soGiddy!!! (Got to Be a Bit Long...)

[NooraK]

Oh, what a feeling!

DH got a huge paycheck on Friday (huge for us at least, nothing like Chris Manion's $25K February check ). He received a discretionary bonus because his position is moving to an annual incenive plan this year from a monthly incentive plan last year, and this is the company's way of trying to appease associates, because everyone knows the annual payout won't equal to be as much as he'd accumulate over the year with the old plan.

But anyway...

We started Dave Ramsey's Financial Peace University last February, and have been working the plan consistently, though I can't really say we're as gazelle intense as we could be. I did some number crunching last night. I made sure the reserves for our car insurance and similar non-monthly expenses were set aside. I made sure that bills and expenses that were scheduled but not yet withdrawn out of the account were accounted for.

After all that, I still had a huge chunk left (when my computer crashed, I lost a lot of my financial records, and only made a minimum payment on the credit card while sorting things out and waiting to have time to do this number crunching) that I used to pay down our credit card. This also means that when I get my check on Friday, ALL of it is extra to the budget, and since I will be getting paid for my annual bonus from last year, I'll definitely have enough to pay off said credit card :sing:

From what I've done so far, we will also be getting a bit of money back on our taxes.

The credit card represents about 20% of the total debt we had when we started FPU. It's the first thing we've paid in our debt snowball because we didn't have a gazillion cards with a little debt here, little debt there. Because the other debts are also on a 60 month pay schedule, their balances have also come down in the last year. In the last 12 months, we've paid down about 40% of our total balances.

Now, here's my question for the wise Cheffers. What to do with the extra from my check this month (after paying off the credit card) and our tax refund? Do I throw it at the debt, or do I set it aside to fund additional unpaid leave I want to take after the baby is born? I stayed home for 6 months with Markus, but that was pre-FPU, and partly what put us in the mess we were in. I did get some funds from my grandma, but without a budget in place, we overspent. We're in a better position this time around because we're more knowledgeable about where our money is going.

I will be getting 12 weeks paid leave (as opposed to 8 weeks last time around), and I will probably have about two and a half weeks of vacation time that I can use to get paid after that. That leaves about 8 weeks until the end of the year, and then another two months if I wanted to stay out 6 months like last time. If I take the extra from the paycheck and tax refund, and set aside money each month until the baby is born instead of snowballing on the other debts, I should have sufficient funds to stay home at least through the end of the year.

Of course, the ultimate goal would be to be able to build my PC business to a point where I wouldn't have to go back to work, but this is my contingency plan.

The other option of course is to keep attacking the debt in the hopes that we can pay off a good chunk by the time the baby is born. We were talking the other day, and DH is actually starting to get really gazelle intense. He was talking about cutting cable TV I just don't know if we'll be able to pay everything off before August, especially since DH won't be getting a monthly incentive any more. Especially with the knowledge that we paid just 40% of it all when he was getting monthly bonuses.

So I turn to you guys and your infinite wisdom. What would you do?

 

[jwpamp]

If you are truly following Dave's plan, you should continue to pay off the debt. Sounds like you will have enough money to get you thru maternity leave-- and by then you could pull back and make minimum payments on debt if necessary (and the minimum payments will be MUCH less by then anyway).

Gazelle Intense means that you do it as hard as you can until the debt is PAID OFF -- congrats!!!

 

[Dotty]

My advice is to pay down debt and add to long term savings. Long term savings = retirement planning. Have you thought of creating a Roth IRA? You can go to your regular bank and tell them you want to set one up. It is like a regular savings account, but the interest is not taxed as long as you leave in the $ until you retire. The capital (initial investment) is available if you need to withdraw it, with no penalties. From the situation you described, it would be a good retirement account with the financial flexibility to withdraw funds if you get in a bind.

 

[wadesgirl]

I assume this means that you have your $1000 emergency fund set up? If so then yes I would take that money and put it towards the debt! Congrats!

 

[Patty Davis]

What about your 3-6 months expenses fund?CONGRATULATIONS on working so hard towards getting debt-free! It is the most awesome feeling in the world! FPU changed our lives!

 

[jwpamp]

Dave's Baby Steps are:

1. $1000 Emergency Fund
2. Pay off all debt using the Debt Snowball (except for your House)
3. 3-6 months of expenses in savings
4. Invest 15% of your income in Roth IRAs and pre-tax retirement
5. College Funding for Children
6. Pay off your house
7. Build Wealth and Give

It's a simple plan and works if you follow it. The reason you don't invest before you pay off your debt is because you will make an easy 18-20% return by paying off the debt (that typically comes with an 18-20% interest rate!).

It's nice to be debt free. It's REALLY nice!

 

[esavvymom]

I know I'm going against the grain here.....butIt sounds like you've done your homework. Dave's plan does say to do your Initial Emergency Fund first, then pay on your debt until it's gone. BUT he also would tell you that if you know something is coming up that you need to pay for, then save the cash for it and pay cash! He says that you have an emergency fund there to USE for emergencies and I think this maternity leave would qualify - not so much as an emergency but something you HAVE to pay for. When that happens and you have to dip into the EF, you stop paying on your debt, and you build back up your EF. I think if you build up your EF now anticipating this expense, then you can continue on your debt-snowball without the stress looming of the maternity leave in 5-6 short months! I'd work my PC business then to build it up and get extra money coming in to continue with the debt snowball, and at the same time, hopefully set you up for leaving your other job.This eliminates a stress of worry for when the baby comes and if your PC business doesn't do what you hope it will or if something changes. You're still getting gazelle on your budget- just perhaps not AS fast as you could have if you could just apply this money. The one thing that might be an exception for me would be if you can pay OFF any additional debt completely with this extra money or will it just pay it down? If it pays it off, it frees up money for your "Snowball"...which can then be used to put away Emergency Fund money for your Maternity Leave. I think this is actually a very important thing to be saving for. Debt would be important, but this is a life event you are not going to be able to avoid or put off. It will come faster than you expect if you are not prepared. If you can pay off something completely and free up that 'snowball' money, then maybe go that route.Not sure if that helps or confuses you more....but that's probably how I'd play it. That's what the emergency fund is for, and as long as the debt you have isn't risking you losing a house or car or something, that's probably how I'd play it (save first, then debt - unless a debt can be eliminated completely, then use the snowball increase to add to the savings).Good luck! And congratulations!!

 

[jwpamp]

oh, missed the fact that you wanted to stay out of work without pay for an additional 2 months.

It does make sense for you to tuck away the additional money for that. It's all up to you how you want to handle your debt and savings. You have to prepare for the extra months without income.

Just saying that life is really nice without any debts hanging over your head.

By the way, Great job on telling your money where to go instead of wondering where it went!! Bravo for your hard work and Gazelle Intensity!!

 

[NooraK]

Thank you gys for all the responses and advice.

Sounds like you will have enough money to get you thru maternity leave-- (and the minimum payments will be MUCH less by then anyway).

Two of the three debts we have left are ammortized over five years (from late 2007), so the payments won't change until they've been paid off. As of right now, we just have our $1000 baby emergency fund. I don't know exactly how much my check will be, so I don't know exactly how much we'll have to put aside.

Have you thought of creating a Roth IRA?

We do have a Roth IRA, but we are not currently putting anything into it since Dave's plan states to pay debts first, and we're throwing everything extra into that.

I assume this means that you have your $1000 emergency fund set up? If so then yes I would take that money and put it towards the debt! Congrats!

Yes, I have my $1000 in the bank

What about your 3-6 months expenses fund?

We're still on BS2, so no 3-6 months yet.

BUT he also would tell you that if you know something is coming up that you need to pay for, then save the cash for it and pay cash!

See, this is more of what I had been thinking, but I wasn't sure if I was just trying to justify not paying ont he debt to myself, especially since most of the time when I hear him say this, it is with situations like lay offs, not voluntarily staying home when you could work.

The one thing that might be an exception for me would be if you can pay OFF any additional debt completely with this extra money or will it just pay it down?

No, unless we received a huge sum of unexpected funds (and we don't play the lottery, so someone might have to die, and we don't want that), we would not be able to pay all the debts completely.

oh, missed the fact that you wanted to stay out of work without pay for an additional 2 months.

Just saying that life is really nice without any debts hanging over your head.

The additional two months would be fabulous, even one month would be nice. I do want to be debt free, but I think that being there for my baby for those first few months is more important to me at this point.

I think, in the end, I'll have to do the math of exactly how much of our basic expenses are covered by my husband's salary, and figure how much I need to contribute in addition to that. Then work to set aside that much in cash, and go back to the debt snowball. Hopefully most of it can be covered with the tax refund and bonus we're receiving.

And hopefully I can keep up the momentum of my PC business that I've started gaining, and I'll be able to throw that much more at the debt. I started Conference Club for the maximum amount and then realized that I'd be too close to my due date to go. I'll let it go through the entire savings period, and then take that and put it toward the debt.

Thank you again for the insights. That's why I love you guys! :love:

 

[ChefBeckyD]

See, this is more of what I had been thinking, but I wasn't sure if I was just trying to justify not paying ont he debt to myself, especially since most of the time when I hear him say this, it is with situations like lay offs, not voluntarily staying home when you could work.I think staying home with your new baby for as long as possible is important enough that it falls in this category. You want your baby to have the very best start in life - and only you can provide that. I do not think that needs to be justified if it is at all doable.ETA - LOL - after I posted this, I saw that you had posted about the same thing.

 

[Sheila]

If you don't have vacation time that you will be burning & will not be getting a paycheck during maternity leave, then you should consider setting aside what you would have earned during that time period so that you are not put in a position to charge things during maternity leave. If you have any left over, definitely apply it to debt! Most people would run out & spend every penny on non-essentials just because they have the extra money. So just the fact that you are thinking ahead and debating on your loss of income & paying off debt over instant gratification is a step in the right direction!!! You go girl!!!

 

[NooraK]

I finally finished and submitted our taxes last night. Getting money back! I know, I know. It's an interest free loan to the government, but with the time I took off un-paid the previous year, it was hard to estimate how to change our W-4s last year.

Either way, that money is enough to pay off the credit card, and an email I received this morning states the federal refund should be expected by the 26th. I guess we didn't make the cut off for this week's deposits. In any case, I should have plenty to put aside from these unbudgeted extras for the end of the year, and then keep going on our snowball with our regular income. I think that's a win-win solution

 

[robochick84]

With your upcoming "time off" if you are looking for a good read my DH recommends and "somewhat" follows that of Ramit Sethi "I Will Teach You To Be Rich".

Good Luck, it sounds like you are gaining on your plans!

 

[NooraK]

Just a tad bit of an update. The credit card is now paid off, and I put the remainder from my paycheck into savings, which was about the equivalent of a standard paycheck. We also got our Federal Income Tax refund, and that went into savings too. We're still waiting for the State Tax.

It's actually a good thing I decided to do it this way. When I was expecting DS1, we had the option of an insurance plan which covered 100% of the expenses related to pregnancy (though I did pay more monthly). This year, that option is no longer available, and our out-of-pocket responsibilities have increased in general. Our company does give us a funded medical expense debit card, and we can choose to add to it from our paychecks as well. What I didn't realize is how much I'd be paying with all the different tests that are run and such.

I'm sure a big portion of it is that we're currently still paying for our deductible, but we've already received several hundred dollars worth of bills from the lab that processes all those tests. I also went a head and paid for our portion of the delivery (since I'll have to pay for it anyway, and was planning to use said debit card anyway), which is over $600, not including our deductible, or the $500 co-pay for the hospital admission.

I'm thinking that we're going to exhaust what is on our medical debit card before we hit our out-of-pocket max for the year, so I'm very glad to know that I have some savings to cover any costs we may have.

And on top of that the insurance adjustor told us we need a new roof...