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Archive for January, 2016

Debt reduction planning Redux

January 25th, 2016 at 06:46 pm

A year ago today (as it turns out--this was not planned), I wrote an entry here about planning for debt reduction. While my intentions were good, I didn't make the kind of progress that I had planned. I did reduce debt over the first part of the year, but then increased it back to its starting point (and a little bit beyond). In the end, I more moved debt around than reduced it. I *did* reduce my mortgage by $4,000 (more than double the reduction that would have occurred if I were still plodding along with my original mortgage, and over a thousand ahead of where the refinance would have had me if I had not added in additional payments), so that part is good. But the non-mortgage debt, I ended up mostly moving around, from being mostly on 0% credit card balance transfers, which I kept on moving around from card to card as the 0% rate expired (kicking in a balance transfer fee of 2-4%) to being more on loans...first a personal loan and then a HELOC. The debt increased a bit with some personal investments I made in my health and my career. At the moment, the total is about 35K. I just want to use this post to lay out some targets for reducing this. If I were just following the loan amortization schedules, this would be a several year project, but I can do it in three years. Overall acccording to the amortization schedules, I'd be paying about $400 a month on the non-mortgage debt; in actuality, I pay about a thousand, so Target #1 is getting the non-mortgage debt to 30K by mid-year and to 25K by year end. Mortgage debt at year end should be down to 65K, so that's a total of 90K total debt by the end of 2016. I can cut the non-mortgage debt in half during 2017 and get the mortgage debt down to 61K, for a 2017 ending debt balance of 73.5K. Then in 2018 I can pay off the rest of the non-mortgage debt and get the mortgage down to 56K total debt. At that point I can really accelerate the mortgage payoff to have the mortgage paid off by sometime in 2025, two years before I reach full retirement age. Then I can funnel that money to a final push to accumulate two years' worth of cash for living expenses to have in my accounts before I retire sometime between 2027 and 2030.

One of the things about financial planning is that it is never done--one always has to revisit it as one's personal circumstances and the economy change. But one doesn't achieve one's goals if one doesn't plan for them, so planning is hardly fruitless.

I'll revisit my debt progress...hopefully a decline, even though I am planning some additional long-delayed household expenses this year...as the year progresses.

2015 Spending Recap

January 2nd, 2016 at 05:26 pm

I finally had a chance to tally my 2015 spending.

Back when I first joined this site in 2006 (!), I was an avid user of YNAB and tracked spending regularly, but once I left my regular job to embark on my career change in 2009 and first my dog and then my mother in short order became seriously ill, regular tracking (and regular filing and sorting and decluttering at home) all went out the window, so now I content myself with an annual review based on the useful year end summaries provided by my financial institutions.

My overall spending is up by about 6K compared with last year--which is fine given that my earned income is several times higher this year, since I was unemployed for 8 months last year.

Rather than looking at things microscopically, I will report here in terms of the categories developed by Senator Elizabeth Warren and her daughter Amelia Warren Tyagi in their 2006 book All your Worth: The Ultimate Lifetime Money Plan.

They suggest three macro-level categories for spending: Needs, Wants, and Saving/ Debt Repayment, and recommend that 50% of spending go to needs (e.g., mortgage, groceries, transportation, utilities, healthcare, insurance), 30% go for Wants (discretionary spending) and 20% go to Saving & Debt Repayment.

My spending this year is fairly close to these targets: 47% Needs, 34% Wants, and 18% Savings.

Needs 47% of my expenditures were for Needs. Nearly half of this was house-related (mortgage, insurance, taxes, repairs & maintenance), and another 21% was health related. The health expenses are down from last year, though. I took on a hundred-dollar-a-month prescription that makes a big difference in my quality of life, but I no longer have to pay all of my health insurance expenses out of pocket. Groceries are always a struggle for me to cut, at 17% of the needs category (8% of total). Transportation and expenses for my two cats round out this category.

Wants 34% of my expenses were for Wants. Other than not having to pay for my own health insurance now that I am fully employed, this is the biggest change in my spending. Basically, I spent 5K less on health insurance and 5K more on fun and recreation, including joining a premium gym (which I use a lot more than the el-cheapo gym I used to belong to), eating out, taking three short vacations, going to the movies and the theater, and buying books. As my best year of income ever, perhaps I went a little bit overboard here (since I am above the 30% mark), but not too drastically so. In particular, I want to cut down on the Dining Out, for health as well as budgetary reasons. And I will not buy subscriptions to two theatres next year but will be a little choosier on which plays I attend (4 instead of 7). One big expense in this area, which I will probably be reimbursed for, is that on December 31, I enrolled in a CFP program (before the fees went up by $500 on January 1). Actually eliminating that one expense alone brings the total down below 30%. I will be taking online classes for the next 10 months and will take the certification exam sometime between November 2016 and July 2017.

Savings & Debt Reduction Finally, 18% of my money out was for Savings and Debt Reduction. I reduced my mortgage balance by nearly 4K and added about 12K to my retirement accounts and HSA (this number is higher than the last entry because of the HSA contributions). The other personal debt was more moved around than paid down. It started the year mostly on credit cards, as I spent about 4 years transferring debt from one 0% balance transfer offer to another, moved to a personal loan mid-year, and finally to a HELOC by year end. This next year will be another big debt reduction push. It currently looks as though I will pay the non-mortgage debt off by mid-way through 2017, at which point, I will further accelerate mortgage payments so that my house is paid off by the time I reach 65.

So, all in all, even though I felt quite un-frugal in some areas this year (definitely NOT in a mood for penny pinching after having done so for the past decade!), I kept my spending in reasonable check. I expect next year to be similar, although next year's discretionary spending will be less for eating out and the theatre and more for hiring some help with decluttering, home organization, and cleaning.

In Sum The last time I did an annual spending re-cap was in 2011, and I see that my spending percentages have not really changed that much--there's less on expenses related to the house and health and pets percentage-wise, but my overall priorities seem about the same.