Consider this a CC&CD testimonial post intended to inspire you to share your stories.Then1 (circa 6/2003):On our way back from a week long family camping vacation. Our mini-van made a huge *CLUNK* and started blowing thick black smoke. Thank goodness we were traveling with friends that had a current AAA membership!It turns out that its transmission had died. The estimate was ~$1800 and we weren't sure how we could pay for it as we didn't have this much remaining on any credit card and we certainly didn't have this much cash sitting around!Then2 (circa 3/2005):As I often do, I was running math calculations in my head as I was drifting off to sleep. I discovered that we paid more in interest on our consumer debt than we did towards the principal + interest on our house. This was so disturbing it woke me up and made me resolve to do something about it.After about 1 week of playing the BT game, we reduced the amount of interest we paid in every month by $600! This was the core of what we came to later learn was our "snowball". Since this time, we've continued to cut out things we don't need/want/use and continued to grow our snowball relentlessly.Then3 (2/2006):We joined TMF!Now:In July, we've suffered from a vicious attack of entropy. Our mini-van transmission died again ($2000), DW took the new kittens to the vet due to concerns about parasite infestations ($200), lawn mower died (fixed myself for ~$30), vacuum died (working on that today for an estimated cost of $5), central air-conditioner died during the hottest week of the year (no idea how much this will cost and guess it'll be at least $200 to fix), and the lawn mower died again due to a different problem (also repaired by me at a cost of $0.15).We had no problems charging this to our "trusted" CC as it had a $0 balance, and we'll be able to pay off these charges at the end of the billing cycle out of our snowball funds (although it annoys the hell out of me that I have to rob my scheduled pay-down of our HELOC for this month).Someday (estimated to be ~11/2007):Once all Consumer Debts (minus our primary mortgage) are paid off, our snowball will approach $3000/month. We plan to set aside a 2-4 months of payment as our efund starter money. Then we'll split this money evenly between retirement funding, other savings (efund, car replacement, home maintenance, etc.), and kid's college funding.We plan our daily lives to be very similar to what it is today except instead of filling the hole we dug earlier in our lives, we'll be building a mountain of savings to buy our freedom.So what was "the Event" that woke you up from our societally induce consumer hypnotism and made you realize the path to freedom?Jim
So what was "the Event" that woke you up from our societally induce consumer hypnotism and made you realize the path to freedom?#1: April 2002. My first attempt at writing out a monthly spending plan. I remember it like it was yesterday. About halfway through, I had the stunning realization that I was living WAY beyond my means and could not actually afford all the "needs" I had. Needless to say, it was rather frightening. I promptly banished all thoughts of budgeting from my mind for many moons, but the seed had been planted...#2: May or so, 2003. I started keeping a written record of exactly how much I spent and on what. It wasn't a one-time event, so much as a gradual process of getting myself to face the facts of my financial situation, even if I wasn't ready or willing to change my spending to fit the facts.For me, getting the hard cold numbers down on paper has been the key to changing my attitude and my actions. That, and coming out of lurkerdom on the Fool. Nothing like a little friendly accountability!FIgirl
I set a goal to be out of debt by the age of 30. That gave me about 3 years to knock it down.My new goal is to fully fund my ROTH each year.
For me, getting the hard cold numbers down on paper has been the key to changing my attitude and my actions. That, and coming out of lurkerdom on the Fool. Nothing like a little friendly accountability!Ditto! The eye-opening experience of putting it all on paper also helped get the DH on board so we aren't counteracting each other anymore.
Then #1 (Sept 2004). We bought a house. In order to get a larger house, I allowed myself to be suckered into an interest only 5 year ARM for the first mortgage, and an interest only HELOC. My total debt (including the mortgage) was more than twice my annual income. We had no free money. Every cent was already spoken for. I worried about what would happen when the "interest only" portion expired, but I had five years to plan for that situation.Then #2 (Dec 2004). My wife bought the book "The Total Money Makeover" as a Christmas present for the both of us. I was too busy playing with all the "things" that we had bought for Christmas, so I set the book on a shelf.Then #3 (Jan 2005). I was called to serve as the leader of the local congregation of my church (we have only lay clergy, no paid clergy). My church teaches the importance of living within your means, spending less than you make and counsels our members to avoid debt except for education and a house. I thought that I should set the example by actually living by that guidance from headquarters. I sat down and read "The Total Money Makeover". That book changed my life. He said things that I had heard before, but put it in a way that made me laugh and say, "Yeah, I do that. That is pretty stupid." He also got me motivated to make the changes in my life that I needed to.Then #4 (Jan 2005 to Present). I write a budget and actually use it. Of course I have had to make adjustments to it over time, but I have been using (and pretty much sticking to) a budget for about 18 months now. We make do, do without, use it up, and wear it out. I seem to have found extra money (and I'm not talking about chump change) in my paycheck that all goes towards paying down debt.Now (Jul 2006). I have paid off four credit cards, one line of credit and four student loans. The final credit card should be paid off in October and a Thrift Savings Plan loan (used as the downpayment for the house) should be paid off in November. The only things left after that will be the car loan, the HELOC, one student loan, and the mortgage. By the end of the year we should have paid off almost one-fourth of our debt (including the mortgage). Instead of paying the minimums, my snowball payment is about an extra 25-50%. The car loan should be paid off 18 months early, the HELOC 25 years early, the (refinanced) student loan 20 years early, and the mortgage 15 years early.The future. I'm going to conquer this mountain of debt and see what the view looks like from there.
The car loan should be paid off 18 months early, the HELOC 25 years early, the (refinanced) student loan 20 years early, and the mortgage 15 years early.Now, it depends a lot on personal preference, but if these are low rate and fixed debts, you may not really want to pay them off that early. The reason is that your money may do you better in your retirement accounts than being shoveled, pile after pile, after low rate debts.That doesn't mean that paying these things early is bad, but you may want to do it in moderation. Unless they're unusually high rate, these are not the kind of debts that should be snowballed. At the very lease I would make sure that you are funding your retirement accounts significantly at the same time.Not all debt is bad debt. And if you have a low rate mortgage, it doesn't make a ton of sense to pay off a 4.5% to 5% mortgage 15 years early while forsaking things like a 401K and IRA. Of course, you may not be, but you didn't mention it so I thought it was worth bringing up.
Our mini-van transmission died again ($2000),You don't happen to have a Caravan do you? I've had nothing but transmission problems with mine and will never buy one again.foolazis
So what was "the Event" that woke you up from our societally induce consumer hypnotism and made you realize the path to freedom?August 2005, DH had 2 days notice to buy a bunch of stuff for a work trip (about $200 worth), then found out that he couldn't take most of it with him. He left for a month and I found myself at Walmart trying to return socks, tee shirts, bottled water, gatorade mix, and anything else that we could do without for the next few weeks. I also had to do a lot of banking gymnastics to move money from various savings accounts into the checking account before checks started to bounce. I was only partly successful, but I did get the bills paid.Since he was gone for a month, it gave me a lot of free time to figure out why we were always broke even though we both kept getting pay raises every 6 months.mm
Not all debt is bad debt. And if you have a low rate mortgage, it doesn't make a ton of sense to pay off a 4.5% to 5% mortgage 15 years early while forsaking things like a 401K and IRA. Of course, you may not be, but you didn't mention it so I thought it was worth bringing up.We did stop payments on the retirement accounts for one year (IRAs) and two years (Thrift Savings Plan, which is the military version of a 401K) just to get the snowball really rolling.I am going to start both of them again in January. We will fund our 2006 IRAs in the first four months and then start on the 2007 IRAs. We will also max out the contributions to the Thrift Savings Plan (15K per year but, unfortunately, no matching funds). And we will still be paying down our debt at the schedule already mentioned.I understand about not necessarily paying off low interest debt. My HELOC is currently at a 9.75% variable rate. I am in the processing of refinancing that to a HE Loan at a 7.25% fixed rate. The mortgage is currently at a 5.5% fixed rate, but in 2009 changes to a variable rate. The student loan is also at a variable rate, currently at 6.375%. The car is at 5.5%. I still think that I would rather pay down debt for a guaranteed rate of return vs a hoped for rate of return on investments.I have been paying lowest balances off first and then moving towards higher balances. However, I think that I will attack the student loan and possibly the HEL before the Volvo, which will affect the payoff dates mentioned, but I'm not sure by how much.
My HELOC is currently at a 9.75% variable rate. I am in the processing of refinancing that to a HE Loan at a 7.25% fixed rateGiven the rate at which you're paying off debt, have you checked to make sure that the fees for the HELOC will be less than the interest you save?mm
You don't happen to have a Caravan do you? I've had nothing but transmission problems with mine and will never buy one again.Yes it is a (Grand)Caravan. 3 replacement transmissions since 1995. In the last one, we had them include a transmission cooler, thinking it would extend the life of the transmission. No luck.Bear in mind that the Caravan is typically much less expensive than other mini-vans in its size category. Also other than transmission, our Caravan has been trouble free.When we go to replace this one, we'll look at the prices of others. I would like to NOT get another Caravan, but if the price is right, we may just look at what we need to do to keep the thing working. Are their after market high durable transmission available?Jim
Bear in mind that the Caravan is typically much less expensive than other mini-vans in its size category. Also other than transmission, our Caravan has been trouble free.So far our '02 model hasn't given us any major grief.Prof*knocking on wood photo finish*
Jim2B, you got the Post of The Day!Alright!!!!(I think you get a free month of membership to the Fool with that. Double alright!!!)
FIgirl,*blush* I owe it all to my friends (& spouse) at the Fool!!(bow & twirl)Jim
Given the rate at which you're paying off debt, have you checked to make sure that the fees for the HELOC will be less than the interest you save?Yes. The refinance fee is not very high, so I still end up saving money even though I'm paying down the debt quickly.I also looked at refinancing the mortgage to a fixed rate, but decided the fees (and hassle) were not worth it.
Purchasing Quicken was the eye opener for me. I could actually see how much we were paying in interest every month. The interest on just one of our many credit cards was $400!Also, the stock market was making tremendous gains (this was in 1998) and I was becoming aware that we had almost nothing set aside for retirement. I was feeling like we'd missed the boat and would continue missing it if we didn't start saving and investing more.I resolved to pay off all of our non-mortgage debt ($125K) by the age of 40. I made the deadline in February 06 with 6 weeks to spare. Now our monthly snowball is maxing out retirement vehicles and building up non-retirement savings at a fast clip too. It feels good!
So what was "the Event" that woke you up from our societally induce consumer hypnotism and made you realize the path to freedom?I can honestly say there was not one particular event on the order of a busted transmission that made me "wake up". I am VERY fortunate that I was turned on to good financial habits pretty early in my life.During my first job after I got out of college, I worked with two smart guys in their early to mid forties who took an interest in young people and espoused frugality, debt payoff, and retirement savings. These guys cautioned me against spending my whole income, which they had seen so many other young consultants do, and they helped me understand 401k's and IRAs and such. One of them was the guy who actually pointed me to TMF, for which I am eternally grateful. If it were not for these gentlemen, I don't know how I would have gotten through the first few years of my career financially. I lost 2 jobs due to the tech bust, and in one year spent like 7 months out of work - but I was able to keep myself together. I did add debt during that time, but I did it as part of a PLAN (to conserve cash while out of work) and when I got my current job I immediately began executing a plan to pay the debt off. d
Jim2B, You'll probably get a lot of responses on the Caravan, but our's was a complete jewel. Lasted through two kids from 5-18. Only had to put in one transmission, and donated it to charity last year. It was still running great and I'm sure they'll put a lot more miles on it.They did America proud with that vehicle. :-) It's the epitome of the LBYM life-style in my book.Dave
"So what was "the Event" that woke you up from our societally induce consumer hypnotism and made you realize the path to freedom?"When the ex-wife decided she was leaving and my plans vanished that she would go to grad school then get a job while I went to grad school. At that point I didn't feel like doing much - so I didn't. I was surprized how much money I had been spending without realizing it. It became very clear that spending money didn't make me happy. I started reading and listening to audio books a lot more. About that time it became very obvious my aerospace job was about to end also. The saying "If it is to be, it is up to me" showed up on a TV commercial and I saw it in a whole new light.I left the aerospace job a couple of weeks before the announcement the plant was closing. I started my own business working FOR myself. I developed a whole different view from the perspective of a business owner. I listened to tapes about multiple streams of income and saw the wisdom. I started a second business - both of which have one employee, me. I quit spending so much money needlessly. Everything was paid for in cash. As the businesses made money, I started buying rent properties. (Those I had to mortgage, but that was the only real debt I took on.) Yes, I now have three businesses with one employee - or is that 1/3 employee for each business?I still read a lot and listen to audio books. I guess I like to learn. A lot of good lessons and even TMF came of that. I read "Rich Man, Poor Man" and "Die Broke". I learned a lot from both, even if I don't follow any advice verbatim. I have also re-married and DW and I are planning for and funding our retirement. Fortunately, DW agrees with me on financial issues, and most other issues as well. We are both a lot happier than we ever were before we met. We are into an active life - snow and water skiing, mountain biking, windsurfing, etc.I have to say that people living "the American dream" that advertizing shows are likely to be headed for disaster. I see that a lot when running credit checks for rent properties. And I'm talking about honest, hard working, people who haven't made consistently poor decisions. I think there are WAY too many people headed for disaster without a medical problem, job loss, divorce, or other such 'one time hardships'.I want to mention that multiple streams of income again. I have been down with a broken leg since the end of February (stuck my boot in a tree while snow skiing). One of those businesses has not had it's fair share of employee because it requires an able body. If I hadn't developed the other two incomes, I would have run through any reasonable efund by now. I'm hoping other fools can learn from my experience.
KentB2,An excellent post, and some very good points, as well.Like this one:I was surprized how much money I had been spending without realizing it. It became very clear that spending money didn't make me happy.When people show up on the board with a pile of debt, we often suggest that they track their expenses for a month or two in order to put together a realistic spending plan. And they're often amazed to see where the money has been flowing to. Starbucks, snacks, sodas, this that and another thing, in addition to more expensive items. And the stuff is gone, vamoose, and they're left with the bills.I also liked this point:Fortunately, DW agrees with me on financial issues, and most other issues as well. We are both a lot happier than we ever were before we met.Having a husband or wife with the same financial goals is one of the most important pasts of being able to save. If one spouse wants to save, and the other wants to spend, there's nothing but trouble ahead. I wish more people would really sit down and discuss finances before they got married: it would save an enormous amount of trouble.I have to say that people living "the American dream" that advertizing shows are likely to be headed for disaster. I see that a lot when running credit checks for rent properties. And I'm talking about honest, hard working, people who haven't made consistently poor decisions. I think there are WAY too many people headed for disaster without a medical problem, job loss, divorce, or other such 'one time hardships'.Out of curiosity, do the think the problem relates more to wanting nicer things in life, like an expensive television or big car, or simply not understanding how money works in terms of compound interest, or just not thinking matters through?I'm glad so much has worked out so well for you. And a very good point was made about how a simple accident can stop an income flow.I hope you'll keep posting here. It sounds as though you could offer a lot of insight to others.Nancy
Nancy,I would like to keep posting here, but I doubt I will. I'm more the lurker type, but this topic motivated me to reply in hopes of helping others. I'm spread pretty thin already and probably wouldn't have posted at all if I didn't have the bum leg.On your comments, I see people spending money without realizing it. But most seem to think that spening money makes them happy. If they knowingly make that choice, then more power to them. I think most don't actually chose, but spend without thinking in hopes it will make them happy. Then they are surprised when the bills/debt make them unhappy.In my opinion, people act on emotion and don't think things through. Part of that is they don't understand compound interest, but they buy without thinking anyway. Everyone wants nicer things in life and they see their friends getting at least some of those things. And if the 'Jones' could afford a new car, then 'we/I' can afford it. But just because the 'Jones' bought a new car, doesn't mean they could afford it. And then the "Smiths' got a boat, so 'we/I' can afford a boat too. And so on. The advertizing and marketing is pushing everyone to spend, spend, spend and most people are very willing. And the lenders are willing to help them until they get themselves in a big hole. I read in the newspapers that the average American's net worth is amazingly low ($10k - $20k comes to mind). That means there is a TON of people with major debt to offset the large numbers of home owners and near retirement age people. Similar articles talk about the large numbers of baby boomers nearing retirement age. What are they going to live on during retirement? When you combine those two ideas, it is a scary prediction for the US economy.
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