Archive for July, 2007

Change of mindset

As I may or may not have started to show in my recent posts, I am starting to think clearly (and positively) after a period of feeling sorry for myself. I’m not usually a pessimistic person but I have been a bit overwhelmed lately, and it was starting to show in my mood and in my attitude towards money and the future. I’m not sure how clear that has been in this blog, where I’ve at least tried to be upbeat.

I was reading over at Need to be Debt Free about how JW’s family are reacting badly to his strict budget mentality, and  think I can relate. While I applaud JW, and agree with most comments he has received that he should not delay his debt reduction plans, I can understand that if the family is apportioning NO funds for fun, and they still have $13000 or so debt to get rid of, they may feel as if the joy has gone out of life a little. I don’t think they need to spend up (especially since I have since read that they have developed a plumbing problem that will wipe out their emergency fund!) but everybody needs a little bit of mad money, even if its $5-10 bucks a week. You can’t think about every dollar eg `oh, if we hadn’t rented those $3 movies and bought that popcorn, we would be $10 less in debt now’.

Believe me I know. I’ve made that mistake before and though I never thought it affected me, it did. I got very one-dimensional, only able to focus on debt reduction because that was all I had in my life. In fact, that was all there was room for. Like JW, I am often able to forgo the luxuries by focusing on the end result, but his kids don’t have that focus to show them day-to-day where the benefit lies. They can only see that there’s no money to go play baseball and there won’t be in the foreseeable future.

I know it’s complicated and that overspending is what got that family, just like us, into trouble. But there’s a difference between overspending and reducing your debt a little slower.

Personally, I have recognised myself sliding into a personal finance hole of sorts, trolling the web for new ideas to save money and constantly looking at my budget to find ways to reel it in. I was finding myself sucked into that one-dimensional hole again, on the web every minute and not in the lounge with my husband just spending time together. But the reality is that I’ve done the hard yards now, having set a budget and organised the autopayments. Now I need to set all that on autopilot, at least a little, and make sure we can still survive and have a life while we get rid of our debt. 

Also, since I am not going to be earning a full income for another 18 months, I have decided that maybe we need to put home ownership down as a longer-term goal. Once I really looked at and analysed the finances of buying, it became clear it would probably be too much of a strain on us to do this anytime soon. There are just too many new expenses with home ownership (eg rates, insurance) that mean we would have NOTHING to spare each week. We’d own a home but have NO life and no back-up if things went wrong.

Since we are living rent-free now, we are now going to:
Save $300 a week for home ownership

Pay $130 a week of the car loan (to halve its pay-off time)

Pay $100 a week of our family debt (the person we owe it to doesn’t care if it’s a lump sum or weekly payment).

This way, we can see progress in each area, and have a little left for fun. Even though this method doesn’t quite fit with my preferred (debt snowball) way of doing things, it will still mean we can see progress in each sphere over the coming year.

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Yay for tax returns

Another lump sum today – almost $1300 landed in my everyday account from my tax return. I don’t think it was there more than 2 hours when I went online, saw it and sent it right back out again (to help pay off my credit card debt).  I am starting to wonder why I have been so down lately when I knew there was plenty of reason to feel good in the coming weeks. Happily, I expect some more lump sums soon to completely wipe that credit card debt. Wow!

Of course, it will be even more amazing when, in a few years’ time, lump sums such as this can go into our savings account, or towards developing a stock portfolio (heaven forbid!). In fact, I’ve never received a tax return that I haven’t used to repay credit card debt with. Even though this may sound vaguely responsible (eg at least I didn’t blow it at the casino), I actually think this is quite sad anyway. In many cases, I had actually already spent up on my credit card to the exact amount I was expecting in my tax cheque. It never occurred to me to just wait till I had the tax return to buy the items, or – an even more foreign concept – put the tax return money in the bank and sit on it for a while!

I hope my family is heading towards a new, improved financially sound future because of this change of mindset we’ve had! I really have to credit Tricia at Blogging Away Debt, JD at Get Rich Slowly and JW Thornhill at Need to be Debt Free for providing a lot of inspiration, as it was these three blogs that I found first. Even though each of us seems to be at different ages and stages, it is really helpful to see how others live, and what challenges or skills they have.

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More money, more money

Our home deposit account got a little boost yesterday because my husband got his tax return cheque. In the end we agreed that we would use at least half of it to `live a little’ since we are on a very tight budget usually. By `live a little’, I mean he decided to take his boat out for the day (rare), get a little bit of extra fishing equipment (a couple of lures) and, most importantly, buy another pair of shoes and some durable casual and work clothing. He has been doing it perhaps even tougher than me, as I at least tend to plan out things I want to buy. Meanwhile he is never too sure what I’m doing with the money in the bank and is hesitant to make any purchases without telling me. Of course, he could always get more involved in our finances but it is not something he’s really into. I probably also like the fact that he lets me do things my way. Amazingly he got a real surprise when I showed him the balance of our home deposit account. He tended to think we were living on the edge because there’s always so little in his everyday account whenever he checks the balance! I think he is quite inspired now about what we could do in the future, and it’s nice to be in tune with each other about that.

Anyway, until the money is properly allotted, I decided to at least grab $180 of it to take our home deposit saving over the magic $1000 mark (he agreed it was a good idea). This is a happy medium for me, as I need to see some rapid change in this regard (give my deperation to change our home situation. And its good too because I agree he needs to dress relatively well now (and I’m glad to have a husband who wants to look good where and when we can afford it!). Then, if there’s any money left once he buys his clothes, well stick that in the home deposit account too, or pay a little extra off the credit card.

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I love payday!

It’s that time again, folks: the MONEY DAY. 

So, another week, another:

  • $210 saved towards a home
  • $110 towards credit card debt
  • $100 off our car debt

Life is wonderful … now we just have to (frugally) get through the week.

I’m trying to will my tax return into my bank account but so far, no luck (my attempts at positive thought (a la The Secret) don’t seem to be working in that regard!).

Luckily we won’t spend too much in coming weeks because we have no life now exam stress is gathering steam (still 16 weeks to go!). Will someone please peel me off the ceiling 🙂 ?

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Cost of buying

Since I’ve been very focused on buying a home lately, I thought I’d share with you the rough finances of buying a home in my area (this does not include ongoing costs of being a home owner). I’m also going to cover some of the expenses we will need to be able to cover.

A cheap home in our area will sell for around $300,000. Hopefully for that we will get some airconditioning in the bedrooms and in the living area (this is not really negotiable in our tropical climate). We also want at least 3 bedrooms, plus something that will pass as a study (a nook?, a room?).  It would also be great to have a decent yard, and we think a fence is non-negotiable because we have a small child. We also would like an outdoor/patio area (or an area that can become a patio) to take advantage of our climate. We also need the home to be near hubby’s work and the hospital for my studies/future work. On a loan of $285,000, repayments will be about $420-$430 a week at current interest rates.

Here is the fee/cost breakdown as I see it:
Home: $300,000

5% deposit: $15,000

Stamp duty on sale: $0 (first home owners)

Loan application fee: $700

Mortgage insurance (to protect lender because we won’t have a 20% deposit): $4000

Other fees: $500

Conveyancing (checks on current ownership etc): $500

Building check/pest inspection: ? (haven’t researched this yet)

Rates (property taxes): $1000 (half-yearly figure; ready in advance)

Moving truck hire: $500

As well as these we need to consider the expenses of moving in:

Fridge (secondhand): $500

Washing machine (secondhand): $500

Couch/sofa (secondhand): $500-800

Minor furnishings: $500

Contingency: $500

So that’s $25,000 before we even get the pre-sale inspections done! That said, some of these latter items I might be able to get cheaper or through family. We don’t have some of these household items because we have been living with my father-in-law for 18 months, and we sold a lot of our electrical items rather than have them sit around for 2 years or more. Of course, we never thought about keeping that money for when we needed it again!

I don’t know how we’re going to wait long enough to get $25,000 in the bank, but I guess we can do it. As I’ve said before, we are using the $7000 first home owners grant to pay off our family debt – so we can’t use that to pay our costs of buying. We also expect to get some lump sums in the near future to pay off the credit card, so we will only have our car loan left to pay off once we start repaying a mortgage … whenever that might be! I am realistic too that we will probably run out of patience living here long before we get that much saved (don’t know what the answer to that is exactly), but if we save in advance for these expenses we will be able to buy a home in a reasonably financially responsible way.

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My system has a name …

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So I’ve been reading a lot about Dave Ramsey and the debt snowball technique in people’s blogs and though we get Suze Orman once a week on our CNBC pay TV channel here in Australia, I’ve never seen him on any of the US shows. I think he’s in radio though, isn’t he?

Anyway, I have to say that after going to his website, I’m a fan. I’ve employed a debt snowball technique in the past, when I paid off a previous car loan. (Don’t ask why my hubby and I wrecked that then by buying an expensive second-hand car just months later!). But I found this snowball technique works much better for me on the psychology of debt: you really feel you are getting somewhere and can see at least once balance coming down fast.  I’ve never been one to pay minimum payments, so that wasn’t an issue to change, but I found each week I could track my progress and find myself that bit closer to having one less debt. I understand those who are more matter of fact about money and feel it doesn’t make sense – from a financial point of view – not to pay off the debt with the lowest interest first. But I guess many of us who are focused on debt reduction take a different tack: we know we’ve been irresponsible in the past and we have to change our habits, but we are used to acquiring things and just charging anything we need. So it can be helpful to see some radical changes in your debt all the time (I’m looking forward to having a $0 owed in one of these columns on the right!). There’s nothing like getting rid of another creditor to spur you on and make you feel like you’re a success. I’m afraid my mind is very scatty and I can quite easily switch focus from debt reduction to clothing acquisition in a single afternoon! When I get that urge, I track my progress on my spreadsheet and focus on what we’ve achieved in a short time.

Very soon I’m expecting some payments that might actually wipe our credit card debt of $5170 almost entirely! We are owed some government support payments and we recently found out we were massively underpaid for the last financial year (no wonder we were struggling!). We are also due to receive 2 tax returns. Losing one of our debts will feel awesome, but needless to say it’s good luck that is putting us in that position again, not our own sound financial planning. Our challenge will be to avoid using our credit card again as we aim for home ownership. I’ve paid off our credit card once before, but almost immediately we found a way to jack its balance back up again (kind of like that car loan I was talking about)!

I’m aiming for an emergency fund of $1000 until we get our home loan. Does anyone want to share their opinion on how much people really need in an emergency fund? I’m aware there a few schools of thought. I am torn though and wouldn’t mind hearing what others have to say on the topic.

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Game on!

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Well I feel great today, even though I should feel terrible. One of the senior doctors warned us that it was now officially time to start stressing about exams. They’re still more than 16 weeks away, but since we pretty much have to have the knowledge base of a doctor now, 16 weeks actually doesn’t seem like much at all. However I’m feeling good because I managed to get through the day without being too obsessive about money, and this is probably a sign that things are returning to a more appropriate level of anxiety. I’ve been wondering if I’ve been focusing all my anxieties on money, to the point where I couldn’t stop thinking about it. I have been processing this debt thing for a while now though, so that now I am thinking of it more as something I can easily overcome. I am trying to picture myself as this amazingly strong person who can do anything and cope with any stress, and its helping on both the debt and study fronts.

I am going to try to keep up the study now so I will wrap up this post and figure out if I have anything useful to say tomorrow.

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