Decsions, decisions

A few things had to be decided before we could truly get serious.

1. We had to make a list of income and expenses (monthly and annually)
2. We had to see our debt on paper so we knew what we were dealing with.
   
3. We had to decide what type of budget fit us best and stick to it.
4. We had to make specific financial goals for 2009.

Being as I am the FFO (Family Financial Officer) I got to pick the strategy we were going to use. I was gong to be the one writing the checks and paying the bills, so I had to be able to follow the plan.

For a year I have been making budgets every month and seemingly getting nowhere. Every month we would inevitably look back and go, HUH? where did all the money go??

January was my breaking point...that's it...no more credit cards, no more debit cards for everyday spending, we would live on less than we make and that was that.

With Hubby's first paycheck I paid off the overdraft owing at the bank, took $140.00 off a child support debit card I have, and said, "THAT'S IT, this $140.00 is all we have for the next two weeks, like it or not."

We still have $52.00 for the rest of the week...my car needs gas, the printer needs ink...we'll be fine. On Friday I think I'll take a little more although I'm not sure how much. We made it on $140...so do we actually 'need' more??? This money pays for gas, toiletries, entertainment, clothing, school activities, medications, and dining out.

I tried to do the envelope system for a few months and that didn't work so I decided on a lump sum. This way, if Hubby takes $20 I don't have to know where every cent goes so I can keep track of it. We've tried using MS Money...too detailed for me. I'm back to a good ol' spreadsheet.

Most of our monthly bills are automatic debit so I don't have to write many checks, this makes my life easy because I can't say...well...if I wait and pay this one next week...this way it's paid and that's that.

I like Dave Ramsey's way of looking at things. His seven baby steps to freedom are a sort of "No Duh" way of getting your life in order!

1. Fund a baby emergency fund of $1000
2. Pay off all debt using the debt snowball
3. Save three to six months of living expenses
4. Invest 15% of income into Roth IRAs and pre-tax retirement
5. Fund your children's college savings
   
6. Pay off home early
7. Build wealth and give.

The first three you have to get through so you can do 4, 5, and 6 at the same time and then finish with seven.

For Baby Step #1 I have a mutual fund that (according to Dave Ramsey) I should cash out and put into a savings account for emergencies that may come up while paying off debt.
This mutual fund I only started this past year, so it isn't much. It is seriously low and I would loose almost 30% if I were to cash it out right now so I have decided that it will still act as our Baby EF, I just ain't gonna move it...if I need it I can still get at it. Although the value will fluctuate, I have a real tough time moving it because as far as I'm concerned, I bought that mutual fund 'on sale' and I doubt these prices will be around forever.

So, on to Baby Step 2; paying off all debt using the debt snowball.

The first thing I had to do was actually write down all of our debt. How much on each credit card, interest rates and current minimums. This exercise turned out to be more painful than I had anticipated. I knew we were maxed out on our credit cards and having trouble paying all of our bills some months; I just never realized the number was as high as it is.

It didn't take me more than a half second to realize I had to break it in to pieces and work on one section at a time. Otherwise, looking at a spreadsheet that says it will take you 9 years to be debt free is a little like getting kicked in the head while you weren't looking. I did not include our student loan debt as currently they are both in deferment. As soon as we get back on our financial feet I will include them in our snowball as well.

Drum roll please.....

Our total debt (as of January 14, 2009): $11,486.51
Minimum Payment: $279.84

Without any additional payments we will paying off credit cards for 47 months...four years...#5 will be in kindergarten by then!! Thank goodness we will be getting a sizable tax refund this year as it will be put towards this debt. This reduces our payment time table by more than 2 years!! It actually has our interest accumulating credit cards paid off in 15 months, the remainder is the 0% furniture which is paid in equal monthly payments...so, from four years to 15 months; that I can swallow!

I've been looking for a job so the amount we can contribute to our snowball should increase at that time as well.

So, for the last goal (2009 financial goals): To have no past due and no late fees.