Am I Crazy? Not Taking the Optimal Financial Path May Be the Right Decision

By 38 Comments

Condo at Panama City Beach, FL I’m going to start of by telling you that we haven’t made any decisions yet. This is your chance to read through my thoughts and either save me from my craziness or tell me that I’m not as crazy as I think I might be.

Either way, let me know what you think in the comments so I at least know if I’m crazy or not!

As a personal finance blogger I often pressure myself to make the best financial decisions possible so I can be a good role model to you all, my readers. It probably wouldn’t hurt that the best financial decisions would hopefully put me in a great financial position down the road.

However, at times I feel like I need to do something I want rather than what makes the most sense financially. Below is what has been occupying my thoughts all week.

Condos We Want to Buy a Beachfront Condo

I know, I know! We just bought our townhouse on a whim a year and a half ago. What am I thinking by wanting to buy a beachfront condo so soon?!

Don’t we still have my girlfriend’s student loans to pay off? I’m not making this easy on myself but I’m going to answer all of these questions one at a time.

I’m going to go over the fun stuff first though. We think we can afford a 2 bedroom beachfront condo on the Gulf of Mexico! This wasn’t even an option when we bought our townhouse because my girlfriend and I thought we’d be living in two different cities and potentially would have to carry the cost of two houses.

We first started looking at condos back when I visited my parents and we were in college. We never thought we’d live in this city but it was something fun to do while we were visiting.

Condo prices had started to head down from the housing crash but were nowhere near bottom. At that point there was no way we’d ever be able to afford a beachfront condo that was big enough to live in for any significant time period. Ever since then we haven’t even considered it.

Last weekend we were taking my dog for a walk and saw the condos and thought about how it’d be awesome to live in one. The condos are beachfront on the white sugar sand beaches of the Florida panhandle and have amazing views. Some have more square footage than our townhouse and they’re all one level floor plans so we’d get more use out of the space.

We decided to look on the local MLS website and found out that there were a few condos that would be within a reasonable housing budget so we kept investigating. We emailed our trusty real estate agent and are going to look at a few this weekend!

Now is your chance to stop me before I go completely crazy!

112_9855 Addressing the Concerns – We Just Recently Bought a Townhouse

When we bought the townhouse we knew it wasn’t going to be our forever home. We thought it’d make a great first home and the low mortgage payment would allow us to save a ton of money to pay toward my girlfriend’s student loans.

My girlfriend has saved a ton of money in her budget from the extremely low cost of living in the townhouse and has put this toward her student loans. I have similarly saved a large amount to pay toward her student loans once we get married, but for now I still have this money in cash. More on that later…

Another great benefit of the low cost of carrying the townhouse is its rental potential. We could easily rent out our townhouse for a significant amount more than the costs to keep it.

If we decide to buy and live in a condo on the beach we’ll rent the townhouse out and save any money above the mortgage payment toward maintenance and repairs for the townhouse. It should sustain itself with no extra money from us.

What About My Girlfriend’s Student Loans?

My girlfriend is making great progress on her student loans all by herself so far. Our last Debt Pay Off Update from January mentioned that my girlfriend has paid off over $20,000 of student loans all by herself in just a year in a half since graduating.

The update also mentioned I have saved over $30,000 to help her pay off her loans after we get married. This money, along with our future savings in 2013 would enable us to pay off these loans by the end of 2013 assuming everything goes according to plan.

But what if we decided to pay the student loans off over a longer period of time?…

112_9855 Our Plan to Buy a Beachfront Condo

In order to buy a beach front condo we’d want to have a 20% down payment. If we follow our current plan of paying of my girlfriend’s student loans by the end of the year we wouldn’t have a suitable down payment until late 2014 at the earliest. A more likely scenario would put us in a beachfront condo in 2015 or 2016. 

Our credible fear is that the condo market is coming back quickly right now. Once prices start taking off there is no way we’d be able to afford a condo we could live in because they’d be priced out of our modest housing budget.

The other factor that allows us to consider purchasing a beachfront condo is the rock bottom mortgage rates that I’ll likely never see again in my lifetime (or at least for the next 20-40 years). Mortgage rates have started to come off of their ALL TIME LOWS (that’s right, never have mortgage rates been lower than they were in the last year).

If mortgage rates rise more than a percent or two, the increased interest costs and the higher priced condo market will push our dream out of reach forever.

Why I Think I’m Not Crazy… Yet…

Paying down my girlfriend’s student debt as fast as possible is a great goal. The key to this whole plan is the fact that we’re still planning to pay my girlfriend’s student loan debt off aggressively after we purchase and move into the beachfront condo. If we go through with it that is…

Buying the condo would not stretch our housing budget to crazy levels. It’d still be well below the average housing costs most American’s live with today. It’d also be significantly below the percentages of gross and net income suggested by many personal finance experts.

Back to the student loans… according to our calculations, we’ll be able to pay her student loans off by the end of 2014 if things go perfectly according to plan. If things don’t go quite as planned it might take until 2015. Either way I still think that is pretty amazing.

How many people can say they’ve paid off $80,000 of student loan debt within 4 years of graduating from college? I’d venture to say not many.

If you think what I’ve said today is crazy… wait until I share what I’ve been thinking about on Monday! Make sure to come back and check it out. I’ll also have an update of how we’re feeling after we’ve looked at the condos.

Florida Sunset Now Is Your Chance to Save Me

Save me if you think I’m crazy! Encourage me if you think I’m thinking straight. I want YOUR opinion. Tell me what you think of my crazy plan in the comments below. I do value your opinion, but don’t be mad if I don’t end up taking the majority’s advice :) !

**P.S.** Just to clarify, the pictures are not condos we are looking at. We could never afford those… unless we won the lottery! Which we don’t play.

Filed Under: Budgeting, Debt, Life

How Do You Feel When It Is Payday?

By 40 Comments

Payday I’ve been doing some thinking lately about paydays. I’m lucky that I have paydays because that means I have a job which is an accomplishment for many in today’s recovering economy.

I feel I’m not quite normal though when it comes to how I feel about paydays. In fact, what is the normal feeling about paydays? I have no clue.

What Do Most People Feel on Payday?

What do you feel when it is payday? Are you happy? Excited? Relieved? Indifferent? It isn’t something I had thought about at all prior to the last couple weeks. I think most people would assume everyone feels the same way they do about payday but I don’t think that isn’t the case for me.

I know people feel different about their paydays and I think I’m one of the weird ones? Let’s take a look at some of the feelings that I think people probably feel when it is payday for them.

WOO! It’s Payday! (Happy/Excited)

I think there is a large group of people that are happy when it is payday. Why are they happy? Some are happy that their bank balance increased because they paid themselves first. Others are happy because they now have money in their checking account to go spend on the hottest gadget of the month.

There is another group that’d likely be happy to pay an overdue bill or make another extra payment on their student loans. There are lots of reasons to be happy on payday.

Are you generally happy when you get paid? Why do you feel this way?

Relieved It Is Finally Payday… PHEW!

I’d say there is a smaller group that is relieved that it is payday. Actually, the more I think about it the more I think this group is larger than I’d hope. My bet would be that this group barely stretched their budget to make it to the next payday… OK maybe that is just a hopeful thought too.

More likely this group is relieved because they finally have some money in the bank account again to pay a debt collector or past due bill. This group could also feel relieved because they stress out about everything and dipped $500 into their $25,000 emergency fund to get new tires. Payday means they can put that money back.

Do you fall into this group? If you’re relieved on payday what makes you feel this way? Are you working to change your situation or are you happy feeling relieved on payday?

Meh… It’s Payday (Indifference)

At this point I have no clue how many people feel indifferent about payday. Why would people feel indifferent? They might not have to worry about bills because they have a full emergency fund and some extra slack in their bank account to cover an extra month of budget.

Others might feel indifferent because they simply just don’t care about money at all. These people are either doing well for themselves and have a secure financial picture or they just don’t care at all.

Then, of course, there are the people who feel indifferent because they don’t even realize it is payday. Again, these people are likely oblivious or are financially secure.

Are you one of the people that feel indifferent? Why aren’t you happy or excited? Why do you think you feel this way?

Where Do I Fall?

Some paydays I’m happy because it means we get to put even more money toward our goals. I get to make a purchase for my Roth IRA, put money into my Roth 401(k), contribute money into my “Pay off my girlfriend’s student loans” fund and add more money to my growing spending money fund.

Most paydays I feel indifferent. Why would I feel indifferent? I’m doing decently financially but a paycheck doesn’t significantly change anything for me. It is nice to have but it doesn’t allow me to do anything I couldn’t do before. It just adds to my super long term goals that I’ll eventually get to.

Which group do you fit in with? Are you happy, excited, relieved, indifferent or some other feeling whenever you get a paycheck? Let us know how you normally feel and more importantly WHY you feel that way in the comments below. I really look forward to seeing the discussion on this one!

This post has been made possible by Friday Friday.

photo by: 401(K) 2013

Filed Under: Budgeting, Life

How We Lost Sight of the Big Picture

By 33 Comments

Debt It is fairly obvious that we are hyper focused on paying down my girlfriend’s student loans. I have been writing a lot about it recently with posts like Debt Pay Off Updated – January 2013 and How We Set Up Girlfriend’s Budget.

It is awesome that we’re working to pay her debt off by the end of 2013 but being hyper focused on her debt caused a problem with our finances.

We Lost Sight of the Big Picture

Joe at the Free Financial Advisor said it well when he wrote that Getting Out of Debt Isn’t a Goal. He says

When you reach the summit and actually get out of debt, you shouldn’t be surprised when you bellow out a gigantic “WHAT NOW?” You have more money, more freedom and more flexibility. What do you do with it all these new resources?

We have been so focused on paying off my girlfriend’s debt that we didn’t have any solid financial goals. What do we want to accomplish with our money once the nasty debt monster is finally slayed? We have some general ideas but we don’t have a solid game plan yet.

Retirement

Our number one priority post student loans is to set ourselves up for a secure retirement. Currently my girlfriend is only contributing 3% into her 401(k) at work. This is enough to receive the full match from her employer, which is the main reason why she is contributing to her retirement at all.

The interest rates on her student loans are high enough that we felt comfortable not putting more toward retirement while we attacked her student loan debt. However, 3% is nowhere near enough after the student loans are paid off.

We’re both still young so we don’t have a ton of catching up to do to get where we should be in terms of retirement savings. We will be kicking up her retirement contribution percentage to between 15% and 20%. This should be easy because she’s not used to spending the money she pays toward her loans so she won’t miss it.

Car Replacement

I will be using my car replacement fund to help my girlfriend pay off her student loans so my car replacement fund will be at $0. She doesn’t have any savings specified for a car replacement either so we will be rather behind in this category.

Luckily we both have reliable cars that should last us many more years. Her car should last at least 3 to 5 more years (if not more) before giving us any major problems that would require us to get a new car. I’m hoping my car will last us 7+ more years!

Even though our car replacements are many years away it makes sense to start saving for replacement as soon as possible. We’ll aim to have a few thousand dollars in savings within a year of the student loans being paid off so if something bad happens we can either fix our cars or buy a cheaper used car to replace our failing car.

Our Next House

Our last goal for our money after my girlfriend’s student loans are paid off is saving for a down payment on our next house. We bought this townhouse because it fit our needs for the immediate future (3-7 years) and we knew that should we decide we wanted to move it’d be a great first rental property.

We have a couple ideas of where we’d like to live down the road. We could either buy a larger house in town or we could buy a condo on the beach. We’re not sure which way we’re going to go yet but we’re leaning toward the condo route. Either way, we’ll need a down payment because we don’t want to sell the townhouse.

We’ll start shoveling all of our left over/extra money into this account so that we can move when we’re ready. Then, once we move into the new place we’ll tidy up the townhouse we currently live in and rent it out! Then, if we ever want to downsize or have a yard again all we have to do is rent out our new place and move back to the townhouse!

Big Picture Back in Focus

We’re glad that we took some time to figure out what we want to do after my girlfriend’s student loans are paid off. If we hadn’t come up with a game plan we’d either have a growing bank account with no purpose or we would find other frivolous ways to spend our money.

Do you have a goal for your money once your debt is paid off? What type of debt are you working to pay off right now? If you don’t have any debt, what is your number one money goal?

photo by: Vectorportal

Filed Under: Basics, Budgeting, Life

How We Set Up My Girlfriend’s Budget

By 36 Comments

Budgeting help Budgets… a lot of people can’t stand them! My girlfriend isn’t a huge fan of budgets either but she recognizes how budgets help you achieve your financial goals. More importantly, my girlfriend’s budget was made specifically to achieve her number one goal. Want to know what her number one goal is? Keep reading…

Budget Basics

Every budget is different but they all have a few similar parts. My girlfriend’s budget has four main parts. The first part of her budget is her take home pay (income). This is the total amount of money available to be spent each pay period, assuming you don’t want to go further into debt.

The second part of her budget is fixed expenses. These expenses are set and won’t change (or at least they won’t change a lot) from month to month. They are unavoidable unless you cancel a service or make a drastic change.

The third part of her budget is variable expenses. These expenses vary from month to month but still need to be accounted for.

Finally, the fourth part of her budget is savings. She understands the importance of savings even though she wants to pay off her debt as fast as possible. She has managed to save a small amount in a couple areas in addition to paying off her debt.

Take Home Pay (Income)

My girlfriend does not work a salaried job so her income is not the same every paycheck. Instead, she gets paid hourly based on how many hours she works each pay period. Unfortunately this makes budgeting a bit difficult because she has a variable income.

We’re lucky that her schedule is fairly set in terms of a minimum number of hours per week. In order for her budget to be most effective we based her income off of the absolute minimum number of hours she would work in a week. We have a special use for any money earned above that absolute minimum… I’ll let you in on the secret later on in this post.

how to make a budget Fixed Expenses

Now that we have a set amount of income we’re budgeting with it is time to figure out what expenses to expect. We took a look at a typical month for her finances and determined that the following expenses were set and wouldn’t change hardly at all from month to month.

The largest expense most everyone would have is the rent/mortgage. She pays half of the mortgage as “rent”. Luckily, the townhouse we live in that I bought on a whim has a very low mortgage payment. That frees up a lot of extra money toward her other expenses.

Next are the utilities and bills that she has to pay every month. These include, the electric bill, the cable/internet/land-line phone bill, her cell phone, the water bill and the car insurance bill.

Finally, her last and largest fixed expense is her minimum payment on her student loans. We are trying to pay off her student loans as fast as possible which means extra payments. The extra payments aren’t a fixed expense though…

Variable Expenses

We still had a pretty large portion of my girlfriend’s paycheck available after calculating her fixed expenses. We weren’t out of the woods yet though because there were many variable expenses we still needed to figure in.

The largest variable expense in her budget is food. This changes month to month based on how often we dine out and what types of foods we buy any given week at the grocery store.

We also set up a unique budget line item we called random expenses. This category is for those items that pop up everyone once in a while but not in every pay period. She uses this category for items such as clothes, uniforms, medications, auto registration, etc.

Other variable expenses included her budget are gas and a spending money. You need to have a little fun money even if you are working to pay down debt aggressively.

savings and budget Savings

Normally, I’d say you should pay yourself first and set savings goals before any other budgeting takes place. However, because my girlfriend is paying off debt she doesn’t have a lot of room to save a ton of money at this point.

She did want to save for a couple key categories though so we made a little bit of room to make small contributions to two savings accounts. The first is her emergency fund. She started with a small chunk of money and adds a tiny bit each pay period in order to increase her emergency savings.

The second savings account is for our dog, Daphne. My girlfriend saves a small chunk of money every pay period for Daphne’s expensive vet bills that are sure to pop up again sometime in the future. Our dog, Daphne, has allergies and the treatments aren’t cheap.

What About Retirement?

Retirement is definitely high up on my personal list of savings goals. My girlfriend has other priorities and really wants to focus on getting her debt gone as fast as possible. Her student loans have high enough interest rates that I don’t think this is a horrible decision. If her student loans all had low, fixed interest rates it would be another story.

She isn’t completely ignoring retirement though. She contributes to her company 401(k) up to the full amount her employer matches. Who would turn down free money?

The Leftover Money

We planned my girlfriend’s budget so she’d have as much money as possible left over after we accounted for the normal budget categories of fixed expenses, variable expenses, savings and retirement. Why do we do this? Shouldn’t a budget balance to zero?

In an ideal world her budget would balance to zero. My girlfriend’s budget doesn’t balance to zero though because her income is variable and because of our number one goal. So… what is the goal I’ve been alluding to the whole time?

Debt Pay Off Update

Since we want to pay off her student loans quickly we decided to take any and all income above her normal expenses and put it toward extra payments on her student loans. Even on her base minimum paychecks there is still a decent chunk of money to put toward her student loans.

That’s not all though. When possible she’ll pick up an extra shift or two per pay period in order to put even more toward her student loans! Needless to say, she’s aggressively working toward paying her student loans off.

So, that’s how we came up with my girlfriend’s budget! What type of budget do you use? Hopefully you don’t use the most popular budget… because it sucks!

What categories do you have in your budget? What is your number one goal you want your budget to accomplish?

Filed Under: Basics, Budgeting

Four Ways to Split Expenses at Home

By 46 Comments

splitting expenses Splitting expenses is a often a touchy topic when you’re living with a significant other, roommates or family. If everyone doesn’t agree it can get pretty nasty fast.

There are a few ways to split expenses between yourself and those you live with but I’m going to highlight four of the most common ways today.

Splitting expenses really isn’t an issue if you’re living with your significant other, husband or wife and have combined finances.

However, a lot of people keep separate finances when they’re dating (as we do) and some continue this after they get married.

Want to know how my girlfriend and I split our expenses? Make sure you read through to the end of the post.

Split Expenses Equally

Splitting expenses equally is the easiest method to calculate because all you do is simply divide the expense by however many people will be paying for it. While it is easy to calculate, that doesn’t mean it is going to be a popular decision.

This method can work well for items that get equal use such as parking. It seems to work well for spouses or significant others living together because it is simple and doesn’t require a lot of thought.

It doesn’t always work as well for roommates or family living together though because use of the item being paid for is not always equal.

Split Expenses Based on Usage

Splitting expenses based on usage makes a lot of sense from a practical standpoint but it doesn’t always sit well with the people you share living space with. It can also be extremely difficult to calculate.

This method is great when you have roommates. I had two roommates in a three bedroom apartment once and we used this method often. The bedroom sizes in the apartment were not equal so it didn’t make sense to split the rent equally.

Another expense this worked well for was our cable bill. We each had different cable receivers in our bedrooms. The receivers had different costs so we split the cable bill based on each individual roommate’s use.

This didn’t work for food expenses because we couldn’t measure consumption accurately. Instead we all bought our own groceries and asked if we wanted to use some of our roommate’s food.

We couldn’t split the electricity bill based on usage either but I think the only reason we didn’t do this because we couldn’t have individual meters on all of our outlets! 

Split Expenses Based on Income

Splitting expenses based on income seems to be popular among spouses and significant others. Incomes can be very different in some relationships and some people feel it is fair to split expenses based on the ratio of income between the people living together.

For instance, if a boyfriend and girlfriend who lived together made $25,000 and $75,000 respectively then shared expenses would be paid 25% by the boyfriend and 75% by the girlfriend. Bills like rent, utilities, and groceries can all be easily split this way.

This might not make as much sense if you are splitting bills with roommates but could work if you’re living with multiple generations of family.

It could cause some arguments when it comes to expenses that are solely for one person. For instance, if a couple each owns their own cars and drove their car exclusively it might not make much sense to split that expense according to income.

If you use some common sense and only split expenses that are actually shared this might work out for your situation.

Contribute What You Can

The method of contributing what you can is normally what ends up happening when family is forced to live together or a spouse or roommate loses a job.

It takes a very generous person (the person paying the bigger share) and an honest person (the person contributing what they can) to make this work without resentment.

This is rarely a planned method of splitting expenses and it requires a lot of effort by both parties. Normally this works best if you set some ground rules.

If a person is just contributing what they can, any spending that isn’t paid toward shared expenses can cause an argument.

If a person hasn’t contributed to rent but instead purchased a new piece of jewelry arguments could be right around the corner.

How We Split Our Expenses

We have split our expenses a few different ways over the years. We changed our methods based on what made the most sense for us at the time.

When we were dating and both in college I’d pay for our dates (for the most part) and we’d each pay for our own gas to visit each other since we went to different colleges. We split our expenses equally during this time period.

I then graduated from college and was working full time while my girlfriend remained in college. During this time I paid for most of the expenses and my girlfriend would pay for some smaller expenses because she was contributing what she could.

I’d often pay her for her gas money to come visit so it wouldn’t add to her student loans. During this time period we used the contribute what you can method.

Now that we finally are both in the same place and are living together we split our expenses equally. We don’t make the same amount of money but we feel this is the best way to split the expenses at this time.

We have a very low total cost in regards to shared bills, partially thanks to our townhouse we bought on a whim, and can both handle the amount of expense without any financial difficulty.

We keep our finances separate for now, since we aren’t married. Splitting expenses won’t be an issue once we get married because we’ll be combining our finances!

Do you live with roommates, a significant other, or family? How do you split the expenses in your household? What works and what doesn’t? Share as much detail as you feel comfortable doing so we can understand why different methods work for different people and different situations!

photo by: haxney

Filed Under: Budgeting, Life Tagged With: , , , , , , ,
«Older Posts