Thursday, September 9, 2010

Thursday, 09.09.2010

Have you ever been frustrated about your finances? Have you ever fretted about your budget, your investments, your credit cards or any financial plans intended to make you better off? I guess we have something in common, then!

A few nights ago, I stared at spreadsheets for my ongoing expenses and debt elimination plans in utter vexation. After setting aside money for food, gas, my student loan payment, obligatory savings for overdraft protection, health expenses, and an upcoming oil change, I had $19.34 remaining to be spent as discretionary funds.  There’s more to it…I also set aside a portion of my paycheck for my car note.  Exactly 2.362937088922745 times the amount of my actual car payment. Why in the heck would I set aside 65% a paycheck to go towards my car payment? Well…. to pay it off early (duh)!!!

Here’s the background: my credit union loaned me $13,500 (at 7.88%) in July 2009 for a vehicle purchase. If they had their way, I’d pay $269.11 for a cool 60 months (all the way through July 28, 2014, to be precise). In this time, I’d pay $15,505.26 (do the math, that’s just over $2,000 in their pockets). I’m not knocking them for it, either. I understand that’s how the business works: when you use other people’s money (i.e. credit), you pay for it (i.e. interest)! However, I recognized an opportunity to save some money. So I set out to pay off my car early, and with a new job (i.e. higher income) in the works, I finagled my budget so that I would pay my car note off in May 2012. My boyfriend shared the idea of me bumping up that amount EVEN MORE! If I suspended my savings and [after-tax] investment contributions, I could put $1245 towards my car payment every month and be done with the whole thing in February 2011! Naturally, I freaked out because I’ve been taught to save money….ALWAYS! But when I ran the numbers (more spreadsheets of course), I discovered that I’d be able to save more by eliminating the debt earlier. Simply put, I could start saving more money sooner than later:

$1245/month payments =
Debt retired in February 2011*
$500/month payments =
Debt retired in April 2012

Amount Saved/Invested by December 31, 2012

Save $0 from
April 2010 through February 2011
($0/mo x 11 months= $0)

$1245/month in March 2011…
($1245/mo x 22months= $27,390)
$0 + $27,390 = $27,390
Save $745/month from
April 2010 through April 2012
($745/mo x 12 months= $8940)

$1245/month in May 2012…
($1245/mo x 9 months = $11,205)
$8940 + $11,205= $20,145
*Includes two additional payments made possible by an “extra” paycheck in October 2010 and estimated tax refunds.

Sounds pretty cool, right? Not exactly… my frustration came to a head when I was faced with the reality that I wouldn’t be able to do anything fun for the next six months (after all, $19.34 for discretionary funds isn’t much). Between airfare to see my beau, his birthday in January and my girlfriend’s super-duper birthday festivities (she’s acknowledging the big “3-0” with Caribbean beaches; also in January), I’d be a real miser and say "no" to everything (like David Spade). But would it be worth it?

After a mini-breakdown, I decided that the answer was “no”. So I revised my budget and debt elimination plan. Now, I’m paying $1045/month for the car note. I could probably still eliminate the car note by the end of February 2011 if I significantly increased portions of my “extra” paycheck in October and anticipated federal and state tax refunds to the note. What’s more likely to happen is that I will finish off the debt in April 2011. In the meantime, I’ll have $200/month to put towards airfare, January birthday celebrations and who knows what else until the note is dead and done with. Instead of saving $27,390 by the end of December 2012, I’ll have $24,900 (still ahead of the initial $500/month plan and WAY ahead of the credit union’s plan).

So what do YOU have to do with this? Why should YOU care? I'm sure glad you asked! I’d like your help. You might be familiar with the concept of crowdsourcing, and I’m willing to give it a shot…with my financial decisions… for a year. The way I imagine “Spend for Sandy” to exist is that I will ask for your recommendations about the way I should spend my money and will select the most popular ideas. You have nothing to lose (it’s my money after all) and I look forward to sharing how these various financial experiences work out. So that’s it.

I commit to posting twice a week (Tuesday & Thursday). I will aim to keep posts less than 750 words (already violated this; please forgive me =>). And I agree to let YOU be the decision makers and to share my reactions and experiences. Thanks!

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