Hola,

I just discovered this site, previously read a few "automatic" books for saving, and strongly believe in "less now, more later" in addition to the saving and debt management principles discussed on this and other like minded site.

Background: 29, single, no children yet
Monthly expenses (mortgage, utils, loans): $2,400

I am primarily interested in common financial milestones at certain points in someone’s life (e.g. eliminate non-mortgage debt in 30s). Anywho...here is my first journal entry/overview with numbers rounded:

ASSETS
Home equity: ~25,000
401k: 45,500 (IRS max every year + matching amt from work, dropped big time like everyone)
Roth IRA: 2,000 (max every year, just started this year. was previously saving for condo)
Emergency fund: 10,700 in ING MMF (Goal: 12,000 to cover 5 months)
Vacation fund: 100 in ING MMF (Goal: 2,000)
Checking acct: 2,100 (typically has about 2k in it)

DEBT
Mortgage: 167,500 at 6.375%
Equity loan: 18,400 at 9.5% (I did an 80/10/10 mortgage)
Student loan: 7,700 at 3.125%
CC debt: 0 (never carry a balance)

No car payment because I live in a big city with easy access to public transportation and a bicycle path.

DEBT PAYBACK STRATEGY
Snowball starting with lowest balance in order to eliminate student loans within next 12 or 13 months. I need the mental benefit of getting rid of these rather than focusing more on the equity loan.

Student loan: 586 per month (560 goes toward principal, 116 is minimum payment)
Equity loan: 200 per month (170 is minimum)
Mortgage: 1300 per month (this is minimum)

SAVING STRATEGY
Continue maxing out 401k and roth IRA accounts with index funds. I'm comfortable with having enough in checking + savings to cover 5 months. Ideally, I would like this all to be in savings, but I have opted to apply my regular saving amount to debt for now. I do plan on getting married and having one kid so I need to think about that as well. I am not expecting that to happen within the next year though. My vacation fund is not for anything specific, but I think it would be cool to have 2,000 available for “fun.”

BUDGET STRATEGY
Breakfast and dinner I eat at home. I have been sticking to a budget of $35 per week for work lunch and really enjoy the mental break/camaraderie of getting out over the lunch hour. Other than that, I am not exactly budgeting since retirement savings are being maxed and debt is being paid aggressively (5x minimum payment on one I am targeting now).

OVERALL
I feel very fortunate to be in my current situation, but worry about balancing family in the future vs covering my own butt for retirement. Plus, I worry about my retirement accounts and condo value dwindling to nothing (however, time is on my side being 29 years old...at least that’s what I keep telling myself!). I regret doing an 80/10/10 mortgage (should have waited to do 80/20), but have no regrets on being a homeowner. I'd love to hear from others on those concerns and any comments really!

Thanks.

Wow looks like you got things well under control and a good plan to work with.

GOOD LUCK!

Hi BikeRider,

First off, I get where you're coming from in regards to the mental benefit of eliminating your Student loan before addressing your equity loan. Being able to see progress is important.

Still, 9.5% a year on a $18,400 balance is a big chunk of money. In the next year, you're looking at $1,750 in interest on that loan versus $240 on your Student loan, yes? Too, based on the numbers you posted I'm guessing that you have a 20 year home equity loan as well as a PMI, right?

Just an aside, I hate PMIs with a passion. It should be everyone's mission to get rid of any insurance leech that your noteholder forces upon 'em.

Anyway, of course you know what's going to work for you better than anyone, but what you've got here isn't a stack of credit cards all at around the same interest rate that you want to line up smallest to largest and knock down one after another. This is a small debt at a low interest rate and a big debt at a high interest rate. If it was me, I'd go big right from the get go.

Obviously, I don't have all the details, but my Oklahoma Mortgage calculator says, "If you would like to pay off your mortgage in 2.75 years instead of the current 20.00 years, you will need to start making a second monthly mortgage payment in the amount of $464.26. This will cut your current mortgage interest cost from $22,768.64 down to $2,580.36, a savings of $20,188.28 in interest charges."

$20,188.28 in savings? Damn. That's a number one should take seriously. I know, I know - some people get all excited about tax deductions and all that. But as far as I'm concerned, it's always best not to owe in the first case. Personally, I haven't itemized in three years 'cause I don't owe enough to break the threshold of the Standard deduction, and I'm just fine with that.

Howabout this, if over the next year you just make the minimum payment on the Student Loan, and put that $470 you would have put towards it towards your Equity Loan, you'll knock it down an extra 500 bones a month (since you were already dedicating 200 v 170 towards it). That's around a third of what you owe on that beast in a year.

Then, if you look back one year at your initial post and don't feel you've made any progress with your debt, then you can switch over to your student loan and still reap the benefit of having knocked down your home equity loan by a third (knocking a truckload of time off your debt and saving interest charges every month).

So that's my thought. I know it's nothing you don't already know, of course, but I thought I should say it. Good luck w/all!

I'm with Hendrake. I'd be aggressive paying down your HEL, then I'd be aggressive with your mortgage to get rid of PMI ASAP. You're not paying much interest on your student loan, but could have that HEL paid off in 4-5 years.

Thank you all for the feedback and especially the detail, hendrake. Your calculations are accurate.

Fortunately, I do not have any PMI insurance on top of the HEL. Not one to ignore advice from people in a position I want to be in 10 years, my adjusted payback plan is below:


DEBT PAYBACK STRATEGY
Pay off equity then snowball into student loan followed by mortgage.

Equity loan: 670 per month (170 is minimum payment)
Student loan: 116 per month (this is minimum)
Mortgage: 1300 per month (this is minimum)


dtr, I'm fairly certain I'll opt to pay off the student loan after the HEL because at the point the HEL is finished, the student loan will be able to be paid off in 5 months and that will be very enticing indeed. That would feel awesome to have slayed the "beast" and its little minion leaving only Mr. Mort Gage. Otherwise, the student loan would be around for another 3 - 4 years.

Also, I typically throw 80% of "bonus" money at debt. Bonus funds being: $650 extra from taxes this year (due to document received after initial filing), extra paycheck in July (usually only get two per month, get three a couple months per year due to being paid every two weeks), and tax return next year.

Thanks again, gang. I've consolidated accounts online, but never really had a brain dump like this. Appreciate the opportunity!

Oh, you don't want to be where I am when you're my age. You're well ahead of me now.

Hi BikeRider, I had to check back in when I saw you posted.

First off, no PMI? That's awesome. Good for you!

Second, I like your revised Debt Payback Strategy. It may take a little while to knock it down, but once that beast is well and truly beat, everything else is gonna be a lot easier!

Last, I realized that I focused a bit too hard in my initial response on the whole Student loan v. Equity loan thing. Taking a step back from that, let me say that you're doing great. I like that you don't maintain a CC debt. I love that that you've started a Roth IRA and your 401k numbers are solid (esp. after the madness of the last year). Finally, I am very impressed by your Emergency fund. That is a great number, 'specially considering everything else you've accomplished.

So, one last bit of advice. When you get that Emergency Fund to your target of $12,000, whatever you're setting aside towards it, shift it to your vacation fund - and when you find something fun that you want to do with that money, you go ahead and do it. This is coming from a guy ten years on from where you are with the wife and the kids and the what all.

Take that vacation. Make it a good one. You doing great and you deserve it.

Same goes for the midday lunch!

Alright, I'll shut up now.

Well, it's been awhile so thought I'd update with where I stand:

ASSETS
403b: 68,198 (up from 45,500 in April)
Roth IRA: 4,597 (up from 2,000 in April)
Emergency fund: 9,525 (down from 10,700 in April)
Vacation fund: 41
Checking acct: 1,120

LIABILITIES
Mortgage: 166,638 at 6.375% (down from 167,500 in April)
Equity loan: 15,286 at 9.5% (down from 18,400 in April)
Student loan: 7,265 at 3.125% (down from 7,700 in April)


My debt payback is as advised in the previous posts and it works out to between 500 - 600 off the home equity loan each month (minimums on others). I feel fortunate to be able to tackle that loan with such an amount and continue maxing out 403b and Roth IRA accounts. Plus, if my estimate is correct, I should be able to apply around 5k from a tax refund to that amount early next year too.

No additional funds are going into my emergency fund right now. It dropped a bit due to getting a bit overzealous with debt elimination plus my old laptop crapping out, but I'm comfortable with its amount since it still covers four months of expenses.

In any event, I'm excited to be on track to building wealth in my early 30s outside of non-mortgage debt reduction! I'm 29.5 years old now, single, no kids. Thank you for the previous comments and this blog for pushing me in the right direction.

I started tracking my finances in April 2009 so don't have a full year to look back on, but here's where I stand to start this new year:

ASSETS
$80,174: 403b - up from 45k in April
$5,783: IRA - up from 2k in April
$9,055: Emergency Fund (EF) - down from 10.7k in April
$121: ING Savings - used for trips so fluctuates wildly
$2,430: Checking - used for all bills so fluctuates

DEBTS
$165,911: Mortgage at 6.375% - down from 168k in April
$13,782: Home Equity Loan (HEL) at 9.6% - down from 18.4k in April
$6,874: Student Loan at 3.125% - down from 7.7k in April


2010 financial goals
- $600 to HEL each month (min is 170) and some of my tax refund (goal is to cut HEL in half this year)
- continue minimum payments on mortgage and student loan
- contribute 5% of salary to 403b to get 5% match
- max out 2010 Roth IRA
- contribute $30 every two weeks to xmas fund, which is kept in ING Savings
- contribute $50 every two weeks to fun fund, which is kept in ING Savings

2010 tax refund plan
- 70% to debt reduction on HEL
- 10% to EF
- 20% to fun fund

2010 travel goals
- California: already paid for
- Colorado for wedding: already paid for
- Atlanta for play: already paid for
- Colorado for ski: planning stages
- Florida for wedding
- Vegas for play

2010 home goals
- new dresser
- new computer desk, rug, and chair
- new mattress

I'd be focusing on paying off the HELOC as well.

You say you don't budget and you pay your credit card off in full each month (which is good) but how much are you spending in day to day expenses for which it sounds like you don't have a plan. If I were you, I'd take a hard look at day to day spending on a monthly basis and see if there are areas that you want to or should reduce. Its fine to say I'm going to go out to lunch each day and spend $150 a month on that expense, but if you have several other $150/mo expenses that you could reduce or cut out that is more money for the HELOC or more for savings. We don't budget our day to day spending but we limit it by using an allowance system and once our allowance is gone we are cut off.

bikerider, i am older than you and you are my hero! wow your doing GREAT!

Very true, Sam. My CC is very low each month because I only use it for flights, which I save up for anyway and don't purchase every month, and a recurring $26 bill. Everything else is paid for using my debit card. I'm much more comfortable with seeing the money go out right away than having a big bill at the end of the month. That system works for me, but as you correctly note, I do not have a grasp on little expenses that add up.

Eating out / entertainment is easily my biggest expense. If I do not eat out, my daily expenses are 4.50 for public transit, 1.50 for breakfast bars at work, 7.50 for lunch, and 3 when making dinner. If I do go out with friends, that pushes dinner to anywhere from 15 - 100. I will try to track this better over the next 30 days...should be interesting, ha!

fantasma, I'm flattered that you would write such a statement! I've been motivated by tons of postings I've seen on this site too. If I actually motivate someone too, that feels just awesome.

Just wanted to add a note of support and encouragement along with the others! Looks like you're making good progress.

I'm impressed that your daily expenses are so low. I'm hoping I can trim mine this year.

BikeRider,Congrats on getting your money in order. You've been keeping this journal since last April, and it really shows that you're taking a lasting interest in your finances. Good job.If you're looking for advice, I could offer a couple suggestions. First, I agree with the others in that I think it would be a very eye-opening experience fo you to carefully track every last penny you spend for 1 month. I suspect you'll find you're spending a lot more on these miscellaneous "entertainment" expenses than you expect. If you could even just cut those expenses in half and apply the other half to your debt, you might be startled to learn how much faster you could be debt-free.Secondly, when reading your journal, the travel plans jumped out at me. You're planning 6 trips in 2010! Even if some of them are already "paid for," do you really need to travel so much? Imagine what an enormous impact you could make in your debt if you canceled or postponed some of those trips. Seriously, "Vegas for play?" The 2 weddings, Atlanta "play" trip, plus skiing in Colorado and whatever the California trip is are not enough "playing" already? I understand you like to travel, and there's nothing wrong with that, and I appreciate that you're not using debt for these trips, but come on, seriously. 6 trips in 1 year? Surely you see that that's a little excessive. Slow down a little, you've got lots of time. Put some of that money toward debt. Maybe send an extra-nice wedding gift and an RSVP of "No" instead of spending thousands to attend the wedding. Maybe save the ski trip for a reward for paying off the HELOC. Maybe skip Vegas this year.Just some things to think about.

The big update is that I've paid off my HELOC dropping it $13,782 in January to $0 today! Combined with the mortgage and student loan, I'm happy to report $16,500 in debt has been paid so far this year mostly due to a raise and decreasing my emergency fund from six months ($12k) to three months. Here's where I now stand:

ASSETS
$92,500: 403b
$9,500: IRA
$6,000: Emergency Fund (EF)
$300: ING Savings - used for trips so fluctuates wildly
$1,500: Checking - used for all bills so fluctuates

DEBTS
$164,000: Mortgage at 6.375%
$6,000: Student Loan at 3.125%

NEW GOALS
Add $100 a month to mortgage
Boost "fun fund" saving from $50 every two weeks to $100
Contribute $1,000 to savings each month
Work on making these goals more concrete

Right now, I'm in no rush to pay off the student loan with such a low interest rate. For retirement, 6% of salary goes to 403b with 5% match and another 5% goes to the IRA. I'm now 30 and looking forward to the next few years as it feels like I'm turning the corner out of non-mortgage debt!

Also, I'm sorry I didn't respond to the last couple posters, but I didn't see an email notifying of a post so I'll watch my thread more closely. I have also been able to take all the trips I've been planning and have a couple more left. I feel okay with that knowing the HELOC was being aggressively tackled.