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Back in September 2015, I created a financial bucket list for my 30s, which includes items that I had recently obtained, like my house that I have been slowly renovating, and life insurance. It also included items that I was working on, like getting disability insurance, and paying off my car and student loans. I have disability insurance now, and I was able to pay off my car, but I ended up getting a new car, so I still have an auto loan, albeit, with smaller payments.
My student loan has also decreased from the $14,000 balance it was around the time of that bucket list (mid September) to $6,700 today.
Related post: I Refinanced My Student Loan
Since I changed employers in February 2016, I was not eligible to contribute to a 401(K) like I had originally planned until August, at which I point I started contributing the minimum amount of 5% to meet the company match. After a few weeks, I increased my contribution to 10%.As for my IRA, I transferred it from LPL Financial to Fidelity because I found it much easier to make contributions with Fidelity than with LPL Financial. I picked an investment fund with a fancy name. My 401(K) is also with Fidelity.
Related post: It’s Never Too Late To Save For Retirement
My new employer also provides health insurance, which I just recently renewed for next year. But since the deductible is a whopping $12,900.00, my financial bucket list now includes getting a health savings account to cover the deductible. That brings me to my 2017 financial bucket list.
Related post: I Was Pregnant Without Insurance
The first item on my list is to pay off my credit card.
I could just pay it all off now, but that would leave a few hundred dollars in my bank account, which I am not comfortable doing. Hopefully, I can pay off my credit card before my tax season ramps up, in the middle of February.
As soon as my credit card is paid off, I plan on increasing my 401(K) contribution to 20%.
I have been increasing my 401(K) contribution by intervals of 5%, and I am currently at 10%, so I only need to increase it 2 more times to reach the 20%. My deadline for my 401(K) contribution is March 1, assuming my credit card is paid off by then.
At the same time, I should probably get a will, now that I have a dependent and a house. Getting a will probably won’t take that long, since I’m not the one drafting the will, but I need to make some unpleasant decisions in order to get the will. I might purchase one of those temporary wills from Staples or Legal Zoom to get by my upcoming tax season, and then see a lawyer in the spring for a more comprehensive will.
I can also work on paying off the remaining balance of my student loan by the end of 2017, or early 2018, as soon as my credit card is paid off. Once I start channeling the funds that are currently going towards my credit card to my student loan, I could have it paid off in a matter of months.
If I can just stop distracting myself with the countless projects I am working on, I could quickly roll over my 401(K) from my previous employer into my IRA. That would be an extra $911.74 into my IRA.
When tax season ends, I would love to finish all the DIY projects I have planned for my house, which includes finishing my kitchen, painting the guest room, master bedroom, and hallway, updating the bathroom, and transforming the basement into a useable room, perhaps an extra bedroom, or a small gym.
And finally, once my student loan is paid off, I can start contributing to a health savings plan, and a college savings plan for my daughter. Perhaps I’ll even increase my 401(K) contribution to 30%, or make extra auto payments on my husband’s car. But that’s more like a 2018 financial bucket item. Let’s just work on paying off my credit card first.
Late last year, on December 10, 2015, I refinanced my public student loan with a private loan of $11,000.00 from my credit union to take advantage of the lower interest rate of 5% rather than the original rate of 6.55% with Mohela. My first payment of $329.68 was due in January 2016, and the last payment is due December 2018 (3 year loan).
To pay off the loan faster, I immediately set up automatic biweekly payments of $164.82 to start on December 25, 2015, and occur every two weeks. I just asked the loan officer if I could have the amount automatically deducted from my account (with the same credit union). He calculated when the deductions would have to occur, and set them up. This way, not only do I make the required monthly payment of $329.68 ($164.82 X 2), but I actually make one additional monthly payment since there are 13 payments of $329.68 (26 payments at half the monthly payment) rather than 12.
At that rate, my last payment will be three months early, on September 14, 2018, rather than the scheduled December 8, 2018.
Then in June 2016, I walked into the credit union and asked the teller if I could increase my biweekly payment from $164.82 to $180.00. The teller filled out the paperwork for me, I signed the bottom, and the first $180.00 biweekly payment was deducted from my account on July 8.
Two weeks later, I walked back into the credit union, spoke to another teller, and increased my biweekly payment again, to where it currently stands at $205.00, which started on August 5. My monthly payments now total $410.00 ($205.00 X 2), and I still make 13 monthly payments a year.
At this rate, my last payment should be on March 30, 2018, almost nine months ahead of the original schedule.
Don’t let student loans, or any loan for that matter, scare you into thinking that you’re in a hopeless situation. Not only are biweekly payments easier to manage, and ease the stress on your cash flow, but they actually pay the loan down faster (here is the biweekly payment calculator to calculate your loan payments). The scheduling of my automatic student loan payments means that I never have to worry about missing my biweekly payment.
And whenever I want to increase my payments, I just walk into the branch and speak to the teller.
After I paid off my car loan in September, I put those big payments towards my Mohela student loan, which was $14,141.08 at the time. Last month, at $12,074.43, I refinanced the loan with my credit union, GHS Federal Credit Union. The old loan was 6.55% interest, $258.13 a month, with a scheduled payoff date of August 7, 2021
The new loan is 5.00% interest, $329.64 a month, and a scheduled payoff date of December 6, 2018.
Since I had been making monthly payments of $1000.00 to Mohela, and plan to continue that with the new loan, the change in my minimum monthly payment doesn’t affect my monthly cash flow, and my planned payoff date is December 2016.
I had previously said that I wouldn’t refinance my student loan because I didn’t want to lose the leniency of the lender, just in case I couldn’t make the loan payments for any reason. But with a planned payoff date of December 2016, I expect that I won’t need to ask for leniency. In addition, I don’t want to deal with the possibility that my student loan could be sold to another lender without my knowledge.
I borrowed $11,000.00 from GHS rather than the full $12,074.43 amount to lower my monthly payment, and to force myself to pay off the remaining $1,074.43 right away, since the first payment of my new loan is due in January. I also set up automatic biweekly payments from my GHS checking account, so that I never have to worry about late payments. And since the loan for my other car is with GHS as well, it is so convenient to be able to log into only one account online to see my bank accounts and both loans, rather than having to log into multiple websites. I always have trouble remembering my password for my Mohela account.
Paying off your debt does not have to be hard. In fact, you can make it so easy, it becomes automatic, literally. All it takes are two easy steps:
1) Open and read all your statements thoroughly. You need to know how deep in the hole you are to know how to dig yourself out. When I first talked about paying off my debt back in January, I did not bother checking how much we owed on my hubby’s student loan, and just assumed it was around $30,500. Nine months later, while I was reading all our statements to do an update on our debt status, I finally opened one of his statements to discover that not only was my estimate off by approximately $4,000 and we owed $34,657, but that we were also on the worst payment plan ever. We have paid $1,459.41 on the loan since May, with only $169.55 going to the principal, and the remainder towards interest.
I was furious at myself for the rest of that night. That’s what happens when you don’t look past the current due section of a loan statement. Make sure to regularly read ALL your statements THOROUGHLY. If you don’t understand something, call customer service.
2) Set up automatic payments. You don’t have to worry about making a payment on-time, or getting to a computer to make the payment. If you set up automatic payments for more than the minimum payment, not only will your payments be on-time, but you’ll actually pay it off faster. You can even take it a step further and set up automatic biweekly payments, so that you’ll pay half the amount twice a month. Biweekly payments help you save on interest and pays off the debt a little faster than monthly payments. For example, I have my weekly paycheck direct deposited into two separate bank accounts. In the first bank account, I deposit just enough cash to cover my mortgage and student loan, plus a little extra as a buffer. I also have my monthly mortgage and student loan payments automatically deducted from this bank account (I would do biweekly payments, but the loan holders’ won’t allow it). This bank account is used only for these two loans, so that I never have to worry about having enough cash.
Then I have the remainder of my paycheck deposited into a second account, which I use for my variable expenses, like my credit card payments, electricity, etc. This way, the only time I think about my loans are once a month, when I read the statements to make sure everything is as expected.
The only other times I think about my debt is when I’m checking out interest rates to compare them with mine, or when I’m making an extra payment in addition to my regularly scheduled debt, because the only way to eliminate your debt is to make extra payments.
The best way to cut your expenses does not necessarily mean totally cutting out all the joys in life, like your morning coffee, or going out to dinner. It helps, but sometimes, you just really need that jolt in the morning to keep you from staring at your computer screen for the first hour of the day. So let yourself splurge on the coffee every once in a while. To really make an impact on your expenses, you need to reduce those pesky expenses that come back every month, like your rent (or mortgage payment), your auto and/or student loans, your utilities, and your grocery bill. My biggest household monthly expenses, for example, are my mortgage, 2 auto loans, 2 student loans, groceries, and the electric/gas bill. I also have a cell phone and a gym membership, but they are relatively small compared to the other categories. And I haven’t paid for cable tv since 2006.
1. Your rent or mortgage payment is probably the biggest slice of your monthly expenses. My mortgage payment of $820, which includes the mortgage, taxes, and homeowners’ insurance, amounts to 35% of my monthly expenses. Now, finding a cheaper apartment, or lowering your mortgage, may not be easy, but it’s not impossible. I regularly check mortgage rates and closing costs for the day that I should refinance my mortgage, even though I’m only 2 years into my 30 year mortgage. Lowering your rent or mortgage, even by just $25, adds up to $300 a year.
2. Student loan payments are also a big chunk of our income. They total $570 each month, or 24% of my regular monthly expenses. I have thought about refinancing our student loans to a private loan to reduce the 6.55% interest rate, but I don’t want to lose the flexibility that federal student loans offer, such as deferment or income based payments. I also enrolled in automatic electronic payment to lower my interest rate down from the initial 6.8% to 6.55%, thus lowering my monthly payment.
3. Your auto loan, if you have a car, is probably your next biggest expense. Payments can range anywhere from $150 to $500+, depending on what kind of car you have. With two cars in my household, our auto loans total $420.00 a month. The easiest way to lower your monthly auto loan is to downgrade your vehicle. Really assess your needs and determine if you really need, as opposed to want, that $30,000 car, which, at 5 years and 3% interest, is $539.06 a month. If you bought a $25,000 car instead, with the same loan terms, the monthly payment becomes $449.22, a $89.84 difference. That’s a savings of $1,078.08 a year.
The other way to lower your auto loan is to refinance it, similar to refinancing your mortgage. It may not lower your monthly payment as much as downgrading your vehicle, but it could still knock off more than a few dollars. I once refinanced my old Jeep to lower the interest rate from 4.99% to 2.5%, which saved me about $20 a month.
4. Our groceries expense is around $300 a month, for our family of 3 people, 3 dogs, and an old lady cat. Since beef is relatively expensive, we stick to mostly chicken and pork, and eat beef only a few times a month. We also buy grocery store brands whenever possible, and not the brand names. Since America has it backwards and makes the healthy food expensive, I usually buy frozen vegetables and fruits rather than the fresh stuff, unless they are on sale. Four times a week, I also eat leftovers for lunch the next day. I tend to treat myself and buy lunch on Wednesdays, since I teach Tuesday nights, and I am not home for dinner.
5. My electric and gas bill is another bill that can get as high as $300 in the winter, but there are a few ways to reduce it. The simplest way is to use energy efficient bulbs, windows, and doors, basically making the house energy efficient. I also take advantage of budget billing with the utility company. Basically, the utility company estimates the electricity and gas I used in the past year and divides that amount into 10 monthly payments. That way, my bill is around $140 every month for 10 months, I don’t have wild swings in my energy bills between the summer and winter, and I get 2 months of no bills. The drawback to that is that they kick me off budget billing if I’m late on even one payment, to which I can just call them and get back on.
6. While cell phones may be another slice of someone’s cash flow pie, it is a relatively small portion of mine. Since my hubby and I don’t make many calls, use little data, and leach off of the free Wi Fi that is almost everywhere, we ditched our cell phone contracts a few years ago and went prepaid. For $70 a month, we get 500 minutes together, unlimited text, and 1.5 gb of data for me, and we’ve never gone over the limits. We’ve also got smart phones we love for less than $170, each.
7. Cable tv is a thing of the past. I haven’t paid for cable in years, thanks to Netflix, Amazon Prime, and the local library. Plus, I become a total couch potato when there is the temptation of tv. And besides, a common trait among rich people is that they don’t watch a lot of TV, anyway.
8. When my gym membership expires next February, I don’t plan on renewing it. My preferred exercise is running, and I can run for free outside. I joined the gym back in February when it was too cold to run outside, and I was training for my first half marathon, the Binghamton Bridge Run Half Marathon, in May. I paid for a whole year upfront to get the lowest rate possible, which amounts to $30.00 per month. But as soon as the nice weather arrived in May, I was never at the gym. And I hate wasting money.
The total of these 8 expenses (really 7, since I don’t have cable tv) is $2,350 per month. When you put them into a pie chart, you can see just how much space my mortgage payment, student loan payments, and auto loan payments take compared to the other expenses.
Making even just minor changes that lower those payments by a little bit would lower my expenses and offer some relief on my monthly cash flow.