11.09.2011

Financial Review {Four Months}

It's amazing what we have been able to accomplish financially in the four months since we made the decision to go "gazelle intense". It's stunning, actually. And it once again begs the question, "Where did the money go before?" If you've ever found yourself wondering the same thing, or even the front-end question, "Where does the money go?", then I'd like to share a few things we've learned in the last four months.


1) Fund your goals FIRST. Before we do anything else (buy something frivolous, go out to eat, start a project), we put money towards our two main goals: The Rainy Day Fund (RDF) and The Mortgage. Every Friday, our Rainy Day Fund is automatically added to from our checking account, which eliminates the "Oh dear, I forgot" moments. On the other hand, I found that it was easier to transfer a lump sum to the mortgage principle mid-month so that I don't have to think about it again. By paying our goals first, there's no guilt associated with lesson #2.

2) Allow for some wiggle room. We learned in the past that if we went hard-core frugal (no eating out, no shopping, nothing set aside for fun), we quickly burned out and went back to our old ways. This time we did our math ahead of time. For example, we used the Mortgage Payoff Calculator to figure out how much we needed to add to the principle payment in order to have our mortgage paid off in 24 months. We also figured out how much we needed to set aside for our Rainy Day Fund, and planned accordingly. Once those amounts are removed, we know how much is required to pay the bills, support various causes, and buy food - anything left over is fair game. Yes, we could put more towards the mortgage or the RDF, but if we allow ourselves some wiggle room (i.e. I just don't feel like cooking after I've worked all day), we know we'll have a better chance of making it work long term.

3) Pay cash for the big purchases. When we realized that we were faced with two options regarding Peter's mode of transportation (continue to put money into a 17-year-old car, or sell it now and buy something newer), we looked at our savings and agreed on an amount that we were comfortable spending. Peter did a lot of research, we discussed a number of options (including a 1971 Triumph Spitfire), and finally found a great deal on a 2002 Honda Accord (now christened, "Vader"). While I've discussed the benefits of using a credit card on large purchases in the past, when buying a car on Craigslist, cash is needed to close the deal. Not only are people more willing to compromise on price if they know you have cash, but you can't get talked into paying more because you don't have more to give! In other words, if they want $750 and you only have $500 in cash, then you either have to walk away or talk them down. Having cash in hand helped us stick to our budget AND get a good deal on a great car.

4) Follow the William Morris Principle. Early last month, I stumbled upon the Pancakes and French Fries blog, written by Jules. Her 31 Days subject was focusing on "Hav[ing] nothing in your house that you do not know to be useful, or believe to be beautiful". Inspired by this idea, I started cleaning out our house, purging it of everything that I no longer found useful or which no longer fit my style. The financial benefit of this experience is that shopping has lost it's appeal in many ways. I no longer feel the need to buy an item simply because it's a "good deal", and I measure everything by three standards: Is it something I've been planning to buy (rather than an impulse purchase)? Will it be useful/does it replace something else? Is it classic enough that it won't be out of date next year? More often the not, the answer to one or all of those questions has been, "No", and I walk out of the store empty handed. Money Saved, thanks to William Morris and Jules.

5) There are times when it's worth it to spend more. There have been many discussions in our house about when something becomes more of a money drain than it's worth. Yes, the car Peter was driving was paid for, but we figured up what we have put into the vehicle in the last ten months and it more than doubled the price of the car. Ouch. However, it did the job we needed it to do (primarily, it allowed me to get a job), and we purchased it with the funds we had available at the time. When we decided not to fix The Bean again, we also made the decision to shell out more money up front and purchase a newer vehicle that will (hopefully) last longer than a year. The idea is that we're not car shopping ten months from now because Peter will be driving Vader until it becomes more expensive to fix than to keep - at which point we'll have money set aside to pay cash for an upgrade when the time comes.


So there you have it - the Big Five that we've been working through for the last few months. There have been lots of smaller lessons along the way, but those are the five that stand out to me as I think about our progress. Peter is driving a car that would have been nothing more than a dream a few months ago, but because we started being intentional about building our savings fund, we had the resources to purchase a nicer car when we needed it. I cannot even begin to tell you how good a feeling that is - try it for yourself and see what I'm talking about.

Reporting on our progress for the last month:

1) Made two extra principle payments on our mortgage (we're knocking on the half-way mark!)
2) Paid cash for a new-used vehicle for Peter (with plans to sell The Bean and the project car - long story)
3) Weekly deposits into the Rainy Day Fund (now rebuilding from the car purchase)
4) Made some large purchases with the credit card, but paid it off in full

Now it's your turn! How have you done in the last month? Set any goals or paid off any debt? With Christmas coming up, do you have a plan in place for how you're going to stay on track with your spending? Sticking to the budget at the holidays is the hardest thing for me, and I always get caught up in the "oh, just one more gift..." scenario - do you have any tips on how to beat that? As always, if you've written a blog post about this subject, feel free to leave a link in the comments! See you next month!

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