MM’s Money

September 11, 2008

Conflicting Goals, Maybe?

Filed under: Debt,Planning,Uncategorized — mmsmoney @ 12:00 pm
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So part of my family financial makeover is to start saving. Family Financial Makeover has a nice ring to it…Googling…No, it doesn’t appear that I am using someone else’s trademark/copyright (I get those confused). OK. It’s MINE. My Catch Phrase. Hands Off! Now how do I trademark/copyright it? Can I get people to pay me for usage?

 Ok- back to topic: Yes, I am trying to build the buffer between me & disaster (that YNAB Rule#1 one-month’s expenses discussed in the previous post – listed as Goal 1 below), but at the same time, I have equally important and compelling goals:

  1. Goal: Generate Buffer. Execution – slash & burn expenses and allocate avoided dollars to buffer.
  2. Goal: Pay down debt. Execution – begin snowballing personal loan (at the YIKES! interest rate of  18.6% !) to free up cashflow in the budget ($201.50 per month). Current Snowball Amount: $100/month
  3. Goal: Start saving for Major Emergency Fund/Baby College/Car Fund. Execution: start slowly at $10 per payperiod in 3 accounts (total per month: roughly $60).

Now why would I try to accomplish all three goals at once? Am I setting myself up for failure?

First, for psychological reasons. I have been so beaten down by financial trauma, stress and discontent that I need to start on that debt ASAP. And I feel that with the help of YNAB, I can get to my one-month’s goal within the same timeframe as paying of that personal loan. And I do buy into the Dave Ramsey small-victories build momentum approach…I need to change my behaviors and I need to get positive reinforcement through accomplishing a goal. I should note I have not read any of Dave Ramsey’s books – I’ve heard his radio show two or three times, but I have read A LOT of blog posts and comments-debates on his theory and alternative approaches! I guess I am luck that my smallest debt and the highest interest rate are the same debt so I don’t have to be “stupid” according to varying groups of blog-commenters (and I’m pretty sure they are roughly divided in half in each of these camps).

Second, it’s kinda six-of-one, 1/2 dozen of the other to me. I’ve screwed up and screwed up badly in the past and have not done the requisite learning from my mistakes (yet – I need another disaster to prove/execute on what I’ve learned). Building the buffer will implement the YNAB approach, but only if no emergencies happen in the near term (til I get that loan cleared). My credit union really takes care of its members and in conversation with my branch manager, who yes – does know me by name, she indicated that the credit union is very willing to help members get out of trouble when they proven themselves dedicated to fixing their issues which (in context that I shan’t go into) to me sounded like my clearing my loan successfully (never been late, never asked for more funds, paid extra upon occassion and more regularly lately) would be beneficial if that near-term disaster were to appear. I really think my car is going to die soon – I really do. And being eligible for a car loan from them in 6 months is more likely than my being able to save $7000 for a good used vehicle. So as awful as it sounds, I’m almost resigned to needing another loan! and need to clear the current one to ensure this future one becomes available.

Last, the savings issue – I’m oh-so optomistic here. We have to have the major emergency fund – DH’s insurance (liability) has a $10K deductible. Where we would get that money should a project he’s working on go up in flames and we’re liable…Oh I could lose sleep over that. $10 at a time sounds miserly, but babysteps, right? Next – the baby. She will get college tuition paid for and I need to let the power of compounding interest begin to work its mojo. Simple as that – it is as important as any other goal in my personal view. And last – yes that car will die sometime. Maybe its death is 6 months from now, maybe 18 months. In any case, some money will be set aside for that eventuality and to avert the total need for another loan!

So tackling them concurrently, although with differing amounts budgeted against each per month, seems like a reasonable approach to deconflict the goals. Ultimately, it’s my job to make sure we don’t screw up again and this is the plan for now. Subject to revision, subject to God’s Will!

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September 6, 2008

Family

Filed under: Debt,History,Planning,Relationships — mmsmoney @ 3:36 pm
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So my mom & my sister are AWESOME. I knew that but didn’t take advantage of several points of their awesomeness until I took advantage of letting Mom lend me money to keep from being homeless as noted above.

Big Sis is a financial genius. Seriously – she had her debt years in college where she racked up debts, but after graduation with a finance/business degree, she got on it and paid it all off. But they were ED LOANS not CC debt like me – even then she was smarter! Since then, she and her DH have built a very strong financial house and I really admire that. While I knew they were doing well and had some ‘mad skilz’ in the PF world, it was too embarrassing (i thought at the time) to solicit her advice/help on getting our junk in order. If I had talked to her in 2002/2003 about our amazing ability to spend 8K per month with nothing to show for it but parties on the lake and hangovers (ahem, I am all growed up now and we don’t do that with our baby in tow!), how today could be different!! But I didn’t get over my reluctance to show my knickers till it was too late. Then mom & sis stepped in & bailed me out.

We lost my dad in several years ago – when he and mom were way too young to think they would ever not be there for each other. They had a relatively stable financial world prior to his illness and death, but he was seriously UNDERINSURED for the responsibilities my mom was left to handle alone. She was/is a teacher, making a lot less money than she deserves, and at the time, my brothers were still young. So she had to figure out how to keep them all afloat on her income. Dad’s insurance after the payment of medical bills and other debts was less than 100K – she put money into her house & into her retirement. She then put chunks into college funds for brothers 1 & 2 and $7500 into a wedding account for me (Big Sis had gotten married the year before dad died and $7500 was how much they had spent on her big affair – seems inexpensive in todays Wedding-Industrial-Complex terms!).

By the way, Our family doesn’t PAY for kid’s college – mom & dad paid the tuition bill, but both sis and I paid for all else – room, board, books, spending money, transportation, etc. So both brothers had a good amount after the power of compounding interest for 6 years and got themselves educated at State U. So some future planning was performed. My sis and Brother In Law (BIL) then stepped in to help her budget and plan for the future. She received payments from Social Security for each of my brothers til they turned 18 – but mom lived on her salary alone, putting that money aside in savings, investments and retirement. she amassed a fair amount in a relatively short time so she was in a position to help us out.

Since my sister is a savvy PF/Investment sort – oh, and BIL too – she and mom and DH and I sat down and figured out my financial world and what it would take to not be homeless, not default on the HEL and other collections. Did I say how awesome they are?

While mom didn’t set an interest rate on the 10K, I plan to get from my sister the rate of return on average investments so when I do get to pay her back, I will match the rate of return on her portfolio (of the period til I do start to pay her back).  Some might quibble with this, but both DH and I insist on not shorting HER retirement because we are stupid stupid people.

So that’s the family background – – and hindsight is 20/20 I can honestly say I am very very very sorry I didn’t take note of the talent in my own family while we were sinking in big debt and bad choices.

How Did We Get Here? Part 2

Filed under: Debt,History,Planning — mmsmoney @ 3:34 pm
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My family’s debt. Is. Ugly. So in the interests of full disclosure – especially since my first post makes it sound like I put all our issues on hubbies shoulders (these are real numbers as of last week):

Personal Loan (Credit Union – 18.65% interest): $ 1,983.15
401K #1 loan – (9.5% interest):                           $ 2,933.92
401K #2 loan – (9.5% interest):                           $ 4,434.83
Mom Loan:                                                         $10,000.00
Home Equity Loan (6%):                                      $16,650.00
                                                                          $36,001.90

Ahem. Yuck – so I can trace the origins of the Personal Loan to consolidating my college debts – and I am 34! 13 years OUT of college! I was so disfunctional in the excesses and bad spending of 2004 – 2006, I used 401k loans to makeup household expenses. Seriously bad bad bad. at that point, I guess I thought it was better to mortgage the future than to fess up to the issue of the day and get DH and I on the same page financially. Seriously – we could have buckled down then and averted the 2007/2008 disasters.

Mom loan I addressed above – the strings & terms: family counselling (done – and VERY BENEFICIAL) and repayment when she retires…which is in 5 or so years. She didn’t define an interest rate, but I am going to pay her back (at minimum) at the rate of return she earns on her other retirement accounts – see my next post about how I know what she earns on her retirement accounts. It’ll tell you what an idiot I am/was re: not taking advantages of the resources available to me…

Home Equity Loan: Yeah, this one’s bad – we consolidated some of my CC debt and DH’s business debt into an equity loan on our HOUSE. WHich we almost LOST because we couldn’t pay our FIRST MORTGAGE. Which, though not included in the list above since we’ll deal with all these first, is at $133K owed. Purchase value was $142K, current market value is $210K, but you and I can’t count on that and why oh why did Citi give us that loan?! This one has a 5 year repayment plan. Anyhow. moving on.

NO vehicle debt, NO cc debt (other than that which is rolled into the loans above). True confession – but not a surprise: I am a bad bad risk, since I would regularly not pay the dang bills, so we have none (no credit cards) other than DH’s contractor credit accounts with Lowes/Home Depot/and the electrical supply house. Sometime soon, after full buffering, I plan to apply for and fund a secured card to get my credit scores back on track.

So there it is. The Debt. Here are the minimum payments:
Personal Loan: $93 per payperiod, so I’ve budgeted the monthly average amount $201.50 per month
401K 1 & 2: $44.65 and $124.99 per payperiod, so $367.55 per month – auto deducted from paycheck, so not appearing in budget (I think that’s what I read as advice in another forum)
Mom: None – yet.
HEL (so apropos!): $370 per month

So out of my net income, we pay $944.05 per month. God GAWD. That’s just $200 less than our mortgage. Maxed Out (that canadian tv show) would beat us over the head & shoulders with DH’s 2 by 4’s! I used this AWESOME spreadsheet (http://www.vertex42.com/Calculators/debt-reduction-calculator.html) – found through http://consumerist.com/ to establish our plan.

Our plan for debt snowballing is to take care of the high-interest loans first, then tackle Mom (heh! that’s funny sounding) & Citi. By adding $50 per payment on the personal loan, I’ll pay it off 4 months early – in March of 2009. The ‘issue’ with the 401K loans is that they can’t be paid incrementally – they need to be cleared in full. So once the personal loan is clear, I will budget the min payment on that plus the extra $50 per pay period to an account to accumulate the payoff amounts. This will clear the first in October 2009, and the second gets cleared in December 2009. That frees up A LOT OF CASH. By January 2010, we’ll be throwing $1039 at the Home Equity Loan!! Clearing it (if all goes to plan) at the start of 2011. Yes – three years from now we will be getting there!

So Mom – she’s at the end of the list by her choice, wanting us to get the rest of our debts settled before addressing our loan. What a gal! She’s widowed (we lost my dad 9 years ago) and she is a teacher – and SO UNDERPAID it’s ridiculous. That she was able to lend us this money is amazing on several fronts. More on her later! We’ll start repaying her as soon as the HEL is paid off, March 2011 and will repay at a slightly lower than the snowball rate at that point – $1000 per month to include interest, so total to be paid will be slightly more than $14K. Only fair to have her money working for her while it is in our possession!

other notes: part of my total compensation at my job is participation in the annual bonus program – 10% of my salary is available as a bonus to be paid in March/April based on the company’s success (or not) the prior year. I have NOT included any bonus payments in our debt repayment plan at this point – because that money is at risk and could vary significantly. This year we weren’t paid a penny, and I had COUNTED on that money, which coincided with that disaster of the above post!! But the year before, we got 120% of our pool – which helped settle the baby debt and lil one was not repossessed by the hospital OR the anesthesiologist (who knew pain-free childbirth could be so financially painful)! So that year, the bonus I banked (well, I didn’t bank it) was (pre-!@#$) $9K!** So potentially (and I can’t start counting on it), I could clear the personal loan, Fidelity 1 & 2 by June of 2009! And that would accelerate everything. Again, chickens/hatching blah blah, but that’s in my hip pocket and DH and I are both firmly on board with applying that money (if I get it) to debt repayment.

** another bad choice in a world of bad choices – medical debt is much ‘better’ on the Credit Report than collections! I should have done a payment plan with those creditors and got current with the CCs & other bills. But hindsight is 20/20 and I didn’t know that factor till Big Sis (more on her next post) stepped in to educate me.**

So this was the ‘show your knickers’ post (my dad’s term for sharing dirty laundry/full confession). Hope I can meet these goals! Will keep y’all posted…

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