New Year, New Focus

Posted by Marko on January 5, 2020 in Off Topic |

Since the new year has begun, I have a renewed — and even obsessive — focus on my financial goals. Much has happened in the latter part of 2019 to get my financial wheels turning.

In December my husband landed a new full-time job, which ended up being a 62% pay increase. Needless to say, we’re thrilled. We stewed about how to manage the extra influx of money and I finally convinced him that we shouldn’t increase our lifestyle. In fact, I suggested we decrease our expenses even further…

Here’s why:

After binging on personal finance books like, The Richest Man in Babylon, The Wealthy Barber, I Will Teach you to be Rich, Your Money: The Missing Manual, The 10 Commandments of Money in the New Economy, Total Money Makeover and Think and Grow Rich (did I mention I have the tendency to hyper-focus?), I decided that I want to pay off all of my non-mortgage debt. Immediately.

Not including my mortgage, I have consumer debt totaling $25,629. $16638 is what’s still owed for the installment loan I took out to purchase my Honda CR-V last April. The remaining $8991 is from my still outstanding student loan.

Wow. When I write it out, $25629 looks like A LOT of money. Especially since I’m planning to pay off the entire debt this year.

Don’t worry — I do have a plan.

At first I planned to take every available resource I could find and put it towards the debts. After thinking it over — and running the plan by my dad — I decided to follow a little different plan.

I had a little over $11,000 in emergency savings, so I decided to take $6,000 of the $11,000 and apply it to my debts. This leaves me with $5,000 in emergency savings, which I’m fairly comfortable with.

Because I happen to be a bit of a money hoarder, I decided to open a new savings account at an online bank (I went with ING Direct). I called the account “Debt Ditcher” and moved the $6,000+ over to this account.

The plan is to let this account build and earn interest (currently 1.15%) until there is enough cash built up to pay off the $8991 student loan at 6.8%, and then the $16638 car loan at 2.9%.

But Jenny, you ask, won’t you still be paying more interest on higher loan balances if you’re stashing the money in an account earning less interest than what your being charged in interest by your outstanding loans? That’s ludicrous!

Well, yes. I will be paying a bit more in interest this way. But, I have two kids. And two cars (one’s my husbands). And a house, water heater, air conditioning unit, furnace, etc., etc., etc. Having the cash on hand — until I use it to pay off the debt entirely — helps me sleep at night. Plus, once a loan is paid off, I’ll have additional cashflow from the payment I would have been making towards the loan.

If my calculations are correct, I should have both loans paid off by November of this year. A lofty goal, but I’m confident that this plan will work.

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