10 Year Reviw - Part I (The Beginning)

Mr. Sam and I will be celebrating 10 years of marriage this fall.  As a result, I'm starting to think about what we've accomplished, together, in those 10 years.

We started our financial journey together, before we got married, but January 2007 was the beginning of our effort to pay down our unsecured debt and implement a debt free life.  The journey was mostly inspired by the fact that I wanted and needed a new car, but did not want a car payment.  It was the summer of 2006 and my car, then a 1999, had hit expensive repair time.  I had made some repairs to it and it was calling for more repairs and I was fed up.  So, I was doing some internet research and I came across a Dave Ramsey article about car payments.  I read some more on Dave's web site and I later checked out one of his books from my local library and read The Total Money Makeover.  I read some other books as well like The Millionaire Next Door and others.

We were in the middle of getting ready for our wedding, so I did not have time to implement the plan.  Instead, over the December holidays of 2006 (after the wedding and honeymoon), I reread TMM and we started working the plan.  We began with Dave's baby steps which we also modified a bit as we moved forward (side note, my husband is a lapsed Catholic and I'm not religious, while Dave's books and message can be a bit preachy we just ignored those parts).

We began 2007 with a financial reckoning.   First, we combined our assets and our combined net worth was $807,539.  We were holding real estate valued at $1.27 million dollars (that changed dramatically the next year).  Our retirement savings was at $216,184.  We had the $1000 emergency fund already covered (TMM baby step one).

Second, we had a lot of debt.  We had $679,520 in mortgage debt, our primary home, three rental properties and a piece of land.  And, we had $50,946 in unsecured debt, $27,000 for Mr. Sam's student loans (MBA) and the rest credit card debt.  So, we began 2007 with TMM baby step two, pay off all debts but the mortgage.  We had added up all our debt, we had a chart showing interest rates, minimum payments and totals.  I took over paying all the bills (prior to marriage I paid our joint bills and my bills, but Mr. Sam handled his own bills).  So, we began working the debt snowball.

More on debt later, I also want to look at where we are, 10 years later, with careers, education, family life, savings, real estate, car habits, etc.

Pulled the Trigger

I wanted to keep my old car, a 2006 sedan, for another year.  But, it didn't happen.  My old car was simply becoming too unreliable, especially since I'm often driving Baby Sam.  So, my options included investing about $4,000 in repairs or moving on.

I opted to move on.  While I could have kept my old car and invested in repairs, our lifestyle and needs have, with a baby, changed.  Babies bring along stuff, strollers, bikes, pack and play contraptions, etc.  So even if I spent the money to repair my car, I still felt like it no longer fit our needs for a family car.  Mr. Sam has a relatively new truck, but since its an open air bed truck, we don't normally use it for family trips or travel.

We ended up doing the research, test driving several models within the class we were interested in (small SUVs), shopping for the one we settled on, negotiating sale, finding financing, buying the car and selling my old car within a week.

Which means, instead of paying off our car debt this year (Mr. Sam's truck will be paid off by summer), we added a new debt to our family budget.  We paid for my nused car half in cash and then financed the other half at 2.8%.  I was bummed that I couldn't get 0% which is the interest rate on Mr. Sam's truck loan.  But, its a short loan, 24 months so the interest total overall is low.

I'm disappointed that we didn't save up and pay in cash for my nused car, in the same way I was disappointed that we didn't pay cash for Mr. Sam's truck (we basically did the same thing for Mr. Sam's truck, paid half in cash and then financed the other half except we got 0% since it was a new truck).  I believe in Dave Ramsey's plan to never have another car payment in your life, yet here we are with car payments.  On the other hand, I need reliable transportation both for family and work and I didn't want to empty out our savings account solely to avoid taking on the debt.  

Sam's Plan for Killing Debt in 2014 - Step # 1

It is the new year and many people want to get their financial house in order.  This my guidance on killing debt and gaining control of your finances.

Step # 1 - face the music.

This is actually one of the hardest steps of paying off your debt, you (along with your spouse/partner) need to gather up your statements and figure out how much you owe.  Look at your credit card statement, student loan statement, car loan information, other loans, etc.  Find the statements or go online and determine your balance, interest rate, regular payment, term for each loan (I would exclude the mortgage for now).

Create a documents, whatever format works best for you, with each debt listed, the interest rate, the term, and the monthly payment, along with the due date.  We used an Excel spread sheet when we started our debt killing journey in 2007.

2008 - 2013 The Great Recession Check Up - Part III

Okay, so far we are one and one.  While we are doing well on our savings/retirement plan, see Part II, our occupation based salary is flat/slightly down after five years, see Part I.

Real Estate

First the good news, we are making decent progress in paying down our primary mortgage.  Last year we refinanced into a 15 year term with a 2.75% interest rate which will save us (between the reduced term and the reduced interest) $180,000 over the life of the mortgage.

The other good news we have is that all three of rental properties are rented and paying for themselves.

So, now the bad news.  We live in South Florida and our rental properties are located in South Florida and if you know anything about the real estate bubble you know South Florida got hit hard.

In 2008 our primary home was valued at $465,000.  At present I have the value at $399,000 which is based on the very thorough appraisal we had done last year as part of our refinance.

In 2008, our three rental properties and our vacant land were valued at a total of $823,920.  At present, I have our investment properties valued at a total of $606,350.

So, in total, over five years we have lost, in equity, $283,550.  Actual lost equity is likely even higher in that I have no idea if we could sell any of our properties for the current value.

Ask, and you shall receive

I have been a DirecTv customer for years.  We also have an HBO package which includes access to HBO Go.  HBO Go is a great service, we can watch any and all HBO series, including past seasons and current seasons, on an iPad or iPhone anywhere (assuming access to WiFi) at anytime.

But, there is a down side of DirecTv and HBO and that is the price.  While, I feel like we get a lot of enjoyment out of the service, DirecTv has been inching up and inching up in price.  So I've developed a habit of calling once every 13 months or so and asking for a discount.  I used to call armed with information from their competitors, but now I just call up and tell them I want to keep our same services but I want to pay less and it seems to work.

Last night I called, and I received a $10 discount on our DirecTv package and then I spoke to someone in the premium channel department and received a $10 discount on our HBO package.  The general discount is good for a year and the HBO discount is good for six months.  So in 5 minutes I saved us $180.

This is a good lesson for all who are working on killing debt, sticking to a budget or increasing savings.  While you may have to cut certain things out in your quest for improved personal finances, there are also opportunities to keep the same services but pay less.

When we were killing our credit card debt in 2007 I regret that I never called, on the cards that were not 0%, and asked for reductions in interest rate or some other accommodations.  Last year, we combined and redid our car insurance (more than 5 years after we got married).  We dramatically increased our coverage and saved a ton of money (which we put towards our umbrella insurance policy).  We could have saved thousands of dollars over the 5 years of insurance status quo, but we didn't make the time to investigate our options.

An Interesting Analysis of the Envelope System of Budgeting

I enjoyed this interesting post from Slate by Emily Oster on the Dave Ramsey envelope budgeting system.

While I am a big fan of Dave Ramsey's philosophy and we utilized his snowball system of paying down our unsecured debt, I've never used his budgeting plan.

Rather we use a allowance system which works like this.  I pay all the fixed and semi-fixed bills, the mortgage, car insurance, utilities, etc.  Then I allocate and move money to savings which can include savings for upcoming annual bills, i.e. property taxes, or upcoming expenses, i.e. vacations.

Then each of us receives the same amount for day to day discretionary spending which includes groceries, gas, dry cleaning, personal expenses, gifts (but not holiday spending), eating out, entertainment.  And part of the reason for this is our expenditures in these categories changes from month to month as Ms. Oster pointed out.

Example: You go to the store and milk is more expensive than usual (something about the sequester?) Because you have your limited grocery envelope, you have to respond to this by buying less of some grocery. You could buy less milk, or fewer veggies, or less pasta.  However: It may very well be that you’d rather keep with your normal grocery purchase and cut back somewhere else—say, two fewer lattes this week. But because the “coffee” budget is separate from the grocery budget, you end up with the same number of lattes and fewer bananas.

Additionally, neither of us likes to feel overly restricted so with one pot to spend on day to day spending we can spend as we like on different categories but we restrict the overall amount of money.

How do you budget your day to day expenses?