Search Results for: budget

Don’t Make the Cost of Gas Your Scapegoat

July 22, 2008 By Shane Ede 2 Comments

With all of the discussion about the price of gas that has been going on lately, and rightly so, it’s easy to blame your current financial troubles on the higher cost of gas. Don’t. While the higher cost may be hitting you hard, it isn’t the cause of your situation. But we all like scapegoats and we like to blame things on someone or something other than ourselves. Something that is out of our control. As an added bonus, we get to complain about the people behind it and blame them too!

Here’s the dirty truth of it all. The price of gas is not the reason that you are having trouble financially. At 17 MPG, the difference between 1.999 a gallon gas and 4.159 a gallon gas is about $1500.00 a year. A little over $125 a month. It sounds bad, but when was the last time you remember paying $1.99 a gallon for gas? It’s been a while. The recent raises in price took the gas from about $2.499 to 4.159. The difference there at 17 MPG is just under $1200.00 a year. Or a little under $100 a month.

And that’s at 17 MPG. If you are driving a car that gets 25 MPG, the difference is about $800 a year or $66 a month. At 30 MPG, it drops to about $664 and $55.

$55 a month is nothing to scoff at. And $125 can be a near catastrophe for some people. But, if you had your finances in order to begin with it wouldn’t be a disaster. It’ll still take a dent out of your budget, that’s for sure. But a person who has control of their money and tells it what to do will be able to quickly rearrange that budget and keep on track with their debt elimination and savings goals.

If you make concessions and shorten trips or consolidate errands, you can cut that gas bill too. Besides, don’t you feel just a little bit silly about blaming all your financial woes on $50 a month? I bet you pay more than that on your cable bill…

Wanna see my numbers? Here’s the spreadsheet I used. http://spreadsheets.google.com/ccc?key=pKnPEyRsjPSLpIC6wCWdjbg&hl=en

Where We Began

July 1, 2008 By Shane Ede 6 Comments

I’ll spare you the pre-story except to say that my wife and I both did a lot of things wrong financially in our college years. Lots of college loans, credit card debt, and little to no savings to speak of. We got married, and still we continued on our merry way. We bought a house long before we really could afford to and even added a dog. Then we got pregnant and our financial inproprieties caught up with us. We struggled and struggled and eventually, just months before the birth of our son, we saw the light.

That light, courtesy of a book called Total Money Makeover by Dave Ramsey, may have saved our financial lives. Maybe we would have continued to barely make it, but we would have never made it to where we are now. It’s been a little over a year since we started our makeover and we’ve seen some pretty amazing results so far.

When we started the plan, we were struggling financially. Our debt to income ratio was well over 40% and the best we could do was to pay the minimum on everything and hope that there was still money in the bank when the checks came through. All told, we had debt of over $100,000 and total income of less than $50,000. We may have been on the verge of bankruptcy. Our net worth was a horrible -$85000. But we turned it around.

We started with a budget and built up a $1000 emergency fund. We still have that $1000 in the bank earning interest at etrade. We still use a budget every month. We’ve paid off one of our cars, several credit cards and have moved a couple credit cards to 0% intro rates. We’re nowhere near being out of the fire yet, but we are getting there. Our one year review shows a net worth of -$58000. An impressive increase. It was helped by a nearly $10,000 increase in the value of our home, but still reflects the work we’ve put into our finances.

We’re on our way to financial independence and a debt free lifestyle.

Creating a Debt Plan: My Dollar Plan Reader

June 24, 2008 By Shane Ede 2 Comments

One of the readers over at My Dollar Plan want’s to eliminate his debt and My Dollar Plan has opened it up to all of us to give it a go at creating a debt plan for the reader before he announces what he has/will suggest.

Here’s the basics:

The reader has approximately $14,000 in debt.

Personal Line: $3,500 balance @ 15% – $7,000 limit
Credit Card #1: $2,300 balance @ 9.6% – $5,000 limit
Credit Card #2: $6,600 balance @ 8.5% – $8,000 limit
Credit Card #3: $1,900 balance @ 18% – $2,000 limit

According to the post, he’d like to keep using the 3rd card as it gives him cash back on certain purchases. If you’ve been following the Beating Broke Rules, you’ll know how I feel about Credit Cards.

The other factors we are given are that the persons income is in the high 5 figures, so for this exercise, we’ll assume about 75k. He’s currently paying $210 on the personal line, $0 on the first card, $1200 on the second card, and $100 on the third card. We don’t get anything about living expenses which makes it a little hard to nail down a very good debt plan, but we can give it a try.

We’ll use what he’s currently paying as his total income that is usable for this purpose. He’s also got some company stock, but we won’t be using that as selling stock can sometimes carry a pretty hefty tax bill. Sidenote: Company stock plans are great, but some thought should be given to diversifying. That’s another article though.

Let’s get the reader started on creating a debt plan.

Current payments: $1510

As you can probably tell by the byline of this blog (The borrower is Slave to the Lender), I don’t like debt. I especially don’t like credit card debt. And Personal lines are not much better, but have the added benefit of not normally being as easily accessible as credit cards. I also think that cash back cards are a waste of time. If you miss even one payment, you’ll pay more in interest to the card company than they paid back on your purchases for the whole year.

Here’s how I would go about creating a debt plan.

Pay the minimum payment on everything but the 3rd card. That should pay it off in just over 1 month. Now, if you insist on using that card for the cash back, you must also insist on paying it off every month. I suggest taking your receipts home each night and making a bill pay payment for the amount. If you can live without the cash back on the credit card, you might look into finding a bank account that would give you a cash back on debit card purchases.

After the third card is paid off, start on the personal line. Pay minimum payments to everything but the personal line. With a balance of about $3400 at this point, it should take just under 3 months to pay it off. That gets us to October. I really don’t think, unless you can find some more disposable income, that you’ll make the November cutoff. One way would be to sell your stock, but you should be very sure of the tax ramifications of doing so before selling it. If you do, start with the first item here and work your way down until the money is gone.

Once we have the third card and the personal line paid off, we are left with just card 1 and card 2. Both have similar interest rates, but the balances are different. Card 1 has about $2300 in balance and could be paid off rather quickly, so I think that would be a good place to start. It would take just under 2 months to pay that one off.

That leaves you with only the ~$6000 on Card 2 at the end of the year. If you are diligent and continue paying the $1500 a month, you can have that card paid off in 4 months.

It will take longer than November unless you sell your stock, but when you are done your financial picture will be so much better for it. The more you squeeze out of your budget (you do have one right?) now, the faster the debt gets paid off and the sooner you can start planning for your future instead of paying for your now.

Good Luck!