Wednesday, May 21, 2014

Budgets - Part 1

If I was single and living by myself, I would be much more aggressive about saving for a Tesla. However, being married and having a child means my priorities have to change a bit. Although my wife likes the Tesla, she does not burn with white hot desire to own one like I do. So when it comes to budgeting money, compromises must be made.

Where We Were

We're just coming out of a several month period of aggressive savings and debt reduction. Towards the end of last year, we had some pretty big expenses. We took a trip to New York for Thanksgiving. Then Christmas came around, along with all the bills that entails. (For one gift, we replaced my daughter's several year old computer to the tune of several hundred dollars.) Mid-December, our refrigerator died unexpectedly and we spent $3,100 on a new one. Next month, we're taking trips to Las Vegas and a 1 week cruise to Alaska, so we were saving for those during that time as well.
In my head, I had a rough estimate of a budget and how much we spent on various things, but it wasn't until I signed up at that I realized exactly how much we were spending. For example, in March, we spent $407 on eating out at restaurants. That's pretty high and we made an effort to cut back on that. As a result, in April, we only spent $72 eating out. We spent $96 dollars on dry cleaning in February. I made some changes to try to bring that down, such as dropping our laundry off on Tuesdays, when our cleaners offers a 15% discount, instead of Mondays. I also started making a conscious decision to wear shirts that could be washed at home. As a result, in April, our dry cleaning expense dropped to $56.

Between the New York trip, Christmas, and the refrigerator, we had racked up about $5,000 in credit card bills over two different cards, with interest rates of 15.9% and 11.9%. As the saying goes, when you find yourself in a hole, the first step to getting out is to stop digging. So we cut back on pretty much all unnecessary expenditures and diverted all our extra cash to the credit cards. We normally deposit 15% of our paychecks into a savings account. Because the savings account is only paying about 0.5% interest, it made more sense to send that 15% to the credit cards for an instant return of 15.9% or 11.9%.

On top of that, I was also saving $175 a week and putting it towards the cost of our cruise and our Las Vegas trip. After all of our other expenses, such as our mortgage payment, grocery bills, and utilities, were paid, we didn't have much left over.

Where We're Heading

Those several months of austerity paid off. Our credit cards are now paid off. Our cruise has been paid for and we've reached our budgeted goal for the Las Vegas trip. I'm finally seeing the light at the end of the tunnel. I've added on one more goal - I want to have my wife's car paid off. (Mine is already paid off.) We still owe about $4,400 on that and the monthly payment is $383. By redirecting our 15% savings plus the $175 a week that was going towards the other goals towards her car loan, I estimate we'll have that paid off by the end of June.

That will free up another $383 a month. Plus the 15% plus the $175 a week. Additionally, I have a real estate investment that is due to close mid-May - although it's already been pushed back one month - and once that is closed, I plan on refinancing our mortgage. That should free up another $150 or so a month.

Big things are on the horizon. By the end of summer, I should have about $2,500 a month in freed up cash flow. The next step is deciding how to deploy that, which I'll talk about in Part 2.


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