As we neared the payoff date for our car loan, my wife and I discussed how we wanted to celebrate the debt elimination.  It’s an important milestone and we decided that we needed to reward ourselves for our dedication to paying off our debts.  We’re still making up our minds, but I think we’re leaning toward getting a couple’s massage at our favorite local spa since it’s something special we can share together that doesn’t cost too much.

A co-worker of mine asked me why we were celebrating something as trivial as paying off a car loan.  To us, this was no trivial act.  We paid over $3,000 extra this year alone to ensure that we would pay it off early.  It took a lot of saving, scrimping, and sacrificing to reduce our debt burden.

In my eyes, paying off any large debt is no trivial thing, even if you paid just the minimums every month.  It’s completion is a testament to your drive to work off your debts and achieve financial freedom.  So if you’re wondering what you should do when you pay off your debts, keep these suggestions in mind.

Celebrate Your Successes

There are many great opportunities in life to celebrate, but a milestone such as a completing the payoff of a debt is a big deal.  It comes at the end of a long, hard struggle to push down the balance and, if you’re lucky, pay it off early.  While a car loan isn’t a huge deal when compared to the size of a mortgage, the fact that we reached our first target is cause for celebration.

Don’t Go Overboard

While celebration is important, it’s essential that the celebration not undo your hard-fought gains.  It is a nearly $16,000 loan that we paid off, but in reality, we’ve basically just freed up the $300/month we were paying toward that loan.  If we were to go out and buy a new $2,000 TV on a 0% interest for 12 months credit card, we would immediately eliminate over half of our cash flow gains.  Make sure to keep your reward reasonable (almost always less than one month’s payment of the original debt) or else you’re just giving yourself an excuse to get right back into debt.

Regroup, Then Attack Again

Taking a bit of time off from debt elimination to reward yourself also gives you a bit of time to collect your wits, rest from the previous battle, and prepare yourself for resuming the attack.  If you take too much time off, you risk losing your momentum and can even lose ground to your debt, but a one-month lag time between paying off one debt and resuming your attack on the next is ok.

Focus On Financial Freedom

The goal is to achieve financial freedom and you do that by continuing to reduce your debt.  It’s ok to take a breather occasionally and celebrate your accomplishments.  In fact, it’s almost essential.

If you’re working toward paying off your debt, congratulations and keep at it!  Just don’t forget to reward yourself for your hard work and remember to continue to enjoy your life along the way.

Photo by: Creativity+ Timothy K Hamilton

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Photo by: Sweet One

But cleaning out my system made me think about everything that I’ve put in it in my lifetime. All of the abuse I’ve put it through, all the overeating, all the unhealthy food choices – everything came to mind as I was trapped in the bathroom. And then the realization came to me: Now is the perfect opportunity to start over and begin treating my body better.

Opportunities to start over come in many forms. It could be New Year’s Day, a medical procedure, the birth of a new child, losing a job or starting a new one, or just about any other major life change. Whether you need to change your finances, your diet, or some other important aspect of your life; the key is to take advantage of the opportunity.

Choose Your Changes

I decided in March that I wanted get my weight back down to what it was in high school (around 160lbs). To achieve this, I needed to change my diet and my exercise habits. If you want to get your finances in order, you may need to create a budget, start spending less, and begin paying off debt.

Find Your Opportunity

My catalyzing moment was my 28th birthday. I realized I had wasted a decade of my life by making poor diet and exercise choices. Since heart and diabetes problems run in my family, weight and cholesterol are issues that I need to keep in mind. If you’re changing your financial health, your driving moment could be a pocketbook-busting credit card statement, an unexpected overdraft statement, or something as simple as your next paycheck.

Take the Leap

Deciding on changes and having an opportunity come up means nothing if you don’t actually implement those changes. When I chose to start losing weight, I made changes right away to add exercise and start eating better. In the last few months, my progress stalled out, so I’m taking the leap all over again now that I’ve cleaned out my system. To help your financial situation, you can start by making a budget right away and then tracking your spending against it.

Good Luck!

Starting over can be a painful experience, but it’s important to recognize the need for change when things are headed in the wrong direction. Begin today by deciding what changes you need to make and then figure out how and when you want to start working toward them. Good luck on the changes you want to make and keep me in mind today while I’m undergoing my procedure.

Photo by: RBradburn

Just over six months ago, I laid out some goals and plans for 2008. In that time, my life has changed in huge ways more than once, including getting a promotion and finding out we’re going to have another child. All of these changes in such a short time have left us in a different situation than what we started. That means, it’s time to revisit and tweak the goals for 2008 to match our new reality.

In December, I laid out six goals. Here’s how they ended up:

1. Completely pay off the car loan – With finding out that we’re going to have a second child, we need to purchase another baby-safe vehicle. While we’re still making good headway in paying off the car, the CD we took out for that purpose will now be reserved for a down payment on a mini-van. Fortunately, we’re pretty flexible when it comes to these plans.
2. Start my business – I did start my business, but I never really put in the time necessary to let it grow. When we found out about the new baby, I pretty much put the business idea on the back burner since I’d rather spend my days being a dad than working all the time.
3. Track expenses and build a budget – I closely tracked our expenses for a little over three months until I determined that things weren’t nearly as bad as we originally thought. The data was useful, but it didn’t really reveal any huge holes – probably because I knew I was tracking the expenses. I eventually abandoned the tracking in favor of just keeping a close eye on general income and expenses.
4. Tithe to my church – So far this year, we’ve given $2,600 to our church. In order to tithe, I must give 10% of my income to the church. Considering my current salary of $70k, I should have given $3,500 by now. I doubt we’ll be able to close that $900 gap by the end of the year, but I do take comfort in knowing that we’re giving more this year than in any year in the past – both number- and percentage-wise.
5. Put aside 6% of my income into my 401(k) – In order to get the full benefit of my employer’s match, I have to withhold 6% of my salary into the 401(k). I’m glad to say that we’ve been faithful to this goal for the whole year. Even though the market has been a painful experience this year, we certainly aren’t going to withdraw from investing.
6. Rebuild our emergency fund – We have made advances on our emergency fund and grew our savings by over $2,000 over this year, we are still well short of having 6 month’s worth of income saved up. Excluding our self-managed tax and insurance escrow, we stand at just over 30% of the way there at $10,800. This is a goal that will take a long time to reach, but we continue to move in that direction.

The goals I laid out in December were admirable goals, but most of them were vague with no real way of determining success. I’ve since learned to use real numbers in my plans instead of nebulous ideas, so it would be most appropriate to rebuild my goals for the remainder of the year with that in mind:

1. Read and review two personal finance books – I already have one book in progress, Does Your Bag Have Holes?, that I won from a Clever Dude contest. I have a few other books in mind, but we’ll see what I come up with after I finish this one.
2. Increase our total savings to $16,000 – If you count our CD (and exclude our tax and insurance escrow), we have somewhere around $13,900 in savings. It shouldn’t be too much trouble to save an extra $2,000. The only bump in the path of this goal would be if we needed to touch our emergency fund for some reason, but that’s something you really can plan for, anyway.
3. Earn $1,000 in side income – So far, I have brought in $664, which means I only have to earn another $336 over the rest of the year. Since the business is now ended and the last of its contracts are finishing up, that means I’ll have to be creative in finding ways to earn extra money. This blog is a possibility, but it has not proven itself to be a “big earner” for me yet.
4. Give $5,600 to my church – While this amount still falls short of tithing, it does force us to consider increasing the amount we give to the church weekly. I don’t remember exactly how much we gave last year, so I will definitely revise this number up if I find that we gave more last year.
5. Decrease our long-term non-mortgage debt to $35,000 – We’ve already made great headway this goal by knocking out almost $4,000 in non-mortgage debt this year. If we continue on our current pace, we should be able to reach $35,000 without too much pain.

To encourage me to go beyond just meeting some attainable goals, I also want to plan some more difficult “stretch goals” that will signal unexpected success. Here is what I would like to see happen above and beyond my original goals:

1. Give $7,000 to my church – Tithing shouldn’t be a stretch goal, but it must be for this year. This is important to me, so I’m listing it first.
2. Earn $500 through blogging – Like I said before, my blog isn’t a big earner yet, but if I worked hard I could reach $500. It wouldn’t be a stretch goal if it wasn’t hard!
3. Start a Vanguard account – To start up a non-IRA Vanguard account, I need to scrape together $3,000 to buy one of their index funds. I would love to get into investing outside of my 401(k), but there are other needs that must be met first. If we can find $3,000 that would be safe to invest, I want to jump on this as soon as possible.

Overall, I think I’ve set some attainable, but aggressive goals. If we can meet all of our base goals and at least one of the stretch goals, I will consider this year a resounding success. Let’s see what the next 6 months have in store.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

For 5 years, until a few months ago, I was a member of Gold’s Gym. I started out eager, hired a personal trainer, and proceeded to burn away nearly 30lbs of total weight while adding some much-needed muscle mass. I believe I spent a little over $1,000 on the personal training sessions on top of my $30/month membership to the gym. The program was a success and seemingly well-worth the money I paid (especially considering we were flush with cash at the time).

But once the sessions were over, I slowly fell back into my old routines and within a year I had grown back to my original weight. My diet and exercise plan were beneficial, but they weren’t sustainable as part of my regular life.

So I started up a second round of sessions and proceeded to lose the weight again. And, like a broken record, I went right back to my old life after the sessions ended and wound up weighing more than when I started. Obviously, I didn’t learn my lesson.

Discouraged, I stopped going to the gym. It was a witness against me and a reminder of my failure to get fit. I didn’t cancel my membership, I just paid the $30/month “Fat Tax” for the luxury of being able to go to the gym.

Just before my birthday this year, I decided to turn my life around in a sustainable manner. I reached a max weight of 214 lbs and desperately needed to get in shape. I canceled the money-pit that was my gym membership and began a diet and workout regimen that I could easily blend into my life. I ended up finding The Hacker’s Diet, which really clicked with me considering my number-crunching tendencies.

Now, I weigh myself daily and track my caloric intake and build trend lines from that data. I also follow the recommended 15-minute workout plan the diet also provides. Of course, the 15-minute workouts don’t do as much for my physically as an hour at the gym, but I’m 5-times more likely to exercise at home for 15 minutes than to go to the gym – meaning I still end up ahead with this plan. As a supplement, we pre-ordered the Wii Fit since it has additional tools for helping me gauge my progress. (Don’t worry, I only had to spend $30 out-of-pocket since I had a lot of old games to trade in.)

In the 2 months since my birthday, I have dropped 8 lbs according to the trend line (and 13 lbs if you look at daily weigh-ins alone). I’m not looking for dramatic weight loss, just a healthy loss of 1-2 lbs per week, and I believe I’m finding success so far. According to my trend line, It will take me a long time to reach my target weight of 155 lbs, but that’s ok with me. I’m more concerned about reaching the goal and staying there than I am about getting there as fast as possible.

The point is if you find something that works for you and you know you can stick with it, cost is a secondary matter. There are people that find success with Jenny Craig, Weight Watchers, or NutriSystem, for example, and they are able to lose the weight they want and keep it off, but there are also many who don’t because it’s not a permanent change for them. I wouldn’t spend that much, but that’s also because I know it wouldn’t be a sustainable change for me. Gimmicks usually won’t really help you lose weight or at least won’t help you keep it off, but real, researched plans can and do provide benefit – but only if you follow all the recommendations and stick to the plan.

If you’re looking to lose weight, I wish you all the best! Just make sure not to follow a yo-yo plan that finds you losing weight only to regain it over the following months. If you can find a cheap or free at-home plan that works for you, great! But if you find you have to spend money to help you lose that weight, that’s fine as long as you make it stick. Good luck!

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Saturday morning, awoken this morning by a screech. I had intended to sleep in a bit since I had a long week, but this wasn’t my alarm going off and it wasn’t a car outside. No, this screech came from the master bathroom.

Waking up to that kind of noise is distressing, at the very least. I leapt out of bed to go discover the source and reason for the alarming sound. What I was soon to discover would change my world all over again. Sitting there on the bathroom counter, staring back at me, were two distinct parallel pink lines. And suddenly, all of our current plans flew right out the window since now we have more important matters to attend to:

We’re going to have another beautiful baby!

That’s great news, don’t get me wrong, but this does really throw a wrench in our debt elimination plan. Our vehicle situation was sufficient for one child, but will fall dramatically short with needing to carry two. We have a truck and a Pontiac Vibe. The Vibe is fine for our needs and can itself carry two kids, but my truck isn’t safe to carry a single one. Since it’s entirely likely that we’ll need to occasionally carry children separately, we need to start shopping for a child-friendly vehicle to replace my truck.

With the current gas situation, we really do not want to purchase a gas-guzzling SUV; but getting rid of the truck means we will no longer have a hauling vehicle, so we need a vehicle that can handle at least a moderate load. That will take some creative shopping and a little sacrifice on both ends to make this happen.

This will also cause us to have to update our snowball plan. Now, instead of using the $300/month that will become available once the Vibe is paid off to start paying on the home equity loan, we will have to divert that money to savings to build up a strong down payment for our next vehicle. Hopefully we can find a great deal when we finally do buy a new-to-us vehicle, because we need to be saving every penny we can right now with the big changes that will come with a 2nd child.

We didn’t exactly want another child right now and we were being careful, but I suppose we weren’t careful enough… This is a blessing, that’s for sure, but life suddenly got 10x more difficult than it was yesterday. Keep us and our new child in your prayers because we certainly need them!

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Update: I have posted a template for setting up your own snowball forecast.

Seeing the snow outside my window got me thinking about Dave Ramsey’s debt snowball concept. After all the reading I’ve done about snowballing one’s debt, I knew I was going to implement the same method in knocking out all of our non-mortgage debt. Until today, I really didn’t grasp the true power of the concept.

I decided, as I often do, to put together a spreadsheet so I could actually see the numbers and the impact they will have. But before I could input any numbers, I had to decide what my goals are. We had already decided to pay the car off first and completely pay it off when the balance reached $3,000. Since we’re getting reasonably close to that goal, I decided to leave that to be the first snowball “victim.” Second, we want to get our house’s loan-to-value down to 80%. At that level, the credit union will allow us to take control of our tax and insurance escrow and save or invest it as we like. After that, we need to just continue to pay down debt until it’s all gone.

Goals

1. Pay off the car loan
2. Get our loan-to-value down to 80%
3. Pay off everything else

Once I had my goals lined out, then it was time to implement the spreadsheet with those goals. I gathered up all the information about my various interest rates and current monthly payments. Since I already use this data for putting together my Monthly Balance Sheets, this was easy to prepare. Since we currently didn’t have a “set” monthly payment for the student loans, I consulted with my wife and we decided that we would start putting $100 per month toward each instead of our previous “whatever we felt like” method. (I’ve found it’s really hard to build an accurate forecast around “whatever we feel like.”)

Then it came time for putting together the actual forecast – nothing more than the usual mundane data and repeating formulas. The actual inputting of the data may have been mundane, but the results were anything but! As I extended out the forecast through December 2013, it became clear that this was going to reveal extraordinary results… Since it’s really too large to include in the post, you can view the entire spreadsheet here: Snowball Forecast

Assuming no interest rate changes or new debt, here is what the forecast predicted:

Snowball Forecast

1. Pay off the car loan
   • Completed October 2008
   • $300/month now goes toward Home Equity
2. Get our loan-to-value down to 80%
   • Reached May 2010
   • $300/month now goes toward Student Loan 2
3. Pay off everything else
   1. Pay off Student Loan 2
      • Completed July 2011
      • $400/month now goes toward Student Loan 1
   2. Pay off Student Loan 1
      • Completed December 2012
      • $500/month now goes toward Home Equity
   3. Pay off Home Equity
      • Completed April 2013
      • $715/month now goes towards savings and investments

That means in just a shade over 5 years, we will pay off $39,156.78 in debt! Come May 2013 we will have only the mortgage left with a balance of $148,045.06 and our home equity, assuming the value of our house stays the same, will be $57,954.94 – more than our total net worth today!

Until you see it for yourself, it’s really hard to imagine the power of the debt snowball. I had no idea it would be possible to be “debt-free” in just 5 years, seeing as how we have just over 13 years left on our home equity if we continue with our minimum monthly payments. It just goes to show the far reach of a simple philosophy change. If you haven’t already done so, take a read through M-Network’s break-down of Dave Ramsey’s 7 Baby Steps (Baby Step #2 is paying off debt with the debt snowball.)

Happy snowballing!

Many others have also discovered the power of the snowball:

• Get Rich Slowly – In Praise of the Debt Snowball
• I’ve Paid For This Twice Already – Baby Step 2: Pay Off Debt Using the Debt Snowball
• Consumerism Commentary – Paying Off Debt: 6 Steps to Building a Better Snowball
• No Credit Needed – Day 23 of 33 Days And 33 Ways To Save Money And Reduce Debt: Illustrated Debt Snowball
• Moolanomy – 7 Steps Debt Reduction Illustrated

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Now that I’ve created my debt graph poster it’s time to start thinking about what to do to those red bars and to my net worth in 2008.

My first goal, which was actually set earlier this year, is to completely pay off the car loan. Its interest rate isn’t all that high, but auto loan interest isn’t tax-deductible like my other loan balances. Because of that and the fact that it’s the lowest balance, my wife and I decided to knock that one out first by accelerating our payments and stocking away an extra $3,000 in a 12-month CD with a higher APR than the car loan. After the 12 months are up, the CD will be redeemed and the money will go to finishing paying off the car. Our surplus, if we have one, will be either applied to my wife’s student loans or to the home equity loan.

My second goal is to officially start the side business I’ve been thinking about for the last few months. In search of supplemental income and a way to personally take control over my family’s financial future, I decided that it’s time to put my entrepreneurial spirit to work for me. I hope to have everything in place by the end of Q1 2008 to make my dream a reality. I already have my first client tentatively in place, so I know I have a decent chance of accomplishing that goal.

My third goal is to better track our expenses and to build a budget based off of that data. We have used Quicken for years to track our expenses, but the way we tracked it was lacking some data I wanted to track: cash transactions. Now we use both. We will continue to use Quicken for the overall tracking and maintenance of our various accounts and we will also use the spreadsheet to track every expenditure. This will help us find where we’re losing money (I bet it is from eating out) and to stop the bleeding now before we kill our savings and our future.

My fourth goal is to tithe to my church. In the process of tracking our expenses, we realized that we’re pretty close to tithing already. We’re only about $26 a week short from that goal. Once we have a chance to build our new budget, this is one of the few budget line items that will actually increase. This may not have a direct impact on our debt or our investments, but it is something that is important to me and it would make me feel right.

My final goal is to continue to maximize my employer’s match in my 401(k) and to rebuild our emergency fund. I have a 401(k) and have finally increased my contributions to 6% to get my maximum employer’s match (50% match up to 6%). I am determined not to back it back down again. If we run into money problems, we’ll cut back in other areas, but I do not want to keep robbing our future to pay our present. On top of that, with my wife becoming a stay-at-home mom, our collective income has fallen dramatically without proper readjustment in expenditures. In order to shore up some losing months, we had to draw from our savings. Now that our savings has fallen to an unacceptable low, emergencies become that much scarier. We have to get that built back up through smart saving and behaving thriftier.

All in all, I have set my goals high but still reachable. Since I know these can be accomplished, I’m less likely to write them off ahead of time and not really try. As this year progresses, I’ll regularly re-evaluate this list to see if I can accelerate any of the goals or add anything that I think I can also accomplish.

Here’s to a productive 2008!

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com