever we don't spend. It goes in the day before payday. My short-term goal is to have this be at least $500/month. My long-term goal? ...Well, we'll see.
And how does it get allocated?
1. Minimum payment to each lender.
2. Check: Is all the interest paid off? Has the principle of each loan gone down, even if only by a dollar or a penny? If not, make the additional payment so that each loan's principal is down. (I am not sure whether the first graduated loan payments eat away at the principal. I think they do.)
3. Put all the rest of the money to the loan with the highest interest rate.
Why does this work? I can't whip out the formula to prove it, so here is a very simplified and exaggerated situation to see how it works. You have a $500 balance on your credit card at 19%. You also have a $500 student loan at 2%. Your minimum payment to the student loan is $200. You have $600 in cash. Should you call the student loan company and negotiate to pay only $100 to your student loan? Obviously the answer is yes, because moving the money from the 2% loan to the 19% loan makes a big difference in the additional interest you would pay if you carried the balance to the next month. The picture with the student loans is the same idea, just more complicated and with less drastically different interest rates.
The big warning: This depends on being able to sustain making extra payments. If at any point we slip below what the payment on the regular repayment plan would be, we start to lose money.
(What about consolidation? I don't know. I haven't really looked into it. My instinct is that averaging out the interest rates is a bad idea if you are pursuing this strategy.)
Once our loans enter repayment, I will post again with more specific numbers. By that point, I should also know what a reasonable goal for the "leftovers" money is based on our usage. (Reasonable is defined as a little less than last month. :p)
Here's the strategy.
Our student loans are in two major categories: federal and private. The federal loans come with the regular choices of plan. We basically only qualify for regular and graduated. The private loan comes with two options: 10 years or 25 years.
The most obvious option, and the one normal sites will recommend, is to take regular for federal and 10 years for private, slash the budget, and put as much money to debt as possible. Then we'll be minimizing interest paid by paying them off as quickly as possible. Right?
Wrong. What we plan to do is sign up for the graduated payments and the 25-year plan, slash the budget, and put as much money to debt as possible. We'll actually wind up paying less interest if we do it right. (The idea that you pay more interest choosing these plans is only true if you don't pay extra money beyond the minimum, or if at any point you let a month go by where you don't pay all your interest and it capitalizes.)
So how much money?
1. 1000/month. This is a line item in our budget. It comes out on payday.
2. The leftovers. This is whatever we don't spend. It goes in the day before payday. My short-term goal is to have this be at least $500/month. My long-term goal? ...Well, we'll see.
And how does it get allocated?
1. Minimum payment to each lender.
2. Check: Is all the interest paid off? Has the principle of each loan gone down, even if only by a dollar or a penny? If not, make the additional payment so that each loan's principal is down. (I am not sure whether the first graduated loan payments eat away at the principal. I think they do.)
3. Put all the rest of the money to the loan with the highest interest rate.
Why does this work? I can't whip out the formula to prove it, so here is a very simplified and exaggerated situation to see how it works. You have a $500 balance on your credit card at 19%. You also have a $500 student loan at 2%. Your minimum payment to the student loan is $200. You have $600 in cash. Should you call the student loan company and negotiate to pay only $100 to your student loan? Obviously the answer is yes, because moving the money from the 2% loan to the 19% loan makes a big difference in the additional interest you would pay if you carried the balance to the next month. The picture with the student loans is the same idea, just more complicated and with less drastically different interest rates.
The big warning: This depends on being able to sustain making extra payments. If at any point we slip below what the payment on the regular repayment plan would be, we start to lose money.
(What about consolidation? I don't know. I haven't really looked into it. My instinct is that averaging out the interest rates is a bad idea if you are pursuing this strategy.)
Once our loans enter repayment, I will post again with more specific numbers. By that point, I should also know what a reasonable goal for the "leftovers" money is based on our usage. (Reasonable is defined as a little less than last month. :p)
Who are we? What's the dream?
Welcome to the blog. This is a chronicle of our family's journey out of debt. Like many Americans, we have student loan debt. Unlike many Americans, we think it is a huge burden and want to get rid of it as fast as possible.
We are:
Mrs. Dreamer (me), age 22. Currently unemployed. Trying to find a job.
Mr. Dreamer, also 22. Software engineering racking in the big bucks (60k/year--I realize this isn't actually the big bucks in this field, but I grew up on one liberal-arts-college-professor salary, so this seems insanely high for a first job to me).
We live in Chicago.
We have:
1) $84,808.90 in student loans.
2) No children.
3) The desire to change both those things.
We want:
1) To be out of debt.
2) To have a large family, by birth and adoption.
3) To start a homestead and grow as much of our own food as we can.
The point of the blog:
1) Accountability/humiliation. Posting online how much you messed up your budget? Ouch.
2) Learning from each other. I was raised in a frugal household, but it's different when it's your own apartment and you live in a busy city full of fun expensive things to do.
We are:
Mrs. Dreamer (me), age 22. Currently unemployed. Trying to find a job.
Mr. Dreamer, also 22. Software engineering racking in the big bucks (60k/year--I realize this isn't actually the big bucks in this field, but I grew up on one liberal-arts-college-professor salary, so this seems insanely high for a first job to me).
We live in Chicago.
We have:
1) $84,808.90 in student loans.
2) No children.
3) The desire to change both those things.
We want:
1) To be out of debt.
2) To have a large family, by birth and adoption.
3) To start a homestead and grow as much of our own food as we can.
The point of the blog:
1) Accountability/humiliation. Posting online how much you messed up your budget? Ouch.
2) Learning from each other. I was raised in a frugal household, but it's different when it's your own apartment and you live in a busy city full of fun expensive things to do.
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