My husband and I devised this harsh credit card digging out plan, the success of which will depend on a number of factors, including cutting the spending and increasing earnings (as expected during this season). We've had a couple of unexpected expenses arise this month and my husband's business has been a little slower than we'd expect, based upon previous years. I am hoping that we can stick to the plan tightly for the next 5 months. If we can, we'll save ourselves almost $5,000 in interest charges.
It's really hard to manage your money when you don't know how much will be coming in. It's also hard to be disciplined enough to bring your lunch to work every day and not treat yourself to little niceties occasionally. It can be a little depressing, but I just have to keep reminding myself that nothing is as satisfying as being debt-free.
The month isn't over yet and we still have time to make progress towards this month's digging out goal.
Wednesday, May 16, 2007
Thursday, May 10, 2007
Squirrel, Squirrel
We started saving for retirement in 1998 when my husband and I were both 29 by saving 12.5% of our income in my 403(b) and in a SEP-IRA for him. Since then, we've steadily increased the percentage we save for retirement and this year our goal is 16.5%. This month, our retirement account balances totalled $190K (Yay!!!) and we are hoping they reach $215K by the end of the year.
Why are we saving so much, you ask? Using various retirement planning tools, including the Fidelity myPlan calculator (http://personal.fidelity.com/planning/retirement/content/myPlan/index.shtml) and the CNN Money retirement calculator (http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp), we will need to have anywhere between $3.8M and $4.8M to have 80% of our income in retirement. These are huge figures, and every calculator I've tried tells me we need to save a little bit more, hence the increase to 16.5% this year.
Why do we need to have so much?! These calculators run various algorithms for different market scenarios and give you percent probabilities that you will reach your goal. If the market continues to consistently average 9% return or more each year, we'll be fine and retiring in Fat City. If, however, there's a significant market downturn, we want to ensure that we will be okay and have enough to live comfortably on if both of us live to into our 90's (not likely, but what if?).
The other reason why the figures are so high, is that we want to retire at 60. This is not to say we won't work at all, but we want to work for pleasure, not because we need the money.
I am still pretty surprised that we will need so much because my job provides a defined benefit plan (e.g. a monthly pension of between $48K and $70K/year, depending on what my maximum salary reaches over the next 22 years). What would it be if we didn't have the pension? (I haven't calculated that, but probably should, just to remind myself to be grateful for my benefits whenever I'm wishing I earned a bigger salary.)
Why else do we need so much money? Inflation, baby!! It's a real money vaporizer. Some estimates say to calculate for 3% inflation per year. Compounded, that's almost like doubling the cost of living over 20 years. The way inflation works is that your account values continue to increase, but the money buys less (a whole lot less) when you take it out to use it. $100K in todays money will be worth $56K in 2027 if inflation continues at 3%/year. And that's why we need > $4M in our retirement accounts.
Crazy, but it seems doable at this point with a LOT of discipline. Just remember to pay yourself first and have all transfers into retirement accounts automated.
Why are we saving so much, you ask? Using various retirement planning tools, including the Fidelity myPlan calculator (http://personal.fidelity.com/planning/retirement/content/myPlan/index.shtml) and the CNN Money retirement calculator (http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp), we will need to have anywhere between $3.8M and $4.8M to have 80% of our income in retirement. These are huge figures, and every calculator I've tried tells me we need to save a little bit more, hence the increase to 16.5% this year.
Why do we need to have so much?! These calculators run various algorithms for different market scenarios and give you percent probabilities that you will reach your goal. If the market continues to consistently average 9% return or more each year, we'll be fine and retiring in Fat City. If, however, there's a significant market downturn, we want to ensure that we will be okay and have enough to live comfortably on if both of us live to into our 90's (not likely, but what if?).
The other reason why the figures are so high, is that we want to retire at 60. This is not to say we won't work at all, but we want to work for pleasure, not because we need the money.
I am still pretty surprised that we will need so much because my job provides a defined benefit plan (e.g. a monthly pension of between $48K and $70K/year, depending on what my maximum salary reaches over the next 22 years). What would it be if we didn't have the pension? (I haven't calculated that, but probably should, just to remind myself to be grateful for my benefits whenever I'm wishing I earned a bigger salary.)
Why else do we need so much money? Inflation, baby!! It's a real money vaporizer. Some estimates say to calculate for 3% inflation per year. Compounded, that's almost like doubling the cost of living over 20 years. The way inflation works is that your account values continue to increase, but the money buys less (a whole lot less) when you take it out to use it. $100K in todays money will be worth $56K in 2027 if inflation continues at 3%/year. And that's why we need > $4M in our retirement accounts.
Crazy, but it seems doable at this point with a LOT of discipline. Just remember to pay yourself first and have all transfers into retirement accounts automated.
Wednesday, May 9, 2007
Digging Out
Hi there and welcome to my blog. To give an overview of how I arrived here (having a big problem and being consumed enough with getting out from under it that I've started a blog to both vent and keep me on track), let me begin by sharing that Quicken tells me our net worth is about $446,000. Sounds great, doesn't it? It does, until you look at the detailed breakdown:
ASSETS
Cash: $7000
IRAs: $190,000
Estimated house value: $800,000
Value Car 1: $16,000
Value Car 2: $6000
Personal Property: $50,000
TOTAL ASSETS: $1,069,000
LIABILITIES
Credit Card 1: -$22,000
Credit Card 2: -$15,500
Credit Card 3: -$13,500
Credit Card 4: -$6,000
Credit Card 5: -$5,500
Credit Card 6: -$4,500
Credit Card 7: -$2,000
Mortgage: -$448,000
2nd Mortgage: -$98,000
Car 1 Loan: $4,800
Student Loan: $6,200
TOTAL LIABILITIES: $626,000
What really freaks me out is to look at the total amount of debt we have. That's $69,000 in credit card debt (at varying percentages from3.99% all the way up to 18.99%)!!!!!!!!!!!!!!! That's about what I make in a whole year. This means that a significant chunk of my future change is already spent. It seems to me that there are 2 primary tasks at hand:
I've started this blog to chronicle how this all goes. I will keep you all posted as the plan progresses, updating how either the digging out or the squirreling away is going.
DIGGING OUT:
I started to figure out what a freakin' mess we're in last November and only started to get enough of a handle on our spending in March to start an AGGRESSIVE credit card payment plan this month. My husband's business is seasonal, with a large portion of his total income being earned between May and September. My hellacious plan calls for paying down $25K by October 1st. It's going to be a lean, mean summer!
DIET (Spending Diet, that is):
Getting a handle on the spending has necessitated all sorts of sacrifices be made. HBO was the first to go. Any kind of beauty treatment or pampering like massage was the next to go. I've cut back the frequency of my haircuts to twice a year, whether I need it or not (tricky for my short hair, which I tell people I'm growing out). I'm coloring my hair myself and I've been told it looks pretty good. There is absolutely no Whole Foods shopping, unless it's for a couple of specialty items and I have to stick to my list of less than 10 items. We downgraded the wine we drink to the $4.99-$6.99/bottle range for Trader Joe's purchases, $6.99-$8.99/bottle for Safeway (but we will shell out more if the wine is for guests or a host). We switched long distance phone carriers to get a better international rate (my husband is a foreigner and calls home a lot). We started bringing our lunches to work at least 4 days a week. I quit all donations to PACs and charities/non-profits (which was totalling about $200-$400/month). I cancelled all our magazine subscriptions. A ridiculous amount of money was being frittered away and we were able to cut our monthly spending by about $2,000.
PAYMENT PLAN (Progress Report 1)
This month, I was able to pay $7,500 towards our credit cards to reduce our debt by $3,500. Yes, this means we spent $4,000 on our credit cards, but we basically live off of them while we wait for my huband's clients to pay him. I guess I should share that between the 2 of us, we gross about $190K, but my husband has business expenses of about $40K, so it's more like $150K, minus taxes and all of that. This is not a very big income for our area, which has a very high cost of living.
As of today, our credit card debt is $65,973. So far, so good.
ASSETS
Cash: $7000
IRAs: $190,000
Estimated house value: $800,000
Value Car 1: $16,000
Value Car 2: $6000
Personal Property: $50,000
TOTAL ASSETS: $1,069,000
LIABILITIES
Credit Card 1: -$22,000
Credit Card 2: -$15,500
Credit Card 3: -$13,500
Credit Card 4: -$6,000
Credit Card 5: -$5,500
Credit Card 6: -$4,500
Credit Card 7: -$2,000
Mortgage: -$448,000
2nd Mortgage: -$98,000
Car 1 Loan: $4,800
Student Loan: $6,200
TOTAL LIABILITIES: $626,000
What really freaks me out is to look at the total amount of debt we have. That's $69,000 in credit card debt (at varying percentages from3.99% all the way up to 18.99%)!!!!!!!!!!!!!!! That's about what I make in a whole year. This means that a significant chunk of my future change is already spent. It seems to me that there are 2 primary tasks at hand:
- Digging Out
- Squirreling Away
I've started this blog to chronicle how this all goes. I will keep you all posted as the plan progresses, updating how either the digging out or the squirreling away is going.
DIGGING OUT:
I started to figure out what a freakin' mess we're in last November and only started to get enough of a handle on our spending in March to start an AGGRESSIVE credit card payment plan this month. My husband's business is seasonal, with a large portion of his total income being earned between May and September. My hellacious plan calls for paying down $25K by October 1st. It's going to be a lean, mean summer!
DIET (Spending Diet, that is):
Getting a handle on the spending has necessitated all sorts of sacrifices be made. HBO was the first to go. Any kind of beauty treatment or pampering like massage was the next to go. I've cut back the frequency of my haircuts to twice a year, whether I need it or not (tricky for my short hair, which I tell people I'm growing out). I'm coloring my hair myself and I've been told it looks pretty good. There is absolutely no Whole Foods shopping, unless it's for a couple of specialty items and I have to stick to my list of less than 10 items. We downgraded the wine we drink to the $4.99-$6.99/bottle range for Trader Joe's purchases, $6.99-$8.99/bottle for Safeway (but we will shell out more if the wine is for guests or a host). We switched long distance phone carriers to get a better international rate (my husband is a foreigner and calls home a lot). We started bringing our lunches to work at least 4 days a week. I quit all donations to PACs and charities/non-profits (which was totalling about $200-$400/month). I cancelled all our magazine subscriptions. A ridiculous amount of money was being frittered away and we were able to cut our monthly spending by about $2,000.
PAYMENT PLAN (Progress Report 1)
This month, I was able to pay $7,500 towards our credit cards to reduce our debt by $3,500. Yes, this means we spent $4,000 on our credit cards, but we basically live off of them while we wait for my huband's clients to pay him. I guess I should share that between the 2 of us, we gross about $190K, but my husband has business expenses of about $40K, so it's more like $150K, minus taxes and all of that. This is not a very big income for our area, which has a very high cost of living.
As of today, our credit card debt is $65,973. So far, so good.
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