I took my first step in this journey on February 5th of this year when I put $1,000 in an Emergency Fund and made my first big payments toward my debt. It is now almost five months later and I have paid off a grand total of...
$6,279.94
Wooohooo!!! I broke $6k!! I'm going to aim for $7,500 to be paid off by the end of July. It is an aggressive goal for the next month, but I want to be half-way to my $15,000 goal by the end of my first six months of really working at this. I haven't been working as hard as I could have been at times, but I need to keep my nose to the proverbial grindstone.
Speaking of challenges, have you read the most recent report on the cost of raising a child? The average American family spends $222,360 to raise a child from birth to age 18. My cherubs being born a mere two minutes apart means that I have the divine privilege of spending somewhere in the vicinity of $444,720 before I give them the boot. I'm pretty sure they're mostly going to eat nine of the next fourteen years of my income with the way they go through pints of berries and cherry tomatoes. We're going to have to find a way to expand our farm off of this little apartment deck.
Don't get me wrong. They're worth every penny, but the girls were born as a two-for-one deal and I'm going to do everything I can to keep those deals going. Either I'm going to have to be diligent about my frugality or they're going to have to find a way to break into showbiz. Maybe we should try a two-fold approach. That's it. We're starting a band. Please leave your band name suggestions in the comments below.
2 comments:
Band name: The Adorables?
Reiterating a point I made a few months ago:
I'm not a disciple of this Ramsey system, so forgive me for giving contrary advice. But if your student loans are all at low interest rates like the 3.25%, $1950 balance loan you mentioned earlier, you really should not bother prepaying those debts. Instead, once your credit card/store card/other high interest rate debt is paid off, start using your "free cash" to fund your 401(k) aggressively. It has a much, much better return on investment.
As I pointed out before, the first $450 you invest in your 401(k) with the company 2-for-1 match gets you an immediate return on investment of $900, whereas reducing a 3.25% interest rate debt by $450 would only reduce your interest costs by the same $900 after 61 -years-.
If those are your alternatives, then what could the reasoning be behind paying down a low interest loan instead of taking all that free money from your company? (If I could ask Mr. Ramsey that question, I would.) Investing in the 401(k) while you still have a debt balance may not "feel as good" as getting that debt number down, but it's a much smarter move for you financially.
To recap:
1) Pay off high interest debt first
2) Low interest student loans: just pay the minimum payment each month
3) Extra cash should go to your 401(k) (or to add to your emergency fund if needed).
Paying off my debt is not just about not having debt. It's also about not having payments and being able to use my income in other ways. Your method is definately something to consider when I get closer to paying the low-interest student loans.
Being a single mom, my instinct is to build up a bigger emergency fund first, then work on my 401(k). I may end up resuming 401(k) contributions to at least get the match while I work to pay down my student loans.
I've got some time to think it through. If I feel like something other than Dave Ramsey's plan will work better for me and my family, I'm certainly open to it. For the time being, it's working for us.
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