No. of Recommendations: 11
Hi all. A day or two ago, I posted this long post on the LBYM board detailing my trip through financial planning over the last 14 months. Although my legacy of information has been on that board, I thought that this board might be a better fit for such a narrative, that I might get more commentary regarding my situation, and perhaps earn a few more recs (rec whores of the world unite!).

So, for what it's worth, here is a copy of the other post in it's entirity. Your comments are appreciated.

CPAScott

---*START OF ORIGINAL POST*---

Hey all.

About 14 months ago, I posted my acceptance of the LBYM lifestyle and established a set of financial goals. The post was quite popular (receiving 64 recs) which certainly motivated me to stick to those principles.

For background, it's here:
http://boards.fool.com/Message.asp?mid=15661218

In conjunction with that post, I listed my balance sheet and financial goals:
http://boards.fool.com/Message.asp?mid=15662974

From there I was off and running ... promising to post my progress quarterly, I updated my status on 12/5/2001 and 2/28/2002, repsectively:
http://boards.fool.com/Message.asp?mid=16225651
http://boards.fool.com/Message.asp?mid=16817989

But then I stopped.

What did I stop? Just about everything. I was doing well. Saving money. Paying down debt. I had fully funded my emergency fund. Spring was coming. I was looking forward to summer. I was ready to live a little. And live a little I did.

I detailed my LAMM summer in another post on this board:
http://boards.fool.com/Message.asp?mid=17712901

And, as a result, I've quite fallen off my original financial goals, and, ashamed as I may be, haven't posted the results on this board.

But, it was motivating to purge myself here, and motivating to list those goals and progress.

In the last couple of weeks, I have taken on a new roommate, and the income will help greatly to get back on financial track. I haven't yet sold the Nissan, but I will eventually. I may actually put it back on the road over the winter (taking the BMW off), which would save some insurance $.

As of today, I have repaid $1800 of the $2500 I took from my emergency fund -- the last deposit was last week for $500. I also cut a check to Sallie Mae for $350 as an extra payment on the loans -- something I haven't been able to do since June.

The end of October will be a little tight after cutting those two checks, but I will put myself back on track slowly but surely.

So, as motivation to myself, I will post my updates here -- my status, effectively as of 10/15. I will need to revise my goals again, as I am not likely to hit the targets I set a year ago, but that's ok. Establish more realistic goals and stick to the plan. (I've postponed entering that Ph.D. program too. Maybe September of 2004).

Encouragement is, of course, always welcome. I am inspired by some of the people in this community -- and know that each of us can accomplish the goals we set for ourselves. No where else have I found such encouragement, such motivation, such empathy -- so many people in so similar of situations.

I have been luckily that my salary has (mostly) supported my lifestyle thus far, but by only paying the minimums on my student debts -- by borrowing off my e-fund, I feel like I am sinking. Although it may only be an illusion, it's enough of one to wake me up -- and motivate me back to the right track.

So, here goes.

GOALS - by 9/2003:
1. Non-retirement investments at or greater than $10,000.
2. Total investments at or greater than $20,000.
3. Student loan debt at or less than $35,000.
4. Total debt at or less than $40,000.
5. Debt ratio at or less than 2.0:1.

9/1/2001 10/15/2002 10/15/2002
Actual Budget Actual Variance
Non-retirement investments 6,800 10,000 9,310 - 690
Retirement investments 3,000 5,849 6,101 + 252
Total investments 9,800 15,849 15,411 - 438
.
Student loans 58,500 48,344 53,898 - 4,446
Car loan 11,500 8,112 19,648 -11,536
Total loans 70,000 56,456 73,546 -17,090
.
Debt ratio 7.14:1 3.56:1 4.77:1

A couple of points worth noting (one that makes me feel better, one which doesn't):

1. The car loan figures are slightly skewed in that I still own both cars -- assuming I can sell the Nissan for what I owe on it, the car loan total will drop significantly. If that occurred today, the figures would change from $19,648 to $11,188 -- the balance on the my BMW loan, dropping the variance from -11,536 to -3,076, and lowering my debt ratio from 4.77:1 to 4.22:1.
2. I have to revise the goals for two things. One is the car loan. The end goal by September 2003 was to owe no more than $4,860 on that car, which is still possible, as I am paying a higher monthly payment on the BMW than I was on the Nissan (shorter loan term and lower interest). In the interim, however, the goals must be adjusted. The second is my student loans -- specifically Sallie Mae. They are just not being paid down as quickly as I thought they could be. Making only the minimum payments, I'll pay down approximately $115 of principal for every $450 paid to them. (Yikes!). The extra payments of $300/month, provided I can keep up with them, are much more effective, reducing the principal another $280. Should I get myself back to the position I was hoping to be at last February (contributing $800/month extra), the reduction in principal soars to $780/month for each extra payment made.

At this rate, of course, I'm covering almost $900/month in principal reduction on those loans for each $1,250 payment made -- a whopping $10,800 a year.

But, as I've learned over this past year, that $1,250 goal is not realistic. Last autumn I was able to pay $500 to my emergency fund, and $300 extra to Sallie Mae (thus the $800 extra to Sallie Mae once the e-fund was fully funded), but in all likelihood, I think I should ONLY budget the extra $300. Anything above and beyond that is extra, which furthers the progress. Thus, my revised goals will exclude that additional amount and assume that I can manage a little under $5000 of loan principal per year (taking my current $53,000 balance to to about $48,600 by September 2003, well short of the $33,200 I was originally planning for.

Now, as incentive, if I were to diligently pay that $800 extra (let's call this the "aggressive" plan), starting, let's say February 1, 2003, that would take that $48,600 figure and reduce another $4,000 by September 2003 -- still $11,500 short of the original goal.

I won't sweat over that variance, however, 'cause more analysis yields the following:

The original goal assumed I could begin applying an extra $500 to Sallie Mae starting February 1, 2002 (on top of the $300 extra already being paid). But none of those payments were made. Further, only three "first-tier" extra payments were made -- one in February 2002 for $300, one in May 2002 for $300, and one in June 2002 for $325. The next such extra payment was not made until last week (another $325).

That means I have opportunity cost. Lots of it.

Tier one opportunity cost (the first $300 extra) is approximately equal to $280 x each month not paid (March, April, July, August, September):
$280 x 5 = $1,400

Tier two opportunity cost (the second $500 extra) is equal to the entire payment x each month not paid (all months from Feb. 2002 through October 2002):
$500 x 9 = $4,500

Total opportunity cost = $5,900 of principal not paid down (let's not think of the extra interest involved, ok?)

Again, assuming I will not pay the $500 in November, December, or January, that's another $1,500 -- total lost principal = $7,400.

$7,400 is, of course, less than the $11,500 variance I calculated above -- and thus proving that my original pay-down assumptions were invalid.

So, I start anew.

I have been contemplating buying property, which of course, will change everything if I do, but is likely at least a year off. So, we'll assume that won't happen.

I do have one somewhat significant purchase planned -- replacing my digital piano. Total cost to purchase another will run anywhere from $2K to $6K. I'm likely to stick to the low-end, trying to buy either something used or an alternative instrument to the Roland that I'd really like. Whatever it is, I'm likely to pay most of it out of my e-fund, and finance little (I can get financing at 10.99% for 5 years), if any.

So, my new goals will incorporate this contingency, assuming a payment of $2,500, but will be conservative and not include pay-raises, bonuses, or other such income increases.

REVISED GOALS -- 2003 YEAR
(by December 31, 2003)
1. Non-retirement investments at or greater than $10,000.
2. Total investments at or greater than $20,000.
3. Student loan debt at or less than $47,000.
4. Total debt at or less than $53,200.
5. Debt ratio at or less than 2.66:1.

Specific $ goals for update periods
10/15/2002 12/31/2002 3/31/2003 6/30/2003 9/30/2003 12/31/2003
Actual Budget Budget Budget Budget Budget
Non-retirement investments $ 9,310 $ 9,800 $ 8,000 $ 9,000 $10,000 $10,000
Retirement investments $ 6,101 $ 7,064 $ 7,873 $ 8,582 $ 9,291 $10,000
.
Total investments $15,411 $16,864 $15,873 $17,582 $19,291 $20,000
.
Student loan debt $53,898 $53,250 $51,686 $50,124 $48,562 $47,000
Other debt $19,648 $17,890 $17,280 $ 8,230 $ 7,215 $ 6,200
.
Total debt $73,546 $71,140 68,966 $58,354 $55,777 $53,200
.
Debt ratio 4.77:1 4:22:1 4.34:1 3.32:1 2.89:1 2.66:1

Can it be done? Yep. Wish me luck -- better luck than last time, at least! :-)


CPAScott
(who will get there, eventually)
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