Woohoo. Payday! I made another
swing of the axe payment, which is always very satisfying.
As you well know, I have a mountain of student loan debt, and that six-figure balance can feel overwhelming sometimes. One way that I tend to fight a feeling of overwhelm in other areas of my life is by getting organized.
When you have a lot of work to do or a major task/problem in front of you have you ever started cleaning your room or work space? Ok, maybe I’m weird. Maybe it’s a form of procrastination, but I think it helps me to unconsciously lay out and organize my work task mentally when I consciously layout and organize my immediate living space physically.
In any event, now with my credit card debt dead and buried, it’s time to take a fresh look at where my money is going.
Spring Cleaning My Spending Plan
In general, Spring is a good time to throw out expenses that we don’t need, and leave the ones that we do. Call it the KonMarie method of personal finance. Is this expense necessary? Is it serving a true purpose? Does this thing or service spark joy? Enough joy to keep making monthly / yearly payments on it? We can empty our purses and identify all the recurring charges we’re keeping around. If we don’t need it, out it goes. Those one time trials we signed up for and forgot to cancel… We know what to do…
My own spending during the course of this blog has been fairly basic and uncomplicated, however, so I don’t have anything to cut. Being debt rich and life poor tends to have that effect. So I only have one main goal with my Spring Cleaning this year – to eliminate clutter.
Eliminate financial clutter
Reduce and organize documentation and records (physical clutter) – I won’t get into how to do that here, but I generally throw out old documents, scan important ones and save them to the cloud, and keep the physical copy of a few critical documents. The less I have to sift through and deal with the better. There are many resources online for learning which financial documents to keep and for how long. I will be doing this sometime over the next few weeks.
Reduce decision making (mental clutter) – I want to have as little money pass through my hands as possible. I want fewer decisions to have to make around finances every month. I don’t want to obsess over money all the time. Occasional obsession is fine though. 😉
I have a
budget spending plan, but i’m not fastidious enough to track every penny. What I do is calculate my necessary payments to stay on the fastest feasible payoff timeline, then take myself out of the equation. I have as much money taken out of my paycheck as possible before I can get my grubby little fine delicate hands on it. I pay myself a few coins first (retirement, HSA savings), then pay my creditors (student loan debt, rent, etc.), then give myself an allowance of whatever is left. How do I do that?
Whether you scoff at David Bach’s ‘Latte Factor’ strategy or swear by it, one thing that he’s pushed for years is this concept of automating your finances. He didn’t create the concept, but he has popularized it. Automation has worked for me in the past and I’m planning for automation to do 90% of the heavy lifting toward helping me stay on track financially now that I’m focusing only on my student loan debt.
Pre-tax Dollars: These expenses are taken from my gross salary (before taxes) by my employer.
401(k) contribution – I am continuing to invest up to the point of my employer match. I really, really wish I had the money to max this out. And at my age, this is what I should be doing. Unfortunately, debt payoff is the priority for now, so only a small amount of money goes here. Ugh! I hate debt!
Public transit pass – Because I have no car, this is a greatly appreciated benefit. Lately this has been about $70-80/mo.
HSA (Health Savings Account) – For now, I am contributing a small amount (~$25/mo) with the aim to reach a total of $5,500 saved sometime this year. This is reserved for a major medical emergency or health issue requiring hospitalization. This amount will cover my health insurance out-of-pocket maximum for any given year My plan is to invest any saved money above the $5,500.
Direct Deposit: From my net paycheck (after taxes), I have set up direct deposit to send small amounts of money directly to my savings funds and Roth IRA. This money never reaches my checking account.
Emergency Fund – $25/paycheck. I plan to build this fund up to $5,500 until my debt is paid off. If I followed Dave Ramsey’s Baby Steps to the letter, I would have to live with only $1,000 in the bank for the next 5 years while I tackle this massive $100,000+ student loan debt. At my age, that would just be financially irresponsible and asking for trouble.
Once I’m out of debt, I’d love to have an 8 – 12 month fully loaded emergency fund. I want the peace of mind that comes with knowing that if I ever lose my job again, that I will NEVER have to experience what I went through before.
‘Opportunity’ Fund – $25/paycheck. This year, it will fund my travel. It is for any item or experience I feel is worth saving up for. I love this fund. More about it here.
Health Fund – $10/paycheck This is a sinking fund to cover day to day medical and dental expenses without tapping into my HSA.
Roth IRA – $10/paycheck – I know I don’t even need to be contributing to a Roth right now, but I feel I should put something into my little account even if it’s only $10.
My Allowance – Out of a need to reduce mental clutter, I’m giving myself an allowance. See below.
Bill Pay: These bills are paid from the money that actually makes it to my checking account. Their payment is automated through various Bill Pay services.
I don’t have my own place, furniture, children, spouse, or a car, etc., so my day-to-day needs are pretty minimal. The fewer things I have to keep track of, the better for my peace of mind. I suppose that’s one benefit (of very few!) to being single.
I only have three monthly bills:
Rent – $525/mo. Because I’m renting a room, all utilities, internet etc, are included in the rent. I pay my landlord via my bank’s automatic bill pay service. Despite the weirdness that’s going on, I’m going to stick it out and stay where I am as long as possible. I just can’t give up this rent.
Student Loans – $2,035/mo. This payment is taken out monthly by the servicer. And no, that is not a typo.
Mobile Phone – $60/mo. My Phone company takes it’s money out of my account monthly.
I have four yearly subscriptions:
WordPress – $99/yr. This blog. Thanks for reading!
Dropbox – $99/yr. I don’t keep anything on my laptop hard-drive anymore. Computer crashes, viruses and theft make me too wary. Been there, done that. I just keep everything backed up in the cloud (and on an external harddrive).
Amazon Prime – $99/yr. Amazon makes it nearly impossible to go without it these days. Damn them and their convenient products and services! ::shakes fist in mock anger::
Norton Anti-virus Security Suite – $99/yr. I’ve tried free tools in the past and haven’t had good experiences. I haven’t had any attacks or viruses with Norton and I’d like to keep it that way, so I’m staying with them for now. I’m open to recommendations for free and reliable services, though.
These are renewed every year, automatically and taken directly from my checking account.
Slush Money: I plan to keep at least an extra $200 or so in my checking account to cover these yearly charges and anything unexpected. If the slush fund grows beyond this, I will send some of that money as snowflake payments to my student loan debt.
My Allowance (Spending money account): I have this money sent via Direct Deposit to a different bank with its own debit card. This is the only money that I am planning to put my hands on and spend.
- Food, clothing, entertainment, miscellaneous
I get one jar of allowance money that covers food and living expenses until my next paycheck. When this money is gone, I have to stop spending. At least that’s how its supposed to work. It seems that I’m always left with “too much month at the end of the money” as Dave Ramsey is fond of saying.
Right now I’m trying out $600/mo., which is a good chunk of cash, but as I’ve mentioned before, my food spending has been totally out of control for a while with a growing waistline to prove it, so I’ve been blowing through all of this and having to dip into my primary checking account slush money. This will be an budget area that I focus on this year for sure.
So yeah, it’s (not so) funny that even though I never got an allowance as a kid, I’m living off of one now.
Well a few things…
One. Getting my food spending under control so I don’t have to adjust my spending plan.
Two. De-cluttering paperwork.
Three. Waiting (im)patiently to get paperwork from my old student loan servicer that my loans with them are all paid in full. They closed my account so I can’t log in anymore to see anything. I’m assuming that said paperwork is on the way. I think they wait at least 30 or 60 days. Can’t wait to get it! This paperwork I will be keeping forever.
Do you Spring clean your spending plan in your journey out of debt? How?