Author Topic: Is it this simple?  (Read 9222 times)

dizzean

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Is it this simple?
« on: March 27, 2013, 09:32:37 AM »
I have a stupid question...

My wife and I have been doing our debt payoff snowball (been 6 months now) with a $1k emergency fund until everything but the mortgage is paid off (Dave Ramsey style).

Our monthly costs are ~ $2500 (still trimming in places) but we have $5600 in our checking account so I think we have a good chunk of extra $ that I didn't realize.

I would like to figure out how much $ we have extra as we are using every last $ to pay down debt as fast as possible.

Is it as simple as looking at my balance at the end of March, making sure all our bills are paid for, and then subtracting April's budget from the balance and then that gives us the extra $ we have (perhaps allowing a couple hundred for a cushion)?  So lets say we have $5500 at the end of March, I would subtract $2500 from that as that is April's budget and the difference would be $3000 which we could use to pay down debt?

I'm fairly sure that this is right but it just seems too darn simple and I could use a 2nd opinion.

jpo

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Re: Is it this simple?
« Reply #1 on: March 27, 2013, 09:43:37 AM »
In a word, yes.

arebelspy

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Re: Is it this simple?
« Reply #2 on: March 27, 2013, 09:46:38 AM »
As long as April's budget is accurate, unexpected expenses don't come up, you've counted any potential payment you may have to pay for taxes, etc. etc.

Otherwise, yes.
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dizzean

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Re: Is it this simple?
« Reply #3 on: March 27, 2013, 09:55:31 AM »
As long as April's budget is accurate, unexpected expenses don't come up, you've counted any potential payment you may have to pay for taxes, etc. etc.

Otherwise, yes.

Thanks!

It's amazing how simple managing your finances actually is, I think I'm still recovering from the mindset that managing money is difficult and therefore something I don't do.

tuyop

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Re: Is it this simple?
« Reply #4 on: March 28, 2013, 11:22:14 AM »
I have a stupid question...

My wife and I have been doing our debt payoff snowball (been 6 months now) with a $1k emergency fund until everything but the mortgage is paid off (Dave Ramsey style).

Our monthly costs are ~ $2500 (still trimming in places) but we have $5600 in our checking account so I think we have a good chunk of extra $ that I didn't realize.

I would like to figure out how much $ we have extra as we are using every last $ to pay down debt as fast as possible.

Is it as simple as looking at my balance at the end of March, making sure all our bills are paid for, and then subtracting April's budget from the balance and then that gives us the extra $ we have (perhaps allowing a couple hundred for a cushion)?  So lets say we have $5500 at the end of March, I would subtract $2500 from that as that is April's budget and the difference would be $3000 which we could use to pay down debt?

I'm fairly sure that this is right but it just seems too darn simple and I could use a 2nd opinion.

Technically yes, just make sure that you're also saving for any irregular expenses like car maintenance or home repairs unless you feel comfortable with absorbing all that with your efund.

Basically, same as arebelspy said.

dizzean

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Re: Is it this simple?
« Reply #5 on: March 28, 2013, 04:21:24 PM »
I have a stupid question...

My wife and I have been doing our debt payoff snowball (been 6 months now) with a $1k emergency fund until everything but the mortgage is paid off (Dave Ramsey style).

Our monthly costs are ~ $2500 (still trimming in places) but we have $5600 in our checking account so I think we have a good chunk of extra $ that I didn't realize.

I would like to figure out how much $ we have extra as we are using every last $ to pay down debt as fast as possible.

Is it as simple as looking at my balance at the end of March, making sure all our bills are paid for, and then subtracting April's budget from the balance and then that gives us the extra $ we have (perhaps allowing a couple hundred for a cushion)?  So lets say we have $5500 at the end of March, I would subtract $2500 from that as that is April's budget and the difference would be $3000 which we could use to pay down debt?

I'm fairly sure that this is right but it just seems too darn simple and I could use a 2nd opinion.

Technically yes, just make sure that you're also saving for any irregular expenses like car maintenance or home repairs unless you feel comfortable with absorbing all that with your efund.

Basically, same as arebelspy said.

Well right now we are in debt snowball or debt emergency mode so every penny not budgeted at the end of the month goes towards our debt with exception of the $1k emergency fund.

I know that is a fairly small fund for now, but after we get our debt paid off it will be 4 to 6 months of income.

tuyop

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Re: Is it this simple?
« Reply #6 on: March 28, 2013, 07:33:55 PM »
I have a stupid question...

My wife and I have been doing our debt payoff snowball (been 6 months now) with a $1k emergency fund until everything but the mortgage is paid off (Dave Ramsey style).

Our monthly costs are ~ $2500 (still trimming in places) but we have $5600 in our checking account so I think we have a good chunk of extra $ that I didn't realize.

I would like to figure out how much $ we have extra as we are using every last $ to pay down debt as fast as possible.

Is it as simple as looking at my balance at the end of March, making sure all our bills are paid for, and then subtracting April's budget from the balance and then that gives us the extra $ we have (perhaps allowing a couple hundred for a cushion)?  So lets say we have $5500 at the end of March, I would subtract $2500 from that as that is April's budget and the difference would be $3000 which we could use to pay down debt?

I'm fairly sure that this is right but it just seems too darn simple and I could use a 2nd opinion.

Technically yes, just make sure that you're also saving for any irregular expenses like car maintenance or home repairs unless you feel comfortable with absorbing all that with your efund.

Basically, same as arebelspy said.

Well right now we are in debt snowball or debt emergency mode so every penny not budgeted at the end of the month goes towards our debt with exception of the $1k emergency fund.

I know that is a fairly small fund for now, but after we get our debt paid off it will be 4 to 6 months of income.

This is a stressful trap that I've found myself in many times before during my debt repayment journey over the past two years. The problem is basically that your lifestyle has a bunch of expenses in it that should be spread out among the months before that lump sum is due. By not spreading them out, you're just borrowing money from your future self that either causes stress (rice and bean month again!) or debt.

My favorite example is tires. My tires have to be replaced every two years, and they cost about $500. This means that I consume about $21 in tires per month. If I don't factor that in to my monthly spending, then when that tire bill comes due, I either have to:

a) spend $500 less that month,
b) increase my income by selling something or freelancing to the tune of $500 that month,
c) use my emergency fund for that, and then put debt repayment on hold to refill the efund, or
d) use credit.

Of course, I could do some of each of these, but the end state is the same: stress.

Your monthly expenses are usually not as simple as what you spend each month, because you consume small parts of items that you buy irregularly every time you use them. Taking responsibility for this fact by somehow budgeting for it reduces stress and gives you a more accurate picture of the actual cost of your decisions. It's also why living within your means usually means using less stuff, buying an air conditioner for your home and adapting your lifestyle to it means that you will eventually have to replace an air conditioner, financial responsibility means that you have to take that fact into account.

I've found YNAB to be the best tool for accounting for this type of expenses, and it's very popular here. And free to try!

dizzean

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Re: Is it this simple?
« Reply #7 on: March 29, 2013, 10:12:25 PM »
I have a stupid question...

My wife and I have been doing our debt payoff snowball (been 6 months now) with a $1k emergency fund until everything but the mortgage is paid off (Dave Ramsey style).

Our monthly costs are ~ $2500 (still trimming in places) but we have $5600 in our checking account so I think we have a good chunk of extra $ that I didn't realize.

I would like to figure out how much $ we have extra as we are using every last $ to pay down debt as fast as possible.

Is it as simple as looking at my balance at the end of March, making sure all our bills are paid for, and then subtracting April's budget from the balance and then that gives us the extra $ we have (perhaps allowing a couple hundred for a cushion)?  So lets say we have $5500 at the end of March, I would subtract $2500 from that as that is April's budget and the difference would be $3000 which we could use to pay down debt?

I'm fairly sure that this is right but it just seems too darn simple and I could use a 2nd opinion.

Technically yes, just make sure that you're also saving for any irregular expenses like car maintenance or home repairs unless you feel comfortable with absorbing all that with your efund.

Basically, same as arebelspy said.

Well right now we are in debt snowball or debt emergency mode so every penny not budgeted at the end of the month goes towards our debt with exception of the $1k emergency fund.

I know that is a fairly small fund for now, but after we get our debt paid off it will be 4 to 6 months of income.

This is a stressful trap that I've found myself in many times before during my debt repayment journey over the past two years. The problem is basically that your lifestyle has a bunch of expenses in it that should be spread out among the months before that lump sum is due. By not spreading them out, you're just borrowing money from your future self that either causes stress (rice and bean month again!) or debt.

My favorite example is tires. My tires have to be replaced every two years, and they cost about $500. This means that I consume about $21 in tires per month. If I don't factor that in to my monthly spending, then when that tire bill comes due, I either have to:

a) spend $500 less that month,
b) increase my income by selling something or freelancing to the tune of $500 that month,
c) use my emergency fund for that, and then put debt repayment on hold to refill the efund, or
d) use credit.

Of course, I could do some of each of these, but the end state is the same: stress.

Your monthly expenses are usually not as simple as what you spend each month, because you consume small parts of items that you buy irregularly every time you use them. Taking responsibility for this fact by somehow budgeting for it reduces stress and gives you a more accurate picture of the actual cost of your decisions. It's also why living within your means usually means using less stuff, buying an air conditioner for your home and adapting your lifestyle to it means that you will eventually have to replace an air conditioner, financial responsibility means that you have to take that fact into account.

I've found YNAB to be the best tool for accounting for this type of expenses, and it's very popular here. And free to try!

I use Mint.com and right now we are paying about 40% of our income towards debt so even if we have a major expense come up (and we have) we typically have the $ to pay for it up front thus not really causing much stress..we have like $1700 left over every month right now.

happy

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Re: Is it this simple?
« Reply #8 on: March 30, 2013, 04:01:07 AM »
$1700/month left over? Cool. Apart from your 1k emergency fund, what you need to have a sense of is how much your monthly expenses fluctuate.  Keep enough aside to cover one of the big months....(personally mine fluctuate quite a bit and I know the big ones I need to save up for).  So if your highest expense month is say $4000, keep $4000 and use the rest for debt reduction.

swick

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Re: Is it this simple?
« Reply #9 on: March 30, 2013, 12:19:13 PM »
Tuyop makes a really important point. Those "once a year payments" or "Unexpected Expenses" can really throw a wrench into things if you are not prepared for them.

If there is any large purchases coming up, expected repairs/replacements or payments, we factor it into a monthly budget and the money just goes into our savings account so when the bill comes in we have the money right there and it is no sweat to pay it.

There are true emergencies "water pipe froze and broke and flooded our basement or unexpected job loss" and things that should be planned for "roof or car replacement"

We don't have any debt, but some of these categories might apply, as unplanned life is probably the easiest way to undo progress.

Here are some of the ones we have included in our monthly budget:
 - used car replacement
 - est. car repairs/tires
 - Auto insurance and other insurances
 - professional dues
 - BCAA
 - House maintenance (suggested amount, I believe, by Gail from Till Debt is 4% annually of the homes value)
 - Taxes (I work several contract jobs and instead of having a huge chunk taken out of each of them, I put the estimated taxes into a ING savings account)
 - Estimated yearly vet bills plus emergency fund
 - Larger things we are saving for House down payment, bed replacement etc.

tuyop

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Re: Is it this simple?
« Reply #10 on: March 30, 2013, 08:37:19 PM »
Tuyop makes a really important point. Those "once a year payments" or "Unexpected Expenses" can really throw a wrench into things if you are not prepared for them.

If there is any large purchases coming up, expected repairs/replacements or payments, we factor it into a monthly budget and the money just goes into our savings account so when the bill comes in we have the money right there and it is no sweat to pay it.

There are true emergencies "water pipe froze and broke and flooded our basement or unexpected job loss" and things that should be planned for "roof or car replacement"

We don't have any debt, but some of these categories might apply, as unplanned life is probably the easiest way to undo progress.

Here are some of the ones we have included in our monthly budget:
 - used car replacement
 - est. car repairs/tires
 - Auto insurance and other insurances
 - professional dues
 - BCAA
 - House maintenance (suggested amount, I believe, by Gail from Till Debt is 4% annually of the homes value)
 - Taxes (I work several contract jobs and instead of having a huge chunk taken out of each of them, I put the estimated taxes into a ING savings account)
 - Estimated yearly vet bills plus emergency fund
 - Larger things we are saving for House down payment, bed replacement etc.

You have a Branched Chain Amino Acid category in your budget? *golfclap*

kkbmustang

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Re: Is it this simple?
« Reply #11 on: March 30, 2013, 08:39:54 PM »

You have a Branched Chain Amino Acid category in your budget? *golfclap*

Bahahaha! No really, Swick. What does BCAA stand for?

Self-employed-swami

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Re: Is it this simple?
« Reply #12 on: March 30, 2013, 09:04:33 PM »

You have a Branched Chain Amino Acid category in your budget? *golfclap*

Bahahaha! No really, Swick. What does BCAA stand for?

If the OP is from Canada, I'm going to assume it's a west coast auto club membership.  I might be wrong though.

swick

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Re: Is it this simple?
« Reply #13 on: March 31, 2013, 12:39:36 AM »
You have a Branched Chain Amino Acid category in your budget? *golfclap*

oooh Branched Chain Amino Acids...the perfect excuse to up my food budget:P

Stands for British Columbia Automobile Association. Living smack dab in the middle of nowhere and looking at a two hour toe if we have a breakdown, figure it is a wise investment.

Self-employed-swami

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Re: Is it this simple?
« Reply #14 on: March 31, 2013, 08:06:43 AM »
You have a Branched Chain Amino Acid category in your budget? *golfclap*

oooh Branched Chain Amino Acids...the perfect excuse to up my food budget:P

Stands for British Columbia Automobile Association. Living smack dab in the middle of nowhere and looking at a two hour toe if we have a breakdown, figure it is a wise investment.

Am I good, or am I good ;)

Starstuff

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Re: Is it this simple?
« Reply #15 on: April 04, 2013, 08:11:53 AM »
It really wasn't that simple for me-- I made a ton of mistakes. I'm going to second the YouNeedABudget.com (YNAB) comment. It is by far the simplest, most intuitive budget I've found. It has more than made me back the cost of the software by improving my financial control. Mint.com was a nightmare for me... it's too messy, and too easy to mess up.

pianogineer

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Re: Is it this simple?
« Reply #16 on: April 06, 2013, 12:39:50 PM »
+1 YNAB!

Inquizator

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Re: Is it this simple?
« Reply #17 on: April 07, 2013, 07:47:16 AM »
What we do is always keep a month's expenses sitting in the checking account, in effect we "spend last month's money this month" as I've heard it said.

This leads to a little extra cash in a low interest checking account and can delay a little bit how quick you pay things off (it's basically a second emergency fund), but it completely eliminates any stress of cutting it too close.

tuyop

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Re: Is it this simple?
« Reply #18 on: April 07, 2013, 10:49:27 AM »
What we do is always keep a month's expenses sitting in the checking account, in effect we "spend last month's money this month" as I've heard it said.

This leads to a little extra cash in a low interest checking account and can delay a little bit how quick you pay things off (it's basically a second emergency fund), but it completely eliminates any stress of cutting it too close.

Yeah, people seem to have a lot of trouble with having a few hundred extra dollars not putting in "work" in their dividend-generating accounts. Personally, I find that it's totally worth the lack of stress to not sweat the lost revenue of $1.27 for the month and build in a fudge factor buffer.

meadow lark

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Re: Is it this simple?
« Reply #19 on: April 07, 2013, 12:09:46 PM »
Well, at least for my family it has nothing to do with  not making an extra $1.27, and every thing to do with the fact that if I have enough in my checking account to pay my bills and buy a hot tub, I may just end up buying a hot tub.  So we end up finding a home for extra $ pretty fast.  And most emergencies can be covered by our monthly income, plus the float time of a credit card. In my experience, most of our emergencies are less that $2000.

Inquizator

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Re: Is it this simple?
« Reply #20 on: April 07, 2013, 12:31:07 PM »
Well, at least for my family it has nothing to do with  not making an extra $1.27, and every thing to do with the fact that if I have enough in my checking account to pay my bills and buy a hot tub, I may just end up buying a hot tub.  So we end up finding a home for extra $ pretty fast.

Yeah, it took my wife a while to get used to seeing the balance in the account and not being able to use that as a reason [excuse] to spend money. But now, after a few years, she gets excited about seeing the numbers going up each month and seeing our net worth, etc; she's broken that mental link between having money and therefore wanting to spend it.