One Down One To Go!

Just wanted to report that as soon as the payments hit Donna and I will have paid off the Chase credit card! We've paid off over $10,000 in 4 months! Up next is her student loan and we plan to knock it out with the same intensity that we knocked out the Chase credit card.

Just to recap in Sep 2011 we opened a Chase account and transferred our credit card debt to a 0% APR for one year account. We knew that having a year to pay it off would force us to pay it off within the year so that we didn't get hit with interest. In January we both read Dave Ramsey's Total Money Makeover and even though this debt was higher than her student loan and it was interest free compared to 6.8% interest we decided to pay this one off first because we knew we had to have it paid before October 2012. Little did we realize we'd end up paying it off in 4 months! I guess we did get gazelle intense though it really didn't seem like it.

I'll be the first to admit that we were able to knock out big chunks of it through the sale of camera gear and things like that but I'm fine with it. I sold a really nice camera that I wasn't shooting with enough to justify keeping it and as it turns out it looks like we'll be switching to different cameras soon so there's a good possibility I'll be selling all of my Canon gear and using that money to fund the new cameras that we'll get for Donna and me.

For me the coolest part about the whole deal, other than paying off the card, is that we made the last two payments on my birthday. What a great present that was!

4 April 2012 Update: I logged into the Chase account this morning and the payments have been applied. Chase has been paid in full! Time to write them and have the account closed. Below is a screen capture of the account summary page.

Baby Step 6: Pay Off Home Early

While Donna and I are currently in Baby Step 2: Pay Off All Debt (Except House) With The Debt Snowball I really, really, really want to be at this step. You see Donna and I live in a wonderful house. We love 99.999% of the things about it. We bought the house brand new, we're in a nice growing neighborhood, we have nice neighbors, for the first time in our time together we actually park a car in the garage every single day. So what's not to love right?! Well we realize now we actually bought too much house or perhaps more accurately we made several stupid mistakes when buying this house. For example when we bought the list price for our house was $179,000 (never mind two weeks after we closed the company dropped the base price to $169,000 ouch!) Our final price for the house as $227,000. That's right we spent $48,000 in upgrades for the house. That's what happens when you get all wrapped up in the whole "We're buying a brand new house!" deal.

Originally our loan was at 6.5% and in the fall of last 2011 we refinanced it down to 4.5% 30 year fixed. I know now that Dave Ramsey would recommend only a 15 year fixed rate but we refinanced because it would lower our payment. By going with with a 15 year mortgage it would have increased our payment and we couldn't afford to do that. So here were sit in our dream home. We pay $1300 per month for our mortgage which includes a whopping $10.15 each month in extra prinicpal. It also includes escrow and all of the other stuff that you have to pay. Assuming we continue to pay as we are now our expected pay off date is sometime around September 2041. The biggest problem I have with that date is I'll turn 65 in 2026 and I'd really like to return then and don't want to have a mortgage when I retire. For kicks I put together the table below to show just how quickly we could pay off our mortgage if we added various extra payments to it. What I think we'll probably end up doing is paying an extra $700 per month to get it paid off in 2025.

So how about you? Do you make extra payments on your mortgage?

Payment	Pay Off Date	Term In Months	Reduction In Months	Additional Amount	Cost
$1,300.00	Sep 2041	360	0	0	0
$1,400.00	Feb 2037	305	55	$100.00	$30,500.00
$1,500.00	Nov 2033	256	104	$200.00	$51,200.00
$1,600.00	May 2031	232	128	$300.00	$69,600.00
$1,700.00	Jun 2029	213	147	$400.00	$85,200.00
$1,800.00	Nov 2027	194	166	$500.00	$97,000.00
$1,900.00	Jul 2026	178	182	$600.00	$106,800.00
$2,000.00	Jun 2025	165	195	$700.00	$115,500.00
$2,100.00	Jun 2024	153	207	$800.00	$122,400.00
$2,200.00	Aug 2023	143	217	$900.00	$128,700.00
$2,300.00	Dec 2022	135	225	$1,000.00	$135,000.00
$2,400.00	Apr 2022	127	233	$1,100.00	$139,700.00
$2,500.00	Sep 2021	120	240	$1,200.00	$144,000.00
$2,600.00	Mar 2021	114	246	$1,300.00	$148,200.00
$2,700.00	Oct 2020	109	251	$1,400.00	$152,600.00
$2,800.00	May 2020	104	256	$1,500.00	$156,000.00
$2,900.00	Dec 2019	99	261	$1,600.00	$158,400.00
$3,000.00	Aug 2019	95	265	$1,700.00	$161,500.00

Baby Step 5: Save for College

It's funny how timing works. We started reading Dave Ramsey's Total Money Makeover in January 2012 and our daughter graduated from college in December 2011 so while reading the book I actually skipped this chapter because we didn't have to worry about saving for college. I have since gone back and read the chapter and, as usual, Dave offers some interesting insight regarding college education. First is that having a college degree does not ensure wealth. This is so very true. Look at the late Steve Jobs and Facebook founder - neither of them have college degrees and both were billionaires. Like everything else Dave recommends up front paying cash for college. If you can't pay just cash then a combination of cash and scholarships is the way to go. Unfortunately I doubt the vast majority of people these days could pay cash for college. Oh wait, we did with Steffanie :). We paid all of her tuition and books without taking any student loans. I'll be the first to admit that it was quite a struggle for us to get through it though. I had to reduce my 401(k) contribution from maxing it out down to 10% and I wasn't happy about doing that one bit! Even though we no longer have to worry about putting children through college Donna and I recently found out we're going to be grandparents later this year so suddenly saving for a college education became a topic of interest to us. So let's have a look at what's out there and what Dave recommends we do.

Education Savings Accounts (ESA) were created for us to save money towards a child's education expenses. Dave recommends if you open one that you invest your money in a growth-stock mutual fund. He'll also tell you to invest in one that averages an annual rate of return of 12%. Good luck finding one of those! If you do please let me know about it. You can put a maximum of $2,000 per year ($166.67 per month or $83.35 per pay day) into the account. While $2000 per year doesn't sound like much if you invest $2,000 per year for 18 years you've socked away $36,000 not including interest earned. I know for us that would have paid for all of Steffanie's education. Heck there may even have been enough left over for her to get her Masters. Granted $36,000 won't come close to putting your child through Yale or Harvard but it would put them through a local state college. Steffanie and I for that matter have our BS degrees from Macon State College in Macon, GA. Sure I would rather have my BS degree from the University of Georgia (Go Dawgs!) but I got my degree by going to night school while working full time so going to UGA wasn't really an option for me.

Another college savings plan is the 529-plan. These are state based plans and should be investigated thoroughly before you invest in one. In our case it makes no since to invest in one because our son Terry, the one that will become a father later this year, is serving in the Army and is currently stationed in Washington State. I know for certain that he will not end up staying in Washington state so there's no reason to expect that his child would later return and go to college there.

I have to be honest and say I'm not really a huge fan of ESA's. Not because I don't think it's important for us, as parents, to help our children get a college education. I think if we are able to then we should help as best we possibly can. Consider this scenario though. We open an ESA for our future grandchild and deposit $2000 per year from its birth until turning 18 ($36,000) investment and this child decides they want to follow in their father's footsteps and go into the Army upon completion of high school. What happens to the money? You have a couple of options: (1) You can do nothing and upon the child reaching the age of 30 the money is given to them. Okay that may not be such a bad thing but what if that child is a drug addict or something like that. Would you want to just hand $30,000 to someone like that? (2) You can transfer the account to another child as long as that child is under 18. This seems like the best option if the first child does not plan on going to college. (3) You can withdraw the money yourself but of course there are penalties you'll have to pay for doing so.

Donna and I are undecided about what we want to do to help our future grandchild. One idea is to open an ESA for the child and hope that 18 years from now the child does plan to go to college or we may just earmark $2,000 of the money we put into our Roth IRA as money for that child's college education. Fortunately we have a few months to make a decision.

Oh here's a little fact about ESA's that I'll bet you didn't know -- you don't actually have to wait until college to use the money. Education expenses incurred in grades K-12 also qualify. So say for example your child is required to wear a specific uniform to school. The cost of those uniforms could be paid for using ESA funds.

So what about you? Do you have children that you're saving for their future college education? If so are you using an ESA or 529 plan or something else?

Baby Step 4: Invest 15% of Income into Roth IRAs and Pre-Tax Retirement Plans

This baby step is the first of the wealth building steps. By the time you've reached this step you've completed Baby Step 1 ($1,000 Emergency Fund), Baby Step 2 Pay of All Debt (except house) With The Debt Snowball, and Baby Step 3 Put 3 to 6 Months Expenses in Savings. In the Total Money Makeover book Dave recommends the following for your investment

• Invest 15% of income before taxes (see table below)
• Don't count any company match as part of that 15%
• 15% is a recommendation. You can go up or down a few percentage points as desired.
• This is a long term investment
• Invest in mutual funds with good track records over the past 5 - 10 years.
• Allocate 25% of investment into Growth and Income Mutual Fund
• Allocate 25% of investment into Growth Fund
• Allocate 25% of investment into an International Fund
• Allocate 25% of investment into Aggressive Growth Mutual Fund

What we are currently doing is investing 5% of my salary into company 401(k) plan. My company matches the first 3% 1:1 and the next 2% .5:1 for a total company match of 4%. Prior to starting Dave's baby steps I was investing more than 5% into the 401(k) but we felt we could slow up on the 401(k) for a little while and concentrate on getting out of debt and fully funding our emergency fund. I have been fortunate enough in the past to be able to max out my 401(k) so we have a nice little nest egg built up. When we reach this step I will either split money between two Roth IRAs or take advantage of a company offered Roth 401(k) for me and a Roth IRA for Donna. We'll see what's available when we reach this step which we currently project to be January 2014.

Gross Income	15% Investment	Per Month	Per Pay Period assuming 2x periods per month
$10,000.00	$1,500.00	$125.00	$62.50
$15,000.00	$2,250.00	$187.50	$93.75
$20,000.00	$3,000.00	$250.00	$125.00
$25,000.00	$3,750.00	$312.50	$156.25
$30,000.00	$4,500.00	$375.00	$187.50
$35,000.00	$5,250.00	$437.50	$218.75
$40,000.00	$6,000.00	$500.00	$250.00
$45,000.00	$6,750.00	$562.50	$281.25
$50,000.00	$7,500.00	$625.00	$312.50
$55,000.00	$8,250.00	$687.50	$343.75
$60,000.00	$9,000.00	$750.00	$375.00
$65,000.00	$9,750.00	$812.50	$406.25
$70,000.00	$10,500.00	$875.00	$437.50
$75,000.00	$11,250.00	$937.50	$468.75
$80,000.00	$12,000.00	$1,000.00	$500.00
$85,000.00	$12,750.00	$1,062.50	$531.25
$90,000.00	$13,500.00	$1,125.00	$562.50
$95,000.00	$14,250.00	$1,187.50	$593.75
$100,000.00	$15,000.00	$1,250.00	$625.00

So how about you? Do you currently invest for your own retirement? If so how much and do you use a 401(k) or Roth IRAs or a mixture of both?

All You Have to do is Ask!

"The answer is always no if you don't ask" -- quote from Dave Ramsey from his Podcast

I think I've stumbled onto something with this whole asking thing. In past couple of weeks asking has put over $1400 either into my bank account or will be saved over the next six months. I previously wrote about How one call saved us $180. In this post I want to tell you about two other times I asked and the outcome.

The community where we live has a clubhouse that residents can use. Part of the club house is a fitness center and inside the fitness center is a weight machine. Previoulsy I had found out that an instructional DVD was available for the weight machine and I managed to get a copy of it. I somehow lost it and wanted to start using it again. (I'm a little slow on the whole get into shape new years resolution thing). I was going through my old emails and saw where I had contacted the manufacturer of the weight machine asking about the DVD. They had previoulsy offered to sell me one for $35 but I didn't want to pay that. I forwarded the old email and asked the guy if they happened to have any DVD's that were extra or that perhaps had a bad label or something that I could buy at at discount. The guy emailed back and asked for my shipping address. I supplied it and he sent me a brand new DVD free of charge. Cha Ching - just saved $35.00 + shipping.

Late last week I saw a post on Craigslist for a guy renting camera equipment here in our area. I emailed him asking if he was interesting in adding a camera to his rental inventory because I had one I wanted to sell. He said he wasn't but forwarded me an ad for a guy in a near by town that was looking for the exact camera I wanted to sell. I contacted the guy looking for the camera. We met. He bought the camera for my asking price plus an extra $100 worth of other camera goodies I had that were specific to that camera. Cha Ching - $1200.00. I gotta tell you it felt good holding 24 $50 bills in my hand. I got to hold them until we got to the bank and deposited them. When we got home I scheduled an extra payment on the bill we are concentrating on paying off as part of our debt snowball.

Three times I've asked and three times I have benefitted from asking. I'm telling you - if you're not asking then odds are you're costing yourself.

Baby Step 3: Put 3 to 6 Months Expenses in Savings

Dave recommends putting 3 to 6 months worth of expenses into a savings account to have as your fully funded emergency fund. With this fun in place you'll be ready for practically any emergency that comes you way. A good place to put this money would be into a money market account that offers check writing privileges. A bad place to put this money would be into a certificate of deposit because having the money tied up in a CD doesn't allow you to get to it quickly without having to pay some sort of penalty.

I know what you're thinking -- but savings accounts and money market accounts aren't paying squat for interest and you're right. I agree with you but think of your Emergency Fund as insurance and not as an investment. Sure we'd all like to earn a little extra interest on our money but I'm willing to earn a little less for having the money available in case I need it.

Determining how much you really need to set aside varies by your own situation. Let's take a look at the different situations for our family:

Terry and Erika. Terry is serving on Active Duty in the Army. He and Erika have been married 3 years, live in an apartment, and drive a 2009 Honda Accord that they are making payments on.
Andrew. Andrew is serving on Active Duty in the Marine Corps. He's single, lives in the barracks and down not own a car.
Steffanie. Steffanie is a recent college graduate. She works two jobs, rents and apartment and drives a 2000 Nissan Xterra.
Donna and me. Donna is retired from the Air Force and works part time as a dental assistant. I work full time as a database administrator and software developer. We have a $225,000 mortgage and drive a 2001 Toyota Tacoma and 2006 Honda Accord, both of which are paid for.

Now let's take a look at how each should setup their own emergency fund:
Terry and Erika: 3 months of expenses. Because Terry is serving on Active Duty his income is very consistent from month to month and since he's planning to make a career of serving in the Army he should be fine with 3 months set aside.
Andrew: 3 months of expenses. Being single and living in the barracks his expenses are minimal. Coupled with the fact that like Terry his income is very regular and steady 3 months is plenty. Andrew has not decided if he will make a career out of the Marines. If he plans to get out at the end of his enlistment then he should bump his emergency fund up to 6 months. Actually he should bump it up to 6 months of projected expenses once he gets out. He'll have expenses for food and rent which he currently doesn't have now.
Steffanie: 6 months of expenses. Steffanie can't count on a steady income like Terry and Andrew can. While she can count on her hours at her primary job she doesn't work a set number of hours per week in her second job so her income varies quite a bit. Additionally owning a 2000 model year car is somewhat case for concern. We know the Xterra has been well maintained. It was our car before it was passed down to Steffanie. We know it was maintained properly but now that Steffanie owns it and we aren't there to remind her continually to take it in for routine service there's a chance that car will need some repairs in the future and mommy and daddy won't have the extra cash to bail her out because we're busy paying down our debt so that we can build our emergency fund.

Donna and Me. We've already planned how we want to fund our emergency fund and we're doing things slightly different. Because we are just starting to keep track of our expenses we don't know what our 3 - 6 months worth of expenses equates to. Yes we know fixed expenses such as mortgage, etc but there's always something that pops up that we haven't yet budgeted for. Since we don't yet have a good handle on our expenses we picked a dollar amount that when set aside would give is a great peace of mind knowing we were prepared for almost any emergency that comes our way. For us that amount is $25,000. I really want $40,000 or even $50,000 but think $25,000 is a good number for us. My employment outlook looks very good. I've been with the same company going on 14 years now and that's pretty much unheard of in the IT industry. Because Donna retired from the Air Force she gets a monthly retirement check. Being empty nesters we get to skip Baby Step 5 (College Funding for Children) and want to work on Baby Step 6 which is to Pay Off Home Early. (Yes we plan to skip Baby Step 4 Invest 15% of income into Roth IRAs and Pre-Tax retirement plans but that's a subject for another post).

Looking at it $25,000 seems like a big number and it is. I know that to fund that amount in a year I need to save a little over $2,000 per month assuming we start in January 2013 which is our plan. I get paid twice per month and Donna's retirement check is paid once per month on the first so our monthly income isn't a 50/50 split between the two pay periods. For us it works out to a 62/38 split. To make it easier on us we will deposit a larger amount out of the first paychecks and we will the 2nd one. The table below shows the break down we plan to follow. We talked about going ahead and using the $1000 that we have already set aside and counting that towards our $25,000 fund but decided against it so well actually end up with a $26,000 Emergency Fund.

Planned Emergency Fund Deposits
Pay Period	Amount	Total
Jan 1	$1,270.83	$1,270.83
Jan 15	$812.50	$2,083.33
Feb 1	$1,270.83	$3,354.16
Feb 15	$812.50	$4,166.66
Mar 1	$1,270.83	$5,437.49
Mar 15	$812.50	$6,249.99
Apr 1	$1,270.83	$7,520.82
Apr 15	$812.50	$8,333.32
May 1	$1,270.83	$9,604.15
May 15	$812.50	$10,416.65
Jun 1	$1,270.83	$11,687.48
Jun 15	$812.50	$12,499.98
Jul 1	$1,270.83	$13,770.81
Jul 15	$812.50	$14,583.31
Aug 1	$1,270.83	$15,854.14
Aug 15	$812.50	$16,666.64
Sep 1	$1,270.83	$17,937.47
Sep 15	$812.50	$18,749.97
Oct 1	$1,270.83	$20,020.80
Oct 15	$812.50	$20,833.30
Nov 1	$1,270.83	$22,104.13
Nov 15	$812.50	$22,916.63
Dec 1	$1,270.83	$24,187.46
Dec 15	$812.54	$25,000.00

Observant readers will notice that the last payment is $812.54. Coming up with an extra 4 cents during the holiday season is going to be tough but Donna and I will do it some how. I just know we will :).

Turbocharging Your Debt Snowball

In the Baby Step 2 Paying off Debt using the Debt Snowball post I said that I would share ways that you can turbocharge your debt snowball to get your debt paid off as quickly as possible.

Let's recap Jack's situation. He has 3 outstanding debts:

1. Lowe's Credit Card, $550 balance, 18% APR, $15 per month minimum payment
2. Student Loan, $6800 balance, 6% APR, $100 per month minimum payment
3. Visa Credit Card, $2200 balance, 12% APR, 50 per month minimum payment

Using the debt snowball of paying off his bills in order from lowest balance to highest balance he'll first pay off the Lowe's Card, then Visa, then Student Loan. Using this approach Jack will be out of debt by February 2018. Can you believe that 6 years to pay off a total of $9550 + $2430.35 in interest. I don't know about you but that's unacceptable to me. Surely there's a way Jack can come up with some additional money to pay on his debts. Doing so will make a big, big difference as you'll see. Let's see what happens if Jack gets serious about paying off his debt and is able to apply an extra $5, $10, 15, $20, $25, $50, $75, $100 or even $200 per month extra towards his debt. How quickly can Jack get out of debt and move on to fully funding his emergency fund. The table below summaries each of these pay off options.

Jack's Payoff Strategies
Extra Amount	Pay Off Date	Total Interest Paid	Reduction in Payoff Time	Interest Saved
0	Feb 2018	2430.35	0	0
5	Nov 2017	2265.89	1 year 1 month	227
10	Aug 2017	2138.63	1 year 4 months	355
15	Jun 2017	2032.15	1 year 6 months	461
20	Apr 2017	1939.66	1 year 8 months	554
25	Feb 2017	1857.69	1 year 10 months	636
50	May 2016	1548.23	2 years 7 months	945
75	Nov 2015	1336.39	3 years 1 month	1157
100	Jun 2015	1179.41	3 years 6 months	1314
200	Jun 2014	811.92	4 years 6 months	1681

Let's take a look at the table and see what we can learn from it. We already know that using the debt snowball and paying off stuff in a specific order will get us out of debt faster than just paying minimums and not rolling the money over towards other debts. But look at the difference that an extra $5.00 per month makes. Isn't getting out of debt an entire year sooner worth $5.00 a month? Who couldn't manage to come up with 17 cents per day. As you can see an extra $5.00 is good and $10 gets better and so on. There are lots of ways to come up with some extra money for making additional payments on your debt. I'll share two of them that I'm using right now.

Selling Books on Half.com - If you're like me you may have a book case full of books that you've read once and oneday may read again, right? I was holding on to several books that fell into that category but these days with being able to read books on eReaders such as the Amazon Kindle Fire or the iPad or even your desktop/laptop computer hanging on to print books just didn't make a whole lot of sense. I decided to pull all books except those that I really, really wanted to keep and check to see what I might be able to sell them for on Half.com. I started typing in the ISBN for each book and in some cases I was disappointed to see that several people had the very same book listed for only 75 cents. When I saw a case like that I decided to put the book into the "donate to library" stack and moved on to the next one. As I was checking books I discovered that people can put in pre-orders on half.com. I don't know how long that feature has been in place but I decided to take advantage of it. The way it works is when you check the book and someone has placed a pre-order for it you'll get a notice that buyer XXX is willing to buy the book for $xx.00 and if you're willing to sell your book at that price you can sell it to that buyer right away without completing the listing process. To me that's a pretty cool feature. As it turned out I had 4 books that people had placed pre-orders for so I was able to sell 4 books instantly! I worked my way through the books and listed several and have sold two additional books so far. We also cleared out lots of space on the book shelf that we'll be turning into a big picture frame to hold pictures we want to print and frame. With very little effort I was able to make an extra $50 to pay towards our debt. As soon as Half pays me that's what I'll do with the money. Pay it towards debt.

Selling Stuff on eBay.com - Books have been written on how to get rich on eBay. I'm not here to tell you how to do that because I don't know how to do it :). I will tell you though that you can pick up some extra cash by selling stuff on eBay. While we were going through the books we found other stuff that had been sitting on the shelf for a long time. Since we weren't using it and didn't see us using it anytime soon we listed it on eBay. What I do when I list something on eBay is start it at 99 cents and no reserve. There are exceptions, of course, such as a high end camera lens I currently have listed. While I don't use it and am willing to sell it I'm not willing to give it away. The other stuff though, if I can get 99 cents for it I'd rather have that than the item taking up room in my house. Currently I have 9 items listed on eBay and as of the time I'm writing this 6 of them will sell for approximately $70.00. I expect this figure to go up before the auctions are over. I'll post a follow up and let you know how things actually turned out.

If you put you mind to it you can easily find extra money to help you get your debts knocked off. Hopefully this post will motivate you to find some extra cash. Good luck!

Baby Step 2: Pay off all Debt using the Debt Snowball Method

The theory behind Baby Step 2 - Pay off debt using the debt snowball method is very simple which is why it really appeals to us. It's so easy to understand. You arrange your debts in order of current balance, lowest to highest and then pay them off in order from lowest balance to highest balance. As soon as the debt is paid off on the lowest balance that amount is added to the payment you were making on the next lowest balance debt. You continue to do this and as you do your snowball gets bigger and bigger with each debt you pay off and before you know it you're able to put some serious money towards your debts. I have to admit it's a pretty awesome feeling when you send $350 to pay on a bill that you used to only pay $300 on. One thing you really need to do is to stop incurring new debt! If you don't you'll never get ahead of the debt.

Let's take the following scenario. Let's pretend our friend Jack has the following debts:
Lowe's credit card, current balance $550 at 18% interest, $15.00 per month minimum payment. Jack didn't have his $1,000 emergency fund established so when his dishwasher went out he charged one on his Lowe's card.
Student Loan, current balance $6,800 at 6% interest, $100.00 per month minimum payment. Jack was lucky and only had to get a small student loan unlike some fellow students that were graduating along with $25,000 to $50,000 in student loan debt.
Visa credit card, $2200 at 12% interest, $50.00 per month minimum payment. Jack should have used the money from his $1,000 emergency fund to pay for the dishwasher but since he didn't have it he was going to use this credit card because of its lower interest rate but Jack's limit is $2500 which isn't high enough to cover the new dishwasher.

Now let's consider some pay off methods. We'll look at 3 of them. Method one - paying only minimum balance each month. Method 2 - paying lowest balance first (this is the debt snowball method). Method 3 paying highest interest rate first (this is typcally called the debt avalanche method). For this post we will stick with the basics and assume Jack isn't able to put any extra towards his debt. In a future post I'll show you how you can turbocharge your payoff. You'd be surprised how something as simple as adding an extra $10 per month will really get you out of debt in a hurry.

I used the iPad application Debt Strategy to come up with the values shown in the table below. One thing you will notice is that there's no difference between paying off the debt by lowest balance first and paying it off by highest interest rate first. I had read and used online calculators that show paying by highest interest rate first can get you out of debt faster but personally I think it takes a lot of discipline to use that method. Think about it if we had good discipline we probably wouldn't be in debt in the first place! While preparing this post I did run the same numbers through an online calculator and they agree with what the iPad application calculated so I'm confident in this scenario it doesn't matter if you pay off lowest balance first or highest interest rate first. Donna and I are going through this process now and we are taking the lowest balance first approach and we're on track to be debt free, except for house payment by Christmas 2012. What a wonderful Christmas present that will be!

Debt Repayment Method
Method	Pay Off Date	Total Interest Paid	Interest Saved	Pay Off Early By
Minimum Balance	Dec 2018	$2493.81	$0	0
Lowest Balance First	Feb 2018	$2430.35	$63	10 months
Highest Interest Rate First	Feb 2018	$2430.35	$63	10 months

In this example it may seem like saving $63 in interest really isn't that big of a deal and in the scheme of things it really isn't. What is important is to note that you'll be out of debt 10 months earlier. By using the debt snowball approach you've really given yourself a $1650 raise (10 months x $165 in monthly payments) and that doesn't even include any interest you may be earning on that money.

I really am a believer in the debt snowball but there's one vitally important thing you need to remember about it or any other method you use to pay off your debt. You'll only get out of debt if you STOP ADDING NEW DEBT! It does you no good to pay off a credit card and then start using it again. To get out of debt once and for all you need to pay off the balance on the card and then get rid of it.

Here's a little shocking stastic I'll share with you. When reviewing my FICO score I saw a figure that floored me. It showed that I have over $70,000 available to me to charge things on credit. $70,000 WOW! I had no idea. Honestly I'm not confortable with that so Donna and I will be closing almost all of our credit cards and store cards to bring that number down. While it's true that I don't have $70,000 in debt just knowing that a few pieces of plastic in my wallet give me the ability to get $70,000 in debt in a hurry if I really wanted to bothers me. We are currently closing all accounts that have a zero balance on them. This includes credit cards and store cards such as Best Buy, Target, etc. Donna knew I was really committed to this when I willingly turned over the Best Buy card.

Just to recap here's how you can get out of debt using the debt snowball:

1. You have to be committed to not take on any more debt. That's critical!
2. List your debts in order of balance lowest to highest
3. Pay minimum payments on all debts. If you come up with extra money apply it towards the debt with the lowest balance
4. Once the debt with the lowest balance is paid off take the money you were paying on that debt and add it to the minimum payment on the debt with the next lowest balance
5. Continue paying off and rolling over your payments until you've paid off your debt

Good luck!

Baby Step 1: Establish $1,000 Emergency Fund

The first baby step recommended by Dave Ramsey is to establish a $1,000 emergency fund. The purpose of this fund is to have readily available cash on and or in a savings account so that you will have money to handle an emergency should one come along. Note for those of you that earn under $20,000 per year Dave recommends setting aside $500 but if you can swing it put aside the full $1,000.

Why $1,000? Several reasons:

• It's enough money to replace any appliance in your home.
• It's enough money to cover most car repairs
• It's enough money to cover most home repairs
• It's a low enough amount that you should be able to set it aside quickly
• It's better than paying for the next emergency by using a credit card
• There's comfort that comes from knowing you have $1,000 saved

While is is true that $1,000 won't cover every repair to your car nor your home it should cover the majority of them. The key here is that this money is to be set aside for EMERGENCIES ONLY.

• Swiping $20 from it to pay for pizza is not an emergency
• That new video game is not an emergency
• The new iPhone/iPad/Driod/Kindle/??? is not an emergency
• Books for college is not an emergency
• College tuition is not an emergency

Emergencies are those things that happen unexpectedly and we had no way of preparing for them in advance. In each case listed above we would have had time in advance of the event in order to prepare to deal with that event. An example of an emergency is you are driving down the road and hit an object in the road that you did not see because you were busy texting. You hit the object and it not only pops your tire it also bends the wheel the tire is mounted on. The only way to fix the problem is to have a new tire and wheel installed. Instead of paying for the repair with your credit card you use all or part of the $1,000 you've set aside to pay for the repair. As soon as you possibly can replace the money in your emergency fund a quickly as you can.

Your emergency fund should be easy to get to but not too easy. For example you should just say Okay this $1,000 we have in checking now will be our emergency fund and we'll just pretend it's not there. That won't work. The money being readily available makes it too easy to spend. At a minimum you'll want to move it into a separate savings account so that you're not constantly seeing the $1,000 sitting in your bank account.

In Dave's book he tells the story about one young lady that after setting aside $1,000 in the cookie jar she went to the bank and got 10 fresh $100 bills and framed them in a nice picture frame. On the frame she wrote "In case of emergency, break glass." and hit the picture frame behind her clothes in her closet. When I first read that I thought it was a wonderful idea. Now I'm not so sure. Yes it's nice to be able to look at that picture frame and see those nice $100 bills and because they're closed up behind glass you can't get to them that easily, but consider this. What is she going to do if she's away from home and has an emergency? How is she going to access the cash when she's away from home? Sure she could take the picture frame with her but would you want to carry a picture frame with $1,000 cash in it every place you traveled? Surely you wouldn't check that with your luggage if you were flying and can you imagine the looks you'd get from the TSA when you went through security? I would imagine in a case like this it would probably be too tempting to just charge the repair on the credit card and then take the cash from the picture frame to pay pay the credit card bill. But let's suppose this lady didn't have a credit card. Then what would she do? I think having the money in a savings account is probably the best option.

Some of you may be thinking why put it in savings when you could put it into a one year CD and earn fractionally more interest. Consider this money as your own personal insurance policy not an investment. Remember it is there only in case of an emergency.

When Donna and I got started with Dave's Baby Steps we were fortunate to have more than $1,000 in our savings account. Given that situation how should you proceed? Donna and I talked about it quite a bit. Neither of us was really comfortable with taking the extra money we had in savings and applying it towards our consumer debt even though doing do would pay off a big chunk on one particular debt. I did lots of research and asked others familiar with Dave's plan what to do. Everyone recommended following the plan to the letter. So that's what we did. We transferred all but $1,000 from our savings account and used that money to pay down debt.

I have to be totally honest and say I don't like only having $1,000 in savings. That scares me the crap out of me. What I have found that it has done is to highly motivate us to pay off our consumer debt so that we can get onto baby step 3 which is to fully fund our emergency fund with 3 - 6 months worth of expenses. The best part about it is after we've paid off our consumer debt it's only going to take us a few months to fully fund our emergency fund. I will sleep much better at night knowing we have $10,000 in the bank instead of $1,000.

Hopefully you now understand the purpose of the $1,000 emergency fund but you may be wondering how to fund it because in your current financial situation you don't have much left over after paying your bills. Here's a few ideas to help you fund your $1,00 emergency fund:

• Sell old textbooks on half.com
• Sell instead of buy stuff on eBay
• Sell stuff on Craigslist
• Try to drive less so you won't spend as much on gas
• Get a part time job
• Ask for extra hours/overtime at work
• Ask for a raise and tell your boss exactly what you'll do with the raise
• Lower the amount you put into your 401(k)
• For Christmas / Birthday ask for cash and explain why you want the cash
• Have a garage sale or sell stuff at the local flea market
• Mow yards
• Skip Friday night out with the boys/girls and put that money aside
• Take that jar of spare change to the bank and deposit it into your savings account
• Quit eating out so much. Cook at home and take left overs to work for lunch the next day.
• Question every purchase. Do you really need to buy this item right now?
• If you are paying extra on any bills only pay the minimum on them until your fund is established
• Getting a tax refund? Use that to fund your emergency fund
• Find a quarter on the sidewalk? Use that

I'm sure there's plenty of other good ways to fund it but you get the idea. Good luck getting your fund started. If you've come up with a creative way of funding your $1,000 emergency fund leave me a comment and tell me about it.

Introducing Dave Ramsey

So just who is this Dave Ramsey guy that seems to have gotten you and Donna all excited about money? Good question!

Dave is a guy that started with nothing, became a millionaire, lost it all, and deciding he didn't want to repeat that process a second time decided to figure out how money really works, what caused him to lose it all and how not to lose it all again. What appeals to us the most about what he says is that it is presented in a way that's very easy to understand. The things he says just clicked with us an it would seem, millions of others. You can read more about him at his website. Dave has taken the knowledge he's gained and turned it into a big business. He has a daily radio show, Podcasts, etc, etc, etc. Spend some time exploring his web site and you'll see what he's all about.

The book Donna and I read and have bought for our children is called "The Total Money Makeover" and it is based around 7 baby steps that one can take to get control of your finances. At the bottom of this post are links for his books on Amazon. If you click the link and buy the book I'll earn a small commission.

I will be writing about each of the 7 baby steps described in Dave's book. Each one is worthy of it's own post but as a summary here are the 7 steps and you're supposed the follow them in order:

1. Establish $1,000 Emergency Fund
2. Pay of All Debt (except house) With The Debt Snowball
3. Put 3 to 6 Months Expenses in Savings
4. Invest 15% of Income into Roth IRAs and Pre-Tax retirement Plans
5. College Funding for Children
6. Pay Off Home Early
7. Build Wealth and Give

I will be writing about each of these in upcoming posts. As those posts are written I'll come back to this post and update the list to links to each post.

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Introduction - Welcome to Money Guy Zack

Welcome to Money Guy Zack! I've been doing a TON of reading about money management/personal financial planning, etc since the first part of 2012 and decided to start a new blog to share my thoughts instead of taking up space on my Camera Guy Zack blog.

Before you read any further you should know that I AM NOT a licensed financial planner or otherwise licensed/certified financial person. (Some would say that I'm certifiable crazy but that's a whole different story.) What I am is half of a partnership, the other half being my wife, Donna, that have finally decided to take control of our financial situation once and for all. For years I used the saying "I make the money and Donna spends the money." Sure it was funny and friends would laugh at it but in hindsight it was really unfair on my part to just dump all of the financial responsibility on Donna. Together we are managing our finances. If you are married and only one of you takes care of all of the bills please stop doing that and work together. Seriously, it will make things so much easier when you two share the same goals than if only one of you does all of the planning.

Our turn around came about innocently enough. A friend on Facebook posted that she was energized to get her finances in order after seeing financial guru Dave Ramsey speak in Atlanta, GA. I will be writing a lot about Dave Ramsey on this blog so even if you've never heard of him you'll find about about him here. Also if you are already familiar with him hopefully I'll be able to present my take on things that may be of interest to you. I asked my friend to give me a Reader's Digest summary of what she heard and why she was so excited. She did and included a recommendation to buy one of Dave's books. I bought it and started reading it. I told Donna about it and she started reading it as well. She got so into the book that she read the entire book in one night!

I've recently finished reading the book and Donna and I had pretty much the same reaction: We wish our parents had told us this stuff. We're not saying our parents weren't good parents or anything like that, far from it, we just wish we had heard about this stuff years ago. It's our hope that you will take the time to read what is written here and apply it to your own personal situation. Because we were so moved by what we read we've either gifted or bought copies of the book and given them to our children to read. We're doing for our children what we wish our parents had done for us. Between us Donna and I have four children: Terry, Steffanie, Zack Jr, and Andrew. Terry is married and serving in the Army out in Washington State. Steffanie just graduated college and lives in Georgia. Zack Jr lives with his mom in San Antonio, and Andrew is serving in the Marine Corps out in California. All of our kids are in their 20's. Terry is married and the others are single. Terry and Steffanie are Donna's kids and Zack Jr and Andrew are mine.

Over the next weeks/months/years/who knows? we plan to share with you our experience and those of our children. It's our hope that you'll find some of this information useful and will apply it to your own personal situation and that you will, in turn, pay it forward and share it with a friend or loved one. Do we have all of the answers? Will you get rich quick reading this blog? Is it easy? Is there a bunch of complicated math involved? The answer to all of those questions is NO!

No I don't have all of the answers - I'm just starting out on this journey and have much to learn. In fact I don't believe you can every know all of the answers.

No you will not get rich quick reading this blog - About the only ways I know to get rich quick are (1) inherit a bunch of money (2) marry into a bunch of money or (3) win the lotto.

No it's not easy - You'll second guess yourself when you make a tough decision but in the long run you'll be better off for making the tough decisions.

No there's no complicated math - If there were I wouldn't understand it so if I can understand it I'm sure you can too.

So there you have it. My introduction. Welcome and I hope you'll follow along with us and share your thoughts along the way.