Reluctant to Keep a $500 Emergency Fund

I heard Dave Ramsey say recently that the people that have the hardest time getting out of debt are not the ones that are new to his principles (like the people who recently discovered his plan). It’s the ones that have know all the right things to do all along and just haven’t done them. I should know as I’ve listed to him since I was in college.

 Guilty…My first instinct every time I get a paycheck is to get by on just a little cash, ignore purchases that we need to make but don’t want to, and pay as much as I can on Debt. My motivation is that I’m sick and tired of being in debt and I want to rid as much as I can. However, my tactic may not be the smartest.

As an engineer, I’m very analytical and my rules are black and white. I absolutely struggle with understanding the emotional and behavioral issues that hinder our ability to get out of debt.

I am about to give birth to our third sweet child. Her estimated due date is less than two weeks away. And I got paid today. So, what could possibly go wrong if I spend every cent of the paycheck knowing she will likely be born before I get paid again?

Today’s paycheck was $3,940. I had $22 left in the account before the deposit was made. Here is what I paid this morning: $1449 mortgage, $10 AAA Membership, $53 Home Warranty, $300 Preschool, $513 Credit Card Payments, $77 Private S.L., and $460 Federal Student Loan. I also set aside $600 for groceries, gas, baby stuff, lawn care, pet grooming and restaurants.

That leaves us a balance of $500. So, as strongly as I wish to put this toward our smallest debt…I am going to practice some serious self control and hold this amount in our savings account in case of emergencies or unexpected costs that might arise the next two weeks.

What tends to happen is we lose momentum every time an unplanned expense comes up. It’s frustrating to constantly have an empty account and not feel like we are making a lot of headway. Seems like every time we pay something off, another debt gets ran up…

What is an unplanned expense? Is it something we could have predicted or something thay we were refusing to prepare for? When the car broke down two weeks ago, should we have been better prepared? Wouldn’t the right thing to do be have an envelope for car expenses? 

Maybe I should reconsider the importance of the emergency fund…Or maybe I should hold onto more cash for things that will routinely come up?

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How to be Successful Breastfeeding following a Short Maternity Leave

Baby #3 has an estimated due date of two weeks from today. I am planning to take off only 5 or 6 weeks for maternity leave this time because I don’t have as much paid time off (sick and vacation days) saved as I wish did. But also living only 2 minutes from my office makes it easier to keep up with breastfeeding during the day and allows me to get home in a hurry if I’m needed. Yes, I’m extremely blessed in this regard. 

Breastfeesing Schedule…To maintain her feeding schedule at such a young age, I plan to feed her right before I leave for work (5:45am…I will just wake her up to feed and then put her back to bed, same as I did for my first two babies), once when my husband brings her by (~9am I’ll just slip out to the parking lot for 10-15 min..and it’s no more abusive of company time than an employee taking a smoke break), once at lunch break (~1pm), and then she should be good until I get home at 5pm. Four hours is stretching it a bit for a newborn, so the first couple weeks will be an adjustment (I will add more feedings if needed). 

When I’m at home I plan to spoil her with nursing on demand. I also will bedshare with her the first six months, so she will be able to nurse on demand and cluster feed all she wants during bedtime hours. This may seem crazy to some of you, but for me it alleviates mommy guilt and allows my baby to get the most out of the time I have at home with her. We both get more sleep with this arrangement as well.

Breastfeeding is extremely important to me. Not only for the money savings and convenience but also because of the bonding and health impacts. I’ve been successful with two kids already and will make sacrifices to make it work again. I’ve never had to serve formula at all. On days where I have meetings or travel, I will be forced to pump. It’s a pain, and I should know because with my first son I had to pump three times a day at my old office. With my daughter it was much less because I had taken this new job and we moved closer to my office when she was just three months old.

So, how does Maternity Leave affect us financially? Many single income families rely on the husband’s income, so you typically see the dad only take off for a week or so (sometimes less). In our case, the single income comes from my job (the mama), and it’s extremely difficult for a new mother to take off less than 4 to 6 weeks (not to mention the doctor prescribes at least six weeks off even for an uncomplicated vaginal birth). 

As I’ve already alluded to, as a single income family, I will take off only time for which I can get paid. My public employer does not (and probably never will) offer any paid maternity leave (unless it became government mandated). 

Our plan: use the 4+ weeks I have available in sick and vacation hours. Once that is depleted, I have a bank of comp hours (240 hrs) I will pull from. This hurts us financially bc I typically rely on being able to sell these hours back every pay period (like earning overtime pay). I typically work a 50 hour work-week so I sell ask at least 10 hours a week to keep my maximum allowable bank of comp time. This is money we rely on for our debt snowball. 

As soon as I transition back to work during week 6, I will work to quickly re-establish my comp time by putting in extra hours (that’s why I work 6am-5pm). As long as baby is healthy and adjusting to her feeding schedule, this should not be too difficult.

Please pray for a healthy labor and delivery for me and my sweet daughter. I’m really looking forward to baby cuddles and a few weeks at home with my family!

Our Personal Story…Massive Debt Accumulation (Part 2)

Drowning…So what happened next?

We had finally gotten me through school and landed my career during a crashing economy. Entering my first “real” job, we had amassed quite a bit of credit card debt, two auto loans and student loan debt which I failed to detail in the previous post. My husband had brought $20,000 of student loans (that we mostly kept on hardship deferral while I was in school) into the marriage from a one-year stint at a private college before we met. Part of his old student debt was a private loan with an unrelated cosigner from his hometown. While I was attending school, my husband had taken classes at community college on and off and somewhere along the way we borrowed two separate small private student loans (one cosigned by my mother) to consolidate credit card debt. Unfortunately, we did this and still struggled to keep our heads above water. We still were living above our means so while the private loan payments were on deferral, we continued to fall in the credit card trap. Upon graduation, I had also accumulated nearly $15,000 in federal student debt.

So, it’s the first month at my first job and we were the poorest we had ever been. This is the point at which most millennials find themselves moving back in with mom and dad to forego living expenses in effort to get back on track financially. We didn’t have this option because my career job was in a large city, so we took the most affordable 1-bedroom apartment we could get and still feel safe at night. (Besides the spare bedroom at my parents’ house was occupied by my unwed sister and precious newborn nephew). For the first few weeks, we focused on catching up the best we could and paying the most important bills. My husband took on a terrible 3rd shift job doing traffic control (basically running in and out of interstate traffic to set those orange construction cones and barrels for lane closures). We began calling the credit card companies that we had fallen behind on and making deals with them. Only one of them had truly been written off and sent to a 3rd party collector. For that one we settled in full with one lump sum payment we had saved up. For the others, we froze the accounts and set up payment plans and by the end of the year we were square with all of them. At this time, we were feeling much better. Over the next couple years, we paid off our vehicles and began sending my husband to school full-time. I also began graduate school (because that’s what everyone else my age seemed to be doing). I worked full-time and did graduate classes part-time. This is the point in our lives where we amassed a lot of federal student debt, but we didn’t think too much about it at the time because the payments weren’t due yet. My income alone was enough to cover all our living expenses and debt payments (which we were slowing beginning to eliminate).

At the end of 2011, we moved to a new city for a new job. We both graduated in 2013 with a combined federal student loan debt load of nearly $120,000, almost evenly split. The good news about mine is that is can be forgiven after 10 years of minimum payments through the Public Student Loan Forgiveness program. I am about two years into that program now.

You might think to yourselves that we had made almost every money mistake imaginable by that point in our lives, but you would be wrong. At the end of 2012 (before we even began repaying our federal student loans), we decided we were ready to buy our first home. But not just any house, it was a Fannie Mae Foreclosure (fixer upper). The place was so stinky our realtor refused to finish the tour with us. So, while the house was bought at an exceptionally good price ($169,000 and we had inherited just enough money for the 3% down payment), we spent probably $30,000 plus on fixing it up enough to sell in early 2016. We sold the house for around $230,000 but on top of the other renovation debt we had to replace the roof at the last minute for nearly $10,000. All of the progress we had made at that point paying down credit cards while our vehicles were paid off and student loans were on deferral was kind of replaced by high-interest renovation debt. All in all, we did a little better than break even on that deal as we had enough money to put 5% down on our next house which is where we live now.

Shortly after moving to our new town and having two children by this point, we had some life events happen and fell right back into credit card and auto debt. We even took on a private loan to cover a major eye surgery.

Today (2017), we are in debt approximately $400,000. Half of this is our mortgage, $120,000 of which is federal student debt and the remaining $80,000 is consumer debt (credit cards, auto loan, personal loan and private student loans).

The good news…I am on track to earn around $125,000 this year (about a quarter of that is overtime earnings). While this income is good for most families, it is still low compared to the amount of debt we have. That being said though, this is the first time in our lives where we have a big enough shovel to actually get out of debt. We know the shovel will only get larger in time and we are committed to taking on no new debt.

I hope this story inspires you and provides some understanding into what a trap debt can be. You typically think of people who have a lot of debt having a lot of flashy, nice things to show for it. We don’t. My husband drives a 17-year-old Land Rover and I drive a 6-year-old GMC Acadia. The only diamond I own is the quarter caret or so in my wedding set on my finger.

Through this blog, I hope to share with you our money mistakes and why it is important for us to reach financial freedom. We are literally taking control of our lives! I will share with you the tactics we use to reduce our spending and progress along the way. In 2-1/2 years or less, we will fully eliminate our consumer debt. During the 3 years following that, we will eliminate my husband’s half of the federal student loans. Then we will tackle our mortgage. I want to be completely debt free in a little over 10 years!

Our Personal Story….Massive Debt Accumulation (Part 1)

Is it possible to use debt responsibly? Of course this is a hypothetical question. It will be different from one person to the next. For me, the answer is just plain “no”. And I will attempt to explain why. Recall this blog is about me being honest.

I signed up for my first credit card during my first semester in college in order to buy myself a computer. Per my mother’s advice, it was the only way I would be able to get one (and I certainly needed it for school). At this time, I had just turned 18 and gotten my first cell phone plan. I also had recently quit my first job (which had been KFC for two years) to move to the town where I would be going to school. I was living in the dorms and had enough financial aid, scholarships and a very small student loan to cover that year. I had a meal plan, so I didn’t need to worry about food expenses too much. Had I not had a cell phone payment, car insurance and this new computer bill I wouldn’t have needed to find a job so quickly. But I ended up taking a job at Kroger on the weekends for $5.20 per hour at about 18 hours per week. The year was 2003, so I was making about five cents more than minimum wage.

Little did I know this was just the beginning of a long love/hate relationship with debt. Later that year, I believe, I started using a credit card that my mom cosigned in order to pick up things I needed here and there. By the end of my first year, I took a summer job working for Carrier Corp. where I got paid $9 per hour to work on the assembly line. Sadly I was working with hundreds of people who had just been informed their factory would be closing. Their jobs were being sent to Mexico. I had already witnessed both my parents lose their factory jobs for the same reason during the 5 years prior, so I knew all too well what they were facing. But that is a story for another day. I worked my tail off and got all the overtime I could to pay off my debt only to take on a little more at the end of the summer when I paid for my braces (although we had dental insurance growing up, my parents never bothered to get my teeth fixed).

My sophomore year I worked a part time job, racked up a little more credit card debt and took on a $10,000 auto loan (my parents actually borrowed the money, I just made the payments). I would say this is the beginning of when things began to spiral out of control with debt.

The summer after sophomore year, I took my first co-op job thru my university (this is very common for engineering students). I moved across the state to work for one year making approximately $11.50-13.13 per hour. This was the year I met my now husband and we began to play house together. Since we both had no financial support from parents we began to use credit to furnish our apartment and to buy him an $18,000 SUV. The cost of living was rather high so even with both our incomes, we were easily living beyond our means.

We got married after returning to school and spent the next few years struggling (sometimes barely able to buy groceries), just to keep up with the minimum payments on our vehicles and credit cards. I will never forget how much we regretted that SUV purchase. It took $350/month for six years to pay off. (We ended up selling it just last year for $1,000 as it was on its last leg with 260K miles on it.) My car had been $220/month for five years. (Similarly, we kept it until two years ago when it was falling apart mechanically.)

We both took on all kinds of jobs while I finished school. I did a second co-op for a few months but again it took most of our income to pay the rent and all and debt payments.

When it finally came time for me to graduate in 2008, we were (literally jumping up and down) excited to receive my first job offer for $45,000 per year. We were glad to be able to afford better food than ramen noodles and spaghetti! I graduated on a Saturday and immediately following the ceremony we moved all our stuff to our new apartment in the city I would be working. I started working on Monday (2 days later).

At this point, for the first time, we had actually fallen behind on credit card payments. Those last two months of college were really tough on us. My husband’s job as a cable guy was not paying like it had been and we weren’t able to make all the minimum payments. This was a terrifying time for us, as we had billing collectors calling us daily. I was 23 and he was 25. Thank God my parents paid the security deposit at our new apartment (call that my graduation gift) and we just had to make it to my first pay day to make the first month’s rent. After that we would begin to figure out how to tackle the credit card default.

For the first time in our financial lives, we were really scared…

(To be Continued…)

 

Learn from our Budgeting Mistakes…a close look into this pay period.

This blog is extremely personal to me. I want to share with you how I struggle with keeping to a budget. I think by doing this, it will help me become more accountable and do a better job with my budget moving forward. I know for my husband it is especially frustrating to have me text “don’t use the debit card anymore until further notice” because we are “broke again”. It also hurts my self-esteem. For example, as a leader in my company, if they are taking up money to give to someone (say for a fundraiser, wedding gift, major illness, etc.) I am expected to contribute. However, when you are “broke”, it’s really embarrassing not to be able to pull out even $5. Knowing this, are you still jealous of those people who make over $100K a year? Some of them are like me and have less money than you do in your wallet making $30K a year.

The truth is, paying bills is the easy part. You know exactly how much they are and when they are due. You send in the amounts due and really have no control over that money each month (it’s just simply gone). Sad, I know… People that favor keeping a high credit score are really good at this game. It’s the other money in your budget that is tricky…the part that you use to cover all the “variable expenses” (like food, gas, entertainment and misc. spending). That is the part that takes self-discipline, which as you know by now is an area I need some improvement.

Unfortunately, to reach financial freedom means a lot of sacrifice. When you have a mountain of debt to contend with, this period of sacrifice can be quite lengthy. For us, it will take at least two years to payoff consumer debt before we can begin work on our federal student loans. Of course, you can go about it any way you wish, but generally you are not going to be saving money and buying a lot of things you want if your goal is to eliminate debt in a timely manner.

I am going to share with you where I screwed up this week. This is nothing new to me, actually it happens pretty often. However, this time, I am committed to learning where I went wrong and how to prevent it from happening again.

So, this pay period, our budget was derailed in the first five days! Once again, I under-budgeted in our food/gas/misc category. This is exactly what happens when you aren’t paying attention and/or aren’t being honest with yourself about how much you actually need to budget (not what you wish to get by on).

Here is the breakdown…My take-home paycheck on August 16th was $4,413. Today, just five days later, we have $615 remaining in the bank account and $741 worth of bills left to be withdrawn. Add gas we will need to buy for the next 9 days to that total and we are approximately $250 over-budget. Now, in order to avoid over-drafting our account, we are going to have to use one of the credit cards I just paid off to supplement until next payday. I will pay it off again next pay period; however, it is a hard lesson that hurts morale quite a bit.

So, what went wrong? Really and truly, I should have had a cushion to help deal with this. The reason we didn’t is because our alternator went bad last week and we had an unexpected expense of $450 to a mechanic (thankfully we had AAA to cover the tow bill). This expense was completely necessary as it is our primary family vehicle. However, since I wanted to continue being “gazelle intense”, I still paid off the two credit cards I had planned to with hopes that we would be extra tight with our spending. Well…Here are the numbers. You can see where we overspent quite easily.

Starting with the $4413, I immediately scheduled online to pay off the two credit cards ($2452 total), the utility bill ($473), cell phone bill ($206), the cable/internet/security bill ($148), our monthly subscriptions ($50 for Audible, Netflix and XM Radio), and a minimum payment on our Walmart credit card ($178). With the unexpected car repair of $450, we were left with about $456 to spend on food/gas/misc. I normally like to have at least $600 but we are trying to be frugal (or at least wishing to be).

Another major goal I had this pay period was to buy a month’s worth of groceries at one time to do my make-ahead meals (this should save us money next pay period). How was I supposed to do this with a tighter than usual budget? I suppose I was hoping for magic? Yeah, this plan was doomed to fail. And I refused to think it through until the damage was already done.

What we actually spent on food/gas/misc. Thus far (five days since payday), we have spent $371 on groceries, $21 on gas, $46 at restaurants (not good), $33 on lawn care (which I forgot to budget for), $39 on Audible books (entertainment, not budgeted for), $45 at Target (went there with my friend on girl’s night and impulse bought a couple things not budgeted for) and $31 on Amazon (headphones for husband, also not budgeted for). We still have a check outstanding to be cashed for $70 (I hate using checks!) and about $100 needed for gas for the next nine days. Meanwhile, we also need to buy diapers for this newborn that is due to arrive in 3 weeks!

What I’m seeing here is that I should have budgeted more for food/gas spending and should rein in the entertainment spending (Target, Amazon and Audible). That being said, however, is it really feasible or smart to have a zero-based budget that has absolutely no allowance for entertainment? Maybe $115 is a little much for two weeks, but perhaps $50 could be justified?

I’m going to give this a lot of thought when I prepare the budget for next pay period. But basically, don’t stick your head in the sand and pretend it will all be okay. It won’t. While I was excited to strike off two credit cards at once, I really didn’t have the funds to justify paying them both off this period. That combined with a little overspending on entertainment and this pay period’s budget was busted less than half way through!

Are you relying on Life Insurance provided through your Employer?

If you have any person on this earth that would suffer financially if you were to die, then you really need to pick up some term life insurance. You already have a policy through work you say? Well…What if you get cancer (or other major illness) and use up all your sick time and eventually go on long term disability? Does your life insurance carry on with you although you are no longer employed? Just ask your HR Department. The most likely answer is “No, it is only available to be used if you died while you are employed”. Not to mention that once an event like this occurs, it may be too late to pick up your own policy. There is a 20-year-old in our company who sustained a basketball injury and will not be able to return to work for nearly a year! After six months, he will be forced to resign because we cannot hold his position any longer (and legally are not required to). Of course, in his situation there is no spouse or children to be cared for if he died uninsured, but you get the point.

Example….Our Good Buddy, Ike. Nearly a year ago now, it was a normal Saturday at home working on his boat. Ike was physically in excellent shape, the envy of most of his friends. He worked out regularly, seemed to eat mostly healthy foods and enjoyed life a great deal. He drank socially often partying on the weekends, but nothing too extreme. He took vitamins/supplements and cared greatly for his body. He worked as a salesman, which was fitting for his personality. His sweet wife was a nurse for many years before losing her job due to a minor arm injury sustained in a car wreck. I think this put extra strain on them financially; however, they had recently downsized to a home with property outside the city. Ike was living a dream he had for a number of years to raise some cattle and small livestock, planting gardens, and overall becoming more self-sufficient.  It was on this regular Saturday that Ike would lose his life due to a major heart attack. His sweet wife who had enough nursing experience to know all the right moves (and I would trust to save my own life any day of the week) could not revive him. He died in the ambulance on the way to the hospital.  Just a typical day that completely derailed the lives of his wife and two daughters. He was 40 years old with no history of heart trouble.

Our Plan…If I were to die tomorrow, my family would receive life insurance from my employer which should be enough to pay off all our debt (except for my federal student loans which would be forgiven upon my death). We also have a term life insurance policy of $500,000 on me alone. My husband would use this to generate an income stream and my family would be okay financially. If he were to die, I have a $350,000 term life insurance policy on him that would allow me to pay off debt and afford child care moving forward. We would be okay financially. You think a stay-at-home spouse doesn’t need life insurance because they don’t generate an “income”? Well, I would challenge you to think about what their time at home consists of. Check out the price of child care these days! For our three children, it would probably be $2500 per month or more! Newborn care is especially expensive.

Don’t be ashamed that you don’t know this information already. Most folks in our generation (and others) do not. It is something we don’t talk about often because quite frankly, it is uncomfortable. It is terrifying to me that I grew up in a two-parent household that carried zero life insurance. If either of my parents had died, the other had very little opportunity (as uneducated factory workers) to increase the household income enough to cover the lost parent’s salary.

Student Loan Payments during the Debt Snowball

So, Dave Ramsey recommends paying the minimum payment on every debt except for the smallest one. For the smallest debt you should send every extra dollar you have toward paying it off. Once you pay it off then you will have a larger amount each month to begin to tackle the next debt and so on and so on…

But what is the minimum payment on a federally insured student loan? I’m no accountant or financial expert but I will share with you what we are doing.

I work in the public sector. My employer is considered a municipality for a local government (city). I qualify for a program called Public Service Student Loan Forgiveness. This means if I make 10 years of qualifying payments then I will have the remainder of my principle balance “forgiven” at the end of the 10 year period. The loan servicers encourage you to get on an income based payment plan in this case. If your income is too high, you would be locked into a standard payment plan which would be paid off in 10 years anyway. But if you are like most people, you probably qualify for a reduced amount. Our income was approximately $115,000 last year. My payment is about to be adjusted to approximately $340 per month. This is based on 10% of our discretionary income for our family size of five (unborn children are included). This equation works out differently depending on your state’s poverty level. If I were on a standard repayment plan, I would be paying more like $600 per month. You really have to be careful when applying for these plans because there are a lot of different options. If you are in the loan forgiveness program, you really need to be sure whatever plan you pick is a qualifying plan. Send your paperwork every single year to make sure they keep up with your qualifying payments correctly and re-certify your income annually before the deadline to avoid getting bumped to a default payment plan (the most expensive option). Also, DO NOT pay a company to do the paperwork for you! I cannot believe how these companies rip borrowers off. Just call your loan servicer and ask them what to do. It’s really easy.

For my husband’s student loans, right now we are on the least expensive payment option available (same as mine). We consider this to follow the “minimum” payment rule. Once our consumer debt is paid off, we will begin attacking his federal student loan with a vengeance until it’s gone. Then, depending on the timing we will determine whether to keep mine on the forgiveness plan or try and pay it off early. I’m kind of inclined to keep it on the forgiveness plan although (in full disclosure) this is contrary to what DR teaches.

I really hope that helps. Don’t be bullied by the student loan companies. If you are behind, call them and work something out. I think my sister pays around $20 a month. She is a social worker with a master’s degree. She too will have her loans forgiven after 10 years. You literally can not hide from them. If you go into default, they will find you and get a judgement against you. They can steal your tax return and/or garnish your wages. All of that can be avoided however.

I could type all day at how insane the student loan disaster is in our country, but I will save that for another day!