Let's Get Down to Brass Tacks
Day 3 | $0 paid | $90,717 till freedom
Yesterday, I mapped the mountain by laying out the assets and income that will help me climb it, and the liabilities and expenses that will stop me from climbing it. Today, I'm going to make a first-pass at making a path up that mountain by determining what my new expenses and new income will have to be to make it to the top in ten months and pay off my $90k of debt.
Putting the Final Touches on the Mountain
The monthly expenses I listed yesterday are actuals, not necessarily what I have budgeted for. Yes, believe it or not, I do in fact have a budget that I track on a monthly basis. However, there have historically been no consequences if I exceed my budget. For example, my entertainment budget is $850/month, but I've been averaging about $1,300 per month. If I were doing real budgeting, then if I spent $1,300 in entertainment one month, I would have spent only $400 in entertainment the following month. I didn't. I just kept spending, spending, spending.
At the beginning of my fiscal year in May, I laid out the following monthly expense budget for myself:
Monthly Expense Budget
- Mortgage:$1,441
- Student loans: $1,057
- Entertainment: $850
- Groceries: $330
- Car insurance: $171
- Car fuel & tolls: $160
- Phone: $85
- Electricity: $68
- Water: $55
- Lunch at work: $55
- Internet: $50
- Dry cleaning: $40
- Gas: $36
- Haircut: $20
Total: $4,418/mo or $53,016/yr
Annual Expense Budget and Status to Date
- Medical/vision/dental: $500 budget / $260 remaining
- Clothing: $1,000 budgeted / $214 remaining
- House maintenance and repairs: $2,000 budgeted / $1,465 remaining
- Donations: $450 budgeted / ($25) remaining – oops!
- Car/motorcycle maintenance and repairs: $3,000 budgeted / ($328) remaining – oops!
- Gym budget: $350 / $25 remaining
- Christmas travel: $600 budgeted / $600 remaining
Total: $7,900/yr
Total expenses: $60,916
(Sorry if this last part seemed a bit redundant to yesterday's post. I'm not a professional blog writer and am just kind of winging this...hopefully this is the last re-tracing of steps.)
Now for Revenue
We've already talked about my salaried income and how I don't really want to state it. But let's just say, for grins, that it's a nice, round figure like $100,000. If 10% goes to my 401k right off the bat, I'm down to $90k. Then 20% goes to tax, so I'm down to $72k. If my budgeted expenses as outlined above are $61k, and I reset the annual budget and expenses-to-date from this point forward, then I'll be able to contribute $11k to savings or loans at the end of a year. Since this is a ten-month project rather than an annual one, though, I can put only ten months, or $9k towards loans.
The $25k loan that I plan to pay off as soon as USB pays me will be paid off with the liquidated IRA funds ($8,000), stock ($14,100), and the balance by cash, or $2,900. So that $9k for loans over ten months actually goes down by that $2,900 to $6,100.
Once I pay this off, I'll be left with an $871 monthly loan payment. So, I'll be spending $871 per month on my $66k of Federal loans, or $8,7100 over ten months, 70% of which will be principal, so I'll chip away at $6,100 of the principal.
So the walk to debt freedom looks like is:
- $90,717 starting debt
- Less $22,100 paid down immediately by IRA and stocks
- Less $2,900 paid down immediately by already-accumulated cash savings
- Less $6,100 paid down by savings to be accumulated over next ten months at current course and speed
- Less $6,100 paid down per regular monthly payments over ten months
Delta to goal: $53,517
But because I want a cash buffer of $4k, I really need $57,517.
So it's not exactly a "walk," and it's definitely no walk in the park. It's going to be a hustle.
Finally Ready to Make the Path
So I'm off-target by over $57.5k. Clearly, if I want a real shot at making this work, I'll have to...
- Cut costs
- Increase revenue
I have to either cut out $57.5k in spend, make $57.5k more, or do a little bit of both that nets me $57.5k extra.
Cut Costs
Where do I cut? How deeply do I cut?
Mortgage: $1441/mo
There is no real way to cut this. I bought the house a year ago using the $8k first home buyer tax credit, and I would have to pay this back if this address ever stopped being my primary residence. The possibility of getting a roommate, however, will be investigated in the revenue section.
>Potential Upside: $0
Student Loans: $1,057/mo
I'm paying off the $25k loan on which I pay $186/mo.
This leaves me with $871/month x 10 months = $8,710 off $66k, but probably only 70% will go towards the principal. So I'll pay off $6,097.
I'm not going to double-count these expenses since I already included them in my walk above, so I can remove them from my monthly budget.
>Potential Upside from Federal Loans: $6,097
>Potential Upside from Non-Federal Loans: $186/mo | $1,860 through June
Entertainment: $850/mo
Oh, entertainment. We have so much fun together, you and I. The dinners, the drinking, the travel...I will miss you so, so much.
I want to get aggressive on this category. If I completely cut out entertainment for the next ten months, I will get $8,500 towards my $56k goal. Not shabby. But also pretty freaking hard.
I'm going to say $50 a month. Doable? Can I go from spending $1,300 per month to...$50??? Lord, help me.
>Potential Upside: $800/mo | $8,000 through June
401k: 10% of income, taxed
First off, much to the chagrin of all financial advisors everywhere, my 401k is getting chopped. Completely. Ah, glad I brought my work laptop home. Give me a just a second. Okay, zeroed out. Thanks, Hewitt, for your user-friendly, easy-to-use online platform. 10% of my pre-tax salary is no longer going to my 401k, and 4% of it is no longer getting company-matched. Yes, I'm walking away from free money. Bye bye. Now that 10% will be taxed and will go to my loans. It's too bad I can't go back in time and put 0% contribution on my first day of work. I guess if I do get fired from my day job, I can use that $37,500 as my Screw You fund.
>Potential Upside: ~$550/mo | $5,500 through June
Groceries: $330/mo
My diet is laughable. I eat Frosted Flakes and Honey Nut Cheerios every morning. On Sunday, I make two boxes of angel hair spaghetti, distribute it into four tupperware containers, mix in parmesan cheese and sauce, and stick it in the fridge. That's my lunch for four days of the week,and I treat myself to a lunch out for the fifth day. I'm typically too busy at work to even go down to the cafeteria to get something, let alone actually go out.
While I'm making those meals on Sunday, I bake five lemon pepper chicken breasts. That's my dinner for the week, along with steamed vegetables (from the freezer, naturally), as well as a baked potato. On the weekends, when I don't go out to lunch or dinner, I have two Hungry-Man TV dinners for a meal. At 810 calories and 36g of fat each, they are just what the doctor ordered.
I also buy protein bars at $2 each and have one a day. I have an apple in between breakfast and lunch. And that's it--that's all I eat. The non-edible part of my groceries is what must be going to that $330 month--I will have to spend some more time on this and pareto it out to determine the big hitters. I don't think the upside will be very significant.
>Potential Upside: $50/mo | $500 through June
Car Insurance: $171/mo
Alright, I wasn't exactly truthful on the first blog post. I actually have two cars, and I actually do have an expensive hobby, as I wouldn't have two cars and a motorcycle if I weren't an automotive enthusiast. I was afraid of being judged--sue me! I promise to be more truthful going forward.
Rest assured that the cars were not expensive at all to buy.The first one is a 2003 Nissan Murano with 127k miles that I picked up for something like $10k. The second one is a 2000 Honda S2000 with 62k miles that I picked up for about $11k. I need the Nissan Murano, a crossover, for household projects, and if I am ever DD for my friends or need to pick a friend up at the airport. The Honda S2000, a two-seater convertible, is...a toy. I'll admit it. It serves no purpose whatsoever, other than to bring a smile to my face every single time I drive it.
Anyway, I provide that context to explain the $171 ($2k annually) in insurance I spend (and automotive maintenance and repair). It does not include insurance for the motorcycle--that was $392 and is already paid through September 2012, so that's off the table. I do have full coverage (liability/comprehensive/collision) on both cars, so I could call USAA and ask for liability only and see what kind of savings I could get. I could also ask them what it would be if I sold one of the cars. However, I get a multi-vehicle discount, so I don't think it would amount to much. The entire call would be just for grins, anyway, as I sure as hell am not getting rid of either of them. The Nissan is a workhorse and the Honda makes me happy. They're both in excellent condition and I got incredible deals on them.
I'll be keeping both cars (and the bike), but I'm not sure that I want to drop insurance on them. If I get hit or if I hit somebody (it's been known to happen), I am looking at serious costs. I'll check the potential upside with my insurance provider later. If it's compelling, I might go for it. Not for now, though.
>Potential Upside: $0
Car Fuel & Tolls: $160/mo
Seeing as how I have been trending at $225/month, getting to the budgeted $160 is going to be hard enough.
>Potential Upside: $0
Phone: $85/mo
That's a Verizon data plan that I am locked into for the next 16 months, plus a discount from my place of work. It can't go lower. And I refuse to give up data.
>Potential Upside: $0
Electricity: $68/mo
This is an annualized number. It's closer to $100+ in the summer and $40 in the winter. In the summer, I keep the thermostat at 85 while I'm at work, 76 in the evenings, 78 at night. I run it only a couple of months or so in the other three seasons. So I think this cost is already optimized. And it's not like I have any servers or a second fridge that draw a lot of power.
>Potential Upside: $0
Water: $55
I would try not watering my lawn, but seeing as how we're in the middle of the worst drought in a century, that's probably not a good idea--the cost to re-sod my lawn would easily outweigh any savings from not watering.
>Potential Upside: $0
Lunch at Work: $55/mo
I will stop eating out. Tear.
>Potential Upside: $55/mo | $550 through June
Internet: $50/mo
I'm not going to steal internet. Nor will I go without it--I sometimes have to work from home.
>Potential upside: $0
Dry cleaning: $40/mo
Ugh...I hate ironing so much. And my slacks have to be dry-cleaned. If I iron my button-down shirts, which I wear only during cool months (Oct-Mar), I should be able to cut this in half.
>Potential Upside: $20/mo | $200 through June
Gas: $36/mo
This has been coming in at $23. I mis-budgeted for it when I built my budget in May. Plus, I have no idea how to lower the usage of gas. I hardly cook as it is. Must be the hot-water heater. Well, my showers aren't getting any cooler!
>Potential Upside: $13/mo | $130 through June
Haircut: $20/mo
I love my TGF haircut. I guess I could shave my head myself once a month, but if I get the promo I'm interviewing for at work, then I'll be in a B2B role with customer engagements, and I would be judged. No thanks.
>Potential Upside: $0
>Total Potential Upside: Ok, so if I can cut some costs, I am looking at $22,837 contribution to the $57.5k delta.
Remaining delta: $34,663
I still have some annual spending to go attack.
Automotive
My automotive budget is tapped at ($328). There's no upside here.
>Potential Upside: $0.
Medical/Vision/Dental
If I don't get sick, I can save $260. I do need to get my annual physical next month, so I'll keep $10 for the co-pay.
>Potential upside: $250
Clothing
Hmm...not sure how I feel about cutting this. Not super excited, but I guess I don't need anything...
>Potential upside: $214
House Maintenance and Repairs
My exterminator comes quarterly and there are three visits remaining, for which I'll owe him $100, I think. Hopefully I won't need any other work done?
>Potential Upside: $1,165
Donations - tapped out
Gym - basically tapped out
Christmas Travel
I don't think my family would be very happy if I didn't come home for the holidays. That would be cold.
>Potential Upside: $0
>Total Potential Upside: So on top of my $22,837 that I can save by cutting my monthly expenses, I can save another $1,629 for a total of $24,466. That leaves me with a delta of $33,034.
Increase Revenue
How in the world am I supposed to make $31,534 in ten months?
RSUs
I have 224 shares of my company's stock. If it is still where it currently is, I could get $2,350 after tax.
>Potential Upside: $2,350
Raise
If I get the new job, I might get a 10% raise.
>Potential upside: $500/mo | $5,000 through June
Tax return
My tax return last year was $1,200, and I moved into my house in the middle of the year, so I paid income tax-deductible property tax for only half a year. I also didn't realize huge losses on stock like I will this year. I'm going to get bullish and double this.
>Potential Upside: $2,400 through June
Bonus
I got a decent bonus last year. I was ranked the highest out of my peers, and since the bonus system at my office works like a a meritocracy, that ranking was manifested in my bonus. My compnay also had a great year last year. This coming year, if I get the promo, my peer group will change, and I will not be at the top of it since I'll be so new to my role. However, in the new pay grade, a greater portion of my salary will be subjected to the bonus, and my company is having a good year so far. To be conservative, I'm going bearish on this bonus.
>Potential Upside: $8,000
Pedi-Cab Job
If I pedi-cab on Friday and Saturday nights and make the low end of what has been advertised, I'll make $200/weekend, or $100 night. There are roughly 40 weeks between now and the end of June. I am out of town for three of them, and might not start until a weekend from now, so I start with 36 weekends. I'll want to take some weekends off, so let's put it at 30 weekends. I have to pay for the bike and rent the cab $10 each time. So minus $500 + $10x60 = $1,100 from my revenue.
>Potential Upside: $4,900
Other Random Job?
$12/hr @ 16 hours/weekend and 30 weekends = $4k after tax
>Potential Upside: $4,000
Roommate
I have to do it. It's going to suck like hell for so many reasons, but I have to do it. Just looking at the numbers above, it's obvious I am nowhere near the $34.5k bogey.
I figure I can get $650 for the room which is already furnished with a double bed and dresser. I will include utilities, which will go up a bit but shouldn't be out of control.
$650/month x 10 months = $6,500
>Potential Upside: $6,500
>Total Potential Upside: $33,150
Delta from $33,034: ($116).
In other words, I can exit June with my loans paid off and $116 plus my $4k cash buffer burning a hole in my pocket.
The Delta
Now, I went pretty high-level here and there were a lot of assumptions, and tax, when used inconsistently like I did, can make things a little tricky. For example, things like the 401k, raise, and bonus were post-tax, but I didn't include tax in the pedi-cab job and for the roommates, even though I'll end up having to claim that. Still, $116 surplus--even if it's only directonally correct--is not bad at all. If I can stick to this plan, I will meet my goal. Of course, that is a major "If." For example, can I really find two side-jobs, and work the entire weekend, nights and days?
Can I execute?