Another Idea

Here is another idea for prioritizing which debt to pay off first: pay the most hated debt first.

Step # 2

Picking up with step # 2 of our debt plan.

After we gathered up all of our bills and figured out the total amount we owed, the next step for us was to document our debt. We created an Excel chart, but any kind of chart or document will do, that included the following information:

• Name of creditor (i.e. Citibank)


• Amount of debt


• Interest rate (including any details regarding short term interest rate deals, i.e. 0% expiring on X date)


• Minimum payment


• Monthly payment due date

Then we determined the method of debt repayment. You've got a few choices here, you can go with paying highest interest rate debt first (which will likely save you money in the long run) or go with the debt snowball method (pay off the smallest debts first). After some debate, we went with the snowball method. Pick which ever method you think is going to work for you.

Read about Step 1 here.

June Numbers

(1) Max out 401ks - $33,000
(2) Max out IRAs - $10,000
(3) Prepay mortgage - $1200
(4) Add to baby fund - $3500
(5) Add to emergency fund - $7000
(6) House/Furniture fund - $3000
Total - $57,700

(1) - $11,832 (36%) (goal is $33,000)
(2) - $8500 (85%) (goal is $10,000)
(3) - $500 (42%) (goal is $1200)
(4) - $1500 (43%) ($7861 in our baby fund, goal is $10,000)
(5) - $-800 (-11%) ($25,839 in our emergency fund, goal is $32,000)
(6) - $3000 (100%) (Completed)
Total - $24,532 (43%)

Added more to Mr. Sam's IRA with the market down again this week.

Debt-Free Vacation

I just returned from my annual girls Memorial Day trip/vacation and want to share a bit about how to plan a debt-free vacation.

(1) I have an automated transfer into a vacation/travel fund in the amount of $50.00 per pay-period or $100 a month. Obviously, this is not enough money to fund a full vacation, but it is generally enough to pay for a flight. While we don't normally use credit cards, I do use them when I book a flight, a hotel and a rental car. So I book a flight and pay for it using my credit card, but I normally have more than enough to pay for the flight in our ING travel/vacation account.
(2) I book the hotel, again I use my credit card, but I also find out if there is a charge to the card or whether or not I can pay for the hotel upon check out. I add the cost of the hotel to my travel spending plan.
(3) I think about what I'll be doing on my travels: spa, tour and entry fees, shows, etc. And I sketch out a spending plan for expenses I'm pretty sure I'm going to incur (these are planned expenses).
(4) I also think about daily expenses: dining, shopping and misc. expenses like tips, cab and bus fares. I normally plan for a $100 a day in food, dining, cocktails, shopping and misc. for just me ($200 a day when I travel with Mr. Sam). These are what I call unplanned expenses.
(5) I add up the flight, hotel, planned and unplanned expenses for my total. I deduct the amount already in the travel fund and come up with my unfunded travel/vacation amount. Then I take my unfunded amount and fund it by setting up an auto transfer to my travel fund for the weeks between when I plan my travel and when I leave. Since I normally plan travel at least a few months in advance this works pretty well for me.
(6) Finally, at the end of my travel I either leave the expenses like hotel and rental car on my credit card and immediately pay from my travel fund or I pay for the hotel and rental car upon check out/return using my Visa debit card. During my travel, depending on where I am, access to bank ATMs, safety issues, I use a combination of cash and Visa debit.

While I use a spending plan for my vacation/travel (what some would call a budget), I don't normally skimp when I travel, I like to stay at very nice hotels (and did so on this last trip), and I normally partake of fine wine and great dining, etc. But, I plan out those expenses and allocate funds before I depart. End result, a stress free and basically pre-paid vacation.

Net Worth Obession Question Part 2

I found you on the NYTimes article. Ready for more fame? So I am doing what you do, but I have trouble getting my husband on board. He has student debt, but he earns more and has a stressful job, so he feels like he can treat himself to lunches out, cabs home, etc. To some degree if you work 120 hours a week you really cannot bring lunch, but some of it is just disregarding my goals. Did you go through anything similar? I read all the financial books and motivational materials, and just don't know how to get him on board.

This is a great question. I find this topic fascinating.

In my marriage, I am the spender and Mr. Sam is the frugal one (although he was not much of a saver and most of the debt that we had was "his" debt). I also earn more than Mr. Sam, so my situation is a little different than the situation presented by the above question.

After we got married, I decided that we should live a debt free life and I talked to Mr. Sam about my ideas here and there. I didn't force it on him all at once. I tried to get him to read the Total Money Makeover, but he is not much of a reader and only read a couple of chapters. He was all for paying off all our non-mortgage debt, but he thought I was crazy and he couldn't see how it was possible. Mr. Sam wasn't really on board until I presented him with a written plan that demonstrated that it was possible to pay off our debt in a year (a very focused, somewhat painful year). Thereafter, I went about setting up systems that enabled us to reach our goal (which I will write about soon, Steps 3 and 4).

So, you know your husband, how does he learn and process information, can you present a fully fleshed out plan to him in a form that will get him excited.

Regarding the eating out and cabs, we went with an allowance system (Steps 3 and 4) which each gave us a set amount of money to spend on discretionary items. Perhaps you could consider such a system and he would still have a certain amount to spend on these convenience items.

I don't think the fact that he earns more means that he gets to spend more. If you are married the money that comes into the household, in most States, is a marital asset. I'm sure there are folks that will disagree with me on this point but that is my opinion.

May Numbers

(1) Max out 401ks - $33,000
(2) Max out IRAs - $10,000
(3) Prepay mortgage - $1200
(4) Add to baby fund - $3500
(5) Add to emergency fund - $7000
(6) House/Furniture fund - $3000
Total - $57,700

(1) - $11,132 (34%) (goal is $33,000)
(2) - $7500 (75%) (goal is $10,000)
(3) - $500 (42%) (goal is $1200)
(4) - $1350 (39%)($7711 in our baby fund, goal is $10,000)
(5) - $-1000 (-14%)($25,639 in our emergency fund, goal is $32,000)
(6) - $3000 (100%) (Completed)
Total - $22,482 (39%)

With the extra push the last two weeks to add to Mr. Sam's IRA, we have gotten our overall numbers back on track. At present, we are now just slightly below our target for today's date.

We may look to add some more stock to Mr. Sam's IRA today or early next week depending on the market and if we can pull together some more funds.

Buy Low

We bought about $2500 in stocks today, within Mr. Sam's 2010 IRA, since the market is so down.

Net Worth Obession Question Part 1

Michele said...

i read the preview article and was wondering - how do you calculate your net worth if you are underwater in your mortgage? do you put your house as an asset at what you paid or what it is worth on zillow.com? i am not worried about losing it (yet) since i am employed and have an emergency fund.

I guess it depends on whether you think the zillow.com value is accurate or not. You can track your net worth however you like and you know the back up for your numbers. As I explained to Ron Lieber, much of our net worth is illusory. We won't know the value of our real estate or stock investments until we sell them.

So this is what we do. The net worth numbers for our primary home and real estate investments are the values assigned by the local property appraiser.

Anonymous said...

I find your $100/month extra mortgage payment hard to understand. With a large mortgage and significant dollars going to other categories, I would have expected the extra mortgage payment to be either zero (especially with your low interest rate) or hundreds each month. Can you share how you settled on an average of $100/month extra payment?

Yeah, I hear you. We would really like to pay off the mortgage on our primary home. But right now our goal is to prioritize our non real estate investments because we are over invested in real estate. So, we decided to add prepaying our mortgage to our 2010 goals, while the amount of $100 is somewhat symbolic it keeps this goal on our radar screen.