So Sick of Debt

Well, as predicted it is the end of the financial year and I’m not quite out of debt. I still have $2500 remaining to pay: $2100 from a cheque being sent out tomorrow and $400 from tutoring work I’ve done.

But this does mean that from next pay (thursday), I can start thinking about where to put the $500 or so a week that we were putting to debt repayments.

I do have a lot of things planned but the first thing I need to focus on is rebuilding the emergency fund! I would like to get $5000 in there by the end of the year, and - instead fo having the $1000 cushion in there - this time I’ll be starting from scratch again.

Some of our expenses - such as childcare - will go up markedly in July, so at present we won’t have that $500 a week anymore. Instead we’ll be looking at about $300/wk. That’s because I am allocating a little more towards lifestyle and a bit more each week towards billpaying too. We need to rebuild our wardrobes a bit after our year or so of living `poor’, partly because our wardrobes weren’t great to start with!

 And we have to get some work done on our vehicles.

I need to get creative about how to make up the $200 `shortfall’ in savings each week, and I’m sure if I just use my head, I’ll be able to do it. I just need to really think. Spend less in some areas? Or just bring in more?

We’ll get there

 It has occurred to me that I really want to get my emergency fund to $5000, so I have updated this goal on the sidebar. Damn, that $1000 goal is so last year! I’m high-kicking my way to $5000 now.

My current plan is to use tax returns and a child care government rebate to do this, though none of that money will arrive till the second half of the year. However, my weekly debt repayment of $320 remains focused on our car loan only, and nothing is going to get that out of my line of sight!

Some more good news: I have also figured out how to pay for our joint party without reducing our car loan repayments. I have arranged to work a second shift for the next 6 weeks. This is probably the only time of year when this will be manageable within my uni workload. This will help us save $1500 for the party outright, without touching my weekly car repayments. I had planned to stop car payments for 5 weeks to meet this goal, but now I won’t be doing this I can change my projected payoff date on the vehicle back to September (from October). I still have a way to go before I get it back to my original pay-off goal  of June, but I don’t regret my decision to try to spend a little cash each week on myself. This is the tortoise’s race, not the hare’s!

Still, I reached my baby EF goal, and now I want to take this savings thing further. I can not imagine having $5000 in the bank with no attached purpose - just `just in case’ money. But I also know that I am a bit up and down with my goals at the moment, and can’t seem to settle on a plan. At least I keep moving forward financially each month.

One thing I do know is that buying a home is way down the list at the moment. It just isn’t the right time in our market and I am no longer interested in rushing the decision to buy something I can’t really afford. Before we buy a home these are the criteria I now feel must be met, as far as I am concerned:

• we need a dual incomes (or adequate income-producing assets to keep us comfortable with just one income … this is unlikely to happen anytime soon :))
• $15,000 emergency fund in place
• 10 per cent deposit (preferably 20%), plus all costs of buying covered
• First Home Owners Grant ($7000) to cover our furniture needs. This will be the fun part! And we will need it as living with our relative has depleted our own household items.
• I also want to live in a home that suits our environment, has nice outdoor spaces and is light and airy. It does not need to be (or look) expensive. But I won’t settle for something I don’t like. If we have to live in an ugly box, I’d prefer to wait longer.

 I have a few current concerns too, which I still haven’t worked out how to deal with:

• I haven’t figured out what to do about my $3500 car bill. I fear that I will pay off the car hubby drives, only to turn around and need to finance one for me.
• I haven’t factored in how we will pay for the clinical rotation of 8 weeks that I have to do in another town. Though my hubby will get holiday pay, I won’t be earning money for 8 weeks and I will also have to figure out an accommdation option for all of us that won’t break the bank!
• Graduation - There will be a lot of costs associated with parties and functions when I graduate in December, nearly a month before I start earning a full-time wage.
• Our planned trip to Melbourne in the second half of the year. It’s looking more and more unlikely, to be honest. But let’s see - I can work miracles, can’t I?

I’ve been reading a lot about emergency funds on random PF blogs lately, and the common theme seems to be the need to have a reasonable amount in your EF to avoid falling into trouble. While I never originally planned to fund an emergency fund at all until my debts were paid off, that has changed since I began this blog.
I’ve managed to assemble a $1000 fund, which I have no intention of dipping into.
That’s despite the fact I really need new tyres on my car and there’s not quite enough amassed in my billpaying account to pay for them.
However, in the past few weeks I’ve become quite focused on getting a bigger EF set up.
This has partly been because I’ve been following the struggles that JW has been going through over at Need to Be Debt Free (link via the Blogroll if you haven’t checked out
this great blog).
Poor JW has experienced an almost unbelievable number of adversities in the past few months but is still afloat (in fact, a darned sight more so than he would have been if not
for this debt repayment journey).
I continue to take my hat off to JW as he weathers this storm.
Anyway, it made me think that $1000 wouldn’t really make enough of a difference if I found myself in a similar situation, with a similar set of problems.

And since my next goal is home ownership, it’s fair to say that I need some extra cash
lying around _ above and beyond any home deposit _ to avoid the chance of having some big drama derail our mortgage repayments (which are likely to be hefty!) when and if we start making them. We really probably need to fund an EF to the tune of at least $3000-5000 to ward off any immediate dramas once we eventually do buy. This is especially true since we want to have a baby in the next few years too!
The idea of putting more towards an EF at this time pains me (and I doubt we will even
contemplate it until we have paid off our car) but I am starting to see how easy it would be to end up back in credit card debt if just one thing went wrong. As an alternative to saving the funds directly to boost our EF there are a few other options, neither of which are helpful in the short term:

1) Hope for the best and wait for those annual lump sums to come around again. This is not really a short-term option as we willl not be due for any payments now until after July 2008. This is fine if nothing happens in the meantime.

2) The other, perhaps even longer term option, is to save a larger deposit overall before buying a home and use part of the $7000 first home owners grant (FHOG) to boost the EF up to $5000. That would still leave $3000 from the grant for buying- and loan-related fees. Since my major concern is how we would cope with a crisis once we have to make
mortgage payments, this is probably the better option for us.

It’s interesting to me that as I become closer to being debt-free (well, free of `bad’ debt anyway), my goals and my focus have changed. Though I should be celebrating the approach of our last debt being paid off (early next year), instead I am thinking where the money will go next. It certainly won’t suddenly be available for pedicures and high fashion, though I might adjust my budget to allow for these as once-in-a-blue-moon treats! It sure proves that once you are focused on it, money management is a lifetime goal.

We received our final government payment this morning and though it was a little less than expected (by about $100) we now have enough for a full (baby step level 1) emergency fund of $1000.

Sine my post yesterday, I’ve decided to do my best to make the billpaying account stretch to pay for the car repairs to leave this fund intact. I can’t bear the thought of reducing it now. It feels great to have reached the next stage!