Monday, August 25, 2014

Pigs Can Fly!

Ok so you may not believe that pigs can fly but you better believe that once you make it as far as this post in your own journey you will be DEBT FREE!!


If you are buying a house it should be the only debt you have as that wasn't part of step two. If you rent then scream it to the world " We're debt free!"

So what now You ask?

Step three is next and step three is pretty darn important. This is where we build up on our $1000 emergency fund creating a fund that covers 3 to 6 months of expenses.

This isn't a house deposit for those who rent or a month long trip to Europe for those with a mortgage. This is a fully loaded emergency fund so that you NEVER HAVE TO BORROW AGAIN!

We just finished paying off our debt we don't want to go back there. To make sure we stay debt free we need the cash at hand to cover living costs should we lose a job, or to buy a new fridge if the current one breaks down on Christmas Day, or to get a new timing belt for the car - I have no clue what those are by the way but I do know they cost a lot of money.
The length of time you choose to save for depends entirely upon your or your spouses level of anxiety - or paranoia. I'm a pretty anxious - read paranoid - person so we personally will be going for 6 months of expenses.

It's easy to calculate how much you would need. Add up what you spend a month on rent/mortgage, groceries, insurances and utilities then multiply by how many months you want to be covered for. That total is what you will need in your emergency fund.

This should be fairly easy, after all you have no debt and just spent around two years living on bangers and mash to get debt free, going another few months to fill that emergency fund should be a piece of cake. You will have all that money that you were paying on debt payments at your disposal.

Now I am no investment expert, I'm barely a beginner, but I do know this: once you've got the ball rolling on your emergency fund, see your bank about the best type of account to keep your emergency fund in.

You want to be able to access the money without penalty of huge bank fees and without having to wait. It's an emergency fund you need to be able to get to it quickly. However you also want that large sum of money to work for you if it can so an account with a high interest rate for long term savings is what you are looking for, but like I said speak to someone who knows their stuff!

Now if you are renting like me, we're lucky, we get a step 3B.

3B is where you save for a house deposit, preferably 20%.

There is nothing fancy that you do here. Just keep on keeping on!

Stick with your budget. You are debt free and have built a fully funded emergency fund. YOU CAN DO THIS!

While saving this house deposit do your research. Find first home buyers tips wherever you can and the tips you see everywhere hold onto them, they must be good if everyone is saying it.

People have been buying homes for decades, use their knowledge to get it right. We've come so far. We are debt free. The last thing we want is for a rookie mistake to send us back to the bottom, back to step one.

So read up on buying a home, talk to family and friends, invest in an appointment with a professional, just learn as much as you can so that when you have that house deposit saved you can buy the house with ease and move into step four with no worries.


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Monday, August 18, 2014

Let It Snow!

Congratulations on completing step one! If you have your $1000 emergency fund - or even if you're on your way there - give yourself a pat on the back. You are one step closer to having no more debt!!

We are now at step two. Step two is where you are introduced to what Dave Ramsey calls the Debt Snowball. The technique has been around for a while and he admits he didn't think it up but he's happy to remind us all of it's existence.

Basically the debt snowball is this...

Start paying your debt off from smallest to largest (mortgage excluded we'll get to that later). You make minimum repayments on everything else but for your smallest debt you pull your reserves. Every cent you can find that doesn't already have a home goes on to that debt. Once you've paid off the smallest debt you move onto the next one rolling over the payments from the last. The reason it's a snowball is because as you cut out more and more payments the amount of money you can put towards the next debt gets larger just as a snowball would when continually rolled in snow.

We start with our smallest debt to keep us motivated. The quicker we see something happening the more motivated we will be to keep at it. The more debt we get rid of the easier it will be to live like no one else.

What I mean by that is right now you should be on a pretty strict budget. You've got your $1000 emergency fund, you're working over time or a second job, you are eating plain basic meals, you're taking the bus instead of the car, you've cut back on take out and entertainment and maybe you're getting a little tired of sausages and mash every Tuesday or working six days a week.

But then something awesome happens. You pay off a debt, a credit card for example that kept eating your hard earned cash in interest payments. It's gone now though, for good. You've already cut up the card and now you can call the bank and cancel it. Right now you're feeling pretty darn good and are looking forward to bangers and mash on Tuesday because you know it's working,you can see it and you've now got one less debt that needs paying off.

You can see that if you are willing to keep at it, if you can stay strict with yourself then in just a few short years you can cut out the second job, change Tuesday nights to steak night instead of sausages and not have to worry about debt...EVER!

According to Mr Ramsey the average debt can be paid off within 18 - 21 months. Obviously your own personal time will be based on the size of your debt and the level of your commitment.

Some families go completely vegetarian, cutting out meat from their diet, to save the extra money on groceries. Don't worry if you don't feel THAT committed. Neither The Husband or myself are big fans of beans and lentils so we are keeping meat in our diets.
There are many other things though that you can do to make it so you have more money to go towards your debt snowball.
if you smoke, quit! If you go to a gym, quit! Both of these are money guzzlers and not needed. Smoking is not good for you and a run around the block, a workout at the local park or finding items at home to use in your exercise regime will save you hundreds.

It all comes down to what you are willing to do but on average you can be debt free with in 21 months.

I mentioned in my last post that the loan we took out for our recent holiday was on a seven year contract. On top of that loan we had two credit cards. With this plan we will be debt free by February 2017. So it will take us 30 months or two and a half years.

A bit longer than the average but still so much better than seven years. Oh and I say we 'had' two credit cards because when we started our journey we did, we paid off the smallest of the two just this week and it felt fantastic!

We are a one income family with two children under five and supporting an elderly parent. We also have one cat, one dog, and two goldfish.

It can be done you just have to persevere. Right now The Husband is working six days a week, it's hard with two young kids, but each time I get stressed I think about what 2017 will mean for us. Two years instead of seven, five years closer to buying our own home!

You can do it!


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Tuesday, August 12, 2014

A Little Something On The Side.

There are two things I should discuss at this point.
One is budgeting and the other is giving.

We'll start with giving as it is quick and simple.

Dave Ramsey says in his Total Money Makeover to budget in money that we give, about ten percent.

I am not against giving to charities what I am against is charities making you feel like your contribution is not big enough.
We are far from being well off. We are on one income and we have debt. If we gave ten percent of our income to charity we would not be on track to getting out of debt. That may sound selfish to some but I'm putting my family first and I honestly don't have an issue with that. We put coins in the Guide Dog Societies collection dog each week when we do groceries, the kids know where that money is going and how those dogs help. Apart from random donations on behalf of loved ones who have passed away that is the only giving we do.

When we are debt free we will choose how much and to who we give more of our income too.

My priority is getting out of debt so we don't end up being the ones who need charity. When we are in a position to help others financially we will until then we will teach our kids about volunteering.

So basically to me it's a personal choice. If it's important to you to give then do so, if getting your own family stable first is important then find other ways to contribute to society.

Now the budget.

Each week or month depending on your pay cycle you need to have written down - or typed, just have it in words - exactly where every single dollar is going.

When you get paid visit an ATM and take out the cash. Find envelopes or jars or put some of your odd socks to use, label each one and put the cash into them.

Grocery money, clothing money, entertainment money...each one has a separate envelope.

The reason for the envelopes is to help you budget better each month and to encourage you to stop using plastic. Even if it's our savings account when you pay with card you buy more.

If you run out of grocery money and need more food you'll know to budget more for food and groceries next time. If your entertainment envelope is over flowing you'll know you put too much in that category.

It is also very important to have 'spending money' for you and your partner. You are being strict but you still need some fun. Even if it's only twenty dollars each a week/fortnight make sure you each have money to do with what you please.

All work lunches, snacks and transportation costs need to be budgeted into another area. Just because one partner may leave the house for work does not entitle them to more spending money. If you both work outside the home this should be easier.

Below are some links to resources on budgeting and one is to Dave Ramseys web page. There is a heap of useful information there and you can sign up for free newsletters.

See you at step two next week.


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Monday, August 4, 2014

Not A Twelve Step Program...

Dave Ramseys Total Money Makeover isn't a 12 step program to financial freedom...there's actually only seven steps involved.

The most important thing to remember if you take on The Total Money Makeover is to do the steps in order. No skipping ahead to a step that sounds more up your alley. If you skip a step you won't be helping yourself to get out of debt and most importantly STAY out of debt once there.

You need to remind yourself that the aim is to not only pay off the debt you have but to never get any debt again....EVER!

If you are committed to being debt free, are Gazelle intense about paying it all off and never being in that position again then sticking to the steps is what's going to get you there.

Before we get started one point that isn't an official step but is important is cutting up your credit cards. Don't wait until they are paid off do it NOW!

You need to look yourself in the eye and declare "I will never borrow again!" If you are committed to getting debt free you've basically done this so now is the time to test your resolve. Pick up a pair of scissors and pull your credit card out from it's snug little bed in your purse. Don't hesitate, snip it to pieces and smile like a mad man while you do. Today is your first day on the road to being debt free.

Now comes the official step one, prepare yourself because it may cause you some pain. Though if you're committed it won't really seem painful if you're thinking of what it's leading too.

Step one is 'Save $1000 as fast as you can'

The painful bit comes in to effect if you truly don't see anywhere else in your budget to pull money from.
Pay minimum monthly repayments, live on beans on toast, stop smoking, quit buying soda...any little extras you can cut to get a few more dollars from your budget cut out now.
If you have done this and $1000 is still far from happening sell something! Keep family heirlooms sell the rest!

You've committed to never borrowing again so you need money, cash, set aside in an emergency fund because we know Murphy likes to screw with us when we are at our lowest. This $1000 will be what you use when the electricity bill is higher than normal, when you blow a tire or the kids basketball goes through a window. You use the cash in emergencies only, it's not to be touched for gifts of ANY kind.

In case you missed it the painful bit about this step was selling your possessions. If you find this too difficult then you're not committed to being debt free and should give up now. Without full Gazelle intensity you'll never make it. If you have cut out as much as you can from your monthly spending and still can't find enough to meet the $1000 emergency fund then you need to get a second job or sell something you own.

You can't move on to step two until you've completed step one and you really want to get to step two, it's where all the fun starts.

Sell the Xbox, have a garage sale, take the treadmill to cash converters. Do what you need to to build up that $1000 as fast as possible. Don't dawdle on it. You want to meet this goal so you feel a sense of accomplishment. Once you've completed step one you'll be energised to get into step two.

As you go through the steps chances are you'll need that emergency fund for something - remember gifts are not emergencies - so each time you use your emergency fund you stop the step you are on and go back to step one until your emergency fund is once against at $1000.

Don't forget what I said in my last post, ANYONE can do this plan but ONLY if you are committed. It doesn't matter what your income is if you are committed and willing to sell sports equipment, video games, old clothes, DVDs etc... or get a second job, YOU CAN GET STARTED ON THIS JOURNEY. The only person holding you back is you!

Next post I'll get into step two, this is the one that gets us where we want to be, and I'll cross my fingers some of you have looked into and are on your way to completing step one.


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