Well, here goes (And it's probably gonna be long...)
For starters, I'm 23 years old. I graduated college in May, 2006 and began working at my current job in August 2006 as part of a Graduate Training Program. The salary was good, and it gave me a nice couple of months to relax before beginning life in the "Real World." Since joining the work force, a lot has changed. I moved into my first apartment, "bought" a car, bought a big tv, bought a wii, bought an xbox360, bought a new laptop, bought an iphone (noticing a trend?)
Raise time rolled around this year and I did pretty well for myself. I received a bonus of $7500 (though uncle Sam only handed over $4500) and a salary bump to $68,750. I thought to myself, "This is pretty good!" Then i thought, "Man, why don't I have any savings?"
I spent a day in Barnes and Noble looking over Personal Finance books. I didn't really know where to begin, but it had to be in one of those books, right? I ended up purchasing (on my debit card!) "The Financial Peace Planner" by Dave Ramsey. (It's been a long time since I've written much of anything, so don't be offended if the title of a book is supposed to be underlined and I used quotes. I studied computers, not English.) I liked this book in particular because it was less preachy than most I had skimmed through, including his other books, and it had a lot of math. I finished it in a weekend and assessed my situation. I was living paycheck to paycheck, but I'd never missed a payment, always paid more than the minimums, and felt that anything left at the end of the month was mine to spend. Besides, I had been putting 6% into my 401(k) since day 1, which put me ahead of most people my age. (I justify my actions to myself a lot.) All in all I didn't feel that I was in terrible shape, but I could see that I wasn't exactly getting ahead either.
The first thing I did was to divvy up how I would allocate my bonus.
In rounder numbers, here's what I did-
Finished off Baby Emergency Fund (Dave Ramsey Step 1 Complete!) [$500]
"Safety Net" for my "Bills" Checking Account (ING Electric Orange) [$500]
"Safety Net" for my "Discretionary" Checking Account (WaMu) [$300]
Opened a Roth IRA [$250]
Cleared up my outstanding Credit Card Debt [$500]
Down Payment on an engagement ring [$500]
Began a Wedding Fund [$250]
Booked a Cruise for two (leaves locally, so no additional airfare) [$1400]
Set aside for cruise expenses [$300]
I then took a serious look at my accounts. My raise went into effect March 1, and on the 15th I received my first check with the new amounts. I have tweaked my direct deposits and am using the rest of this month as a dry run for my new budget. I began my new budget on March 1st, and so far, so good. My fiance (I proposed yesterday!) has been very supportive. Supportive, for the most part, translates to eating out less often and trying to do more fun things at home, rather than always go to the movies. Anyway, the accounts. Here's a breakdown of what's in my name-
ING Electric Orange Checking: Bills Account [Months End ~$500]
ING Savings 1: Emergency Fund [$1000]
ING Savings 2: Wedding Fund [$250]
WaMu Checking: Discretionary Spending Account [Months End ~$250]
WaMu Online Savings: The "I need to save for something that isn't an emergency or a wedding" Account- Currently the cruise expenses. [~$300]
401(k): I put in 6% to get max company match [~$10,000]
Roth: Just opened [$250]
WaMu Mastercard: Don't use. Just have incase I need a major card. It also reports my FICO (currently 720ish) monthly [$0]
Discover More Card: This was empty after bonus, now carries engagement ring. 0% APR until August [$2500]
Amex Blue: I've never even used this card. 0% APR until 2009. [$0]
Car Loan: 8.9% Everyone's favorite topic of Debate... More on this later [~$16,000]
Student Loan: 4.5% [~$12,600]
As I mentioned earlier, I adjusted my direct deposits in anticipation of the raise. I made myself a budget which could be described as half Dave Ramsey, half "I'm 23 and obviously know better than him." Every month before taxes roughly $345 is being deposited to my 401(k) plus whatever match. After taxes I'm bringing home $3600 a month. That translates to $1800 a paycheck, of which I've allocated $1500 to "bills" and $300 to discretionary.
These amounts were decided after studying my previous spending habits, and making adjustments where I saw fit. I have been doing a dry run of the budget, and am fairly comfortable with it. The budget is sound, I believe, until the end of August. August will be an interesting month for several reasons. 1- My fiance and I will be looking to move in together. Currently I live with a coworker, and all bills are split evenly. 2- I will "graduate" my program at work and will be eligible for another raise. Maybe another bonus. 3- The 0%APR ends on my Discover (ring) card, and I have made it my goal to clear that up before then.
Anyway: Here is the Monthly Budget for April-August.
ING Electric Orange Checking [+$3000]
Rent: My half [$700]
Gas/Electric: My half (high estimate, should go down in Spring/Summer) [$140]
Phone: I pay for me and my fiance [$130]
Cable/Internet: My half [$30]
Car: 2006 Civic. I pay $130 extra [$500]*#
Gas: High Traffic = Low Fuel Efficiency [$250]
Car Insurance: [$120]
Student Loans: [$110]*
Ring: This will allow me to pay off before 0%APR ends[$500]*
Variable: E-Z Pass, Water, Oil Change, Dog, etc.
At the end of each month, I'll spend a little above or below the $3000 I put in, and I still have a $500 safety net in the account. I don't mind leaving it there because ING Checking pays interest.
WaMu Checking [+600]
Variable Expenses: Eating Out, Entertainment, Video Games, Clothing, Books, Haircuts, etc.
The basic idea here is I can spend this money how i want, but if I buy a video game, i probably won't be able to go to a fancy dinner. By separating this money from my bills, I shouldn't ever have to worry about spending money that I need to allocate elsewhere. The extra incentive to be frugal is that this is the account linked to my Roth IRA. I know I won't fully fund it this way, but it will be more incentive to eat out less and put that money towards my retirement at the end of the month.
I've also made it my goal not to resort to my credit cards. They're still in my wallet, but hey, that adds to the challenge.
*The four items I marked with the asterisks are what I feel are my debts. The main focus in Ramsey's method is getting out of debt. He says to attack your smallest debts first and snowball up. I agree with the approach, but I'm trying it in a less conventional way. The first one I want to tackle is the ring. There are two reasons. One, I want it paid off more than anything else on the list. Two, I want it taken care of before the 0%APR is up. By paying $500 a month, it will be cleared up right before the statement in August. After that it becomes a little tricky. On the one hand, there's the car, which has a pretty high interest rate. On the other hand is the wedding. While not a debt yet, it would be nice to say that I saved towards it and didn't have to resort to my credit cards. Plus, I'm already paying extra towards the car each month, which, if followed through to the end, will cut 15 months and $1000 off the total. All of this plays into that whole weird time frame of August thing. At that point, I should be moving in with my fiance. That means taking a whole new look at the rest of the bills and how we will afford them together. I also could be making more money, and by that time so could she. (She is working an hourly job close to home and taking a bus, while tackling the last of her credit card debt and saving for a used car. She's found a variety of salaried job positions in her field, but needs a car to commute to them.) There's also a good chance that we will have picked a date for the wedding by then, which will put a whole different spin on how much and when we should save for it. Hopefully as time passes I'll have a clearer picture on what snowball 2 should actually be, but I guess I'll just have to be more patient until then.
#The car. If anyone has read this to this point (And still has any clue what I'm rambling about), I'm sure the obvious answer to help my situation is to SELL THE CAR! Here's the thing. I "bought" the car in 2006 because hey, I was a big shot and deserved it. Having had no prior credit history (My parents talked me out of a credit card in college), I was blessed with a wonderful 11.5% interest rate for 5 years. I was also naive. The initial car payments were $470. I sucked it up and paid them all on time. Then, a year later I applied to refinance it. Since I had paid mostly interest for the first year of the loan, refinancing it at the lower rate for 48 months didn't change the monthly payments all that much. I opted to extend it back out to 5 years to get a $370 a month minimum payment. Quick math told me that I would be spending about the same in the long run, but it wouldn't be such a high payment each month. (And of course, I immediately started paying the minimum instead of trying to pay it off early.) I checked Kelley Blue Book, and right now I'm about $2500 upside down on the loan. If I make the small extra payments I've planned each month, I should be slightly ahead by the end of the year. Here's the (other) thing. If I were to sell it at that point, and buy a "junker", it would probably be a used civic. But... I'm driving a civic. I bought it in the first place to run it into the ground. It has great fuel efficiency and enough room for a small kid or two (we're talking 10 years or so of owning this car). Does that make it worthwhile to keep?
Well, thanks for reading if you did indeed stick around long enough. I'm open to suggestions, comments and the like. If what I'm doing or saying doesn't make sense, please let me know. I started this journal because I know myself, and I'll always be thinking of ways to "change" and "improve" my plan or revise my budget. I think this will help me capture my thoughts as I have them, so that later I can rationally decide if a change is for the best. Plus, it'll be nice to hear what others have to say.