PocketCoinage

It’s been almost two months since my last posting and I’m sure many of you are wondering where I’ve been.

Well, I’ve been killing my student loan debt.  Just this past week I paid off one of my loans and have two more to go.  If you look in the right-hand column of my blog, you will see my countdown.  The $700 is what I calculated the average monthly payment to be.  However, in the last two months alone, I’ve been putting my payments into overdrive.

I’ve been sacrificing by cutting back my lifestyle, selling things, and budgeting to become debt free sooner.  Guess what?  It’s working! I can see the light at the end of the tunnel.  In the past three months alone I was able to allocate almost $4,000 towards my loans!  The feeling is incredible.  Before I got fired up, I was on course to pay them all off in 4.5 years.  I never thought I would pay my student loans off in a year or less.  Now I’m on target for Summer/Fall of 2011!

The key is staying motivated, having a plan, and staying focused on one goal; not a few.  I think that was my main problem.  Now with the one goal in the crosshairs, I can take it on!

After my most recent posting about Bad v. Good Debt, I got all fired up about paying off my student loans as quickly as possible.  I mean, I only wasted $1,520.48 in interest alone!  Before this posting, I really did not run the numbers to realize how much money I was losing.  I told myself there had to be a way I can reduce the payoff time to less than two years.  Currently, I am on target to pay off the loan in about four years.  However, four years is not going to cut it with my vision for the future.  I needed to put the numbers down on paper and see the results.

So last night I sat down to work on an updated budget spreadsheet that worked with my varying paycheck.  I found out that by slightly modifying where each dollar goes (house fund, emergency fund, etc.), I am able to boost my school payment from $440 to $700 every month.

How did I increase my monthly payment by $260?  I was able to:

• Judge my base take home pay and budget based on that
• Slightly cut back on how much money each item receives
• Cut back on a few unnecessary items (wants)
• Use the extra money in my pay exclusively for debt reduction

This alone should bring it down to around 24 months.  However, I’m going to take this a step further in an attempt to knock it out sooner.  Since I save bi-weekly, this creates an extra “payment” every year.  For example, I put away money for the mortgage every pay period.  By the end of the year, I will have an extra payment to use for pure principal.  For a short period of time, I’m going to be using this extra mortgage payment to knock out my student loan debt.  I’m also going to allocate some money from my tax return to reduce this debt.  By going this route, I am on target to pay off my student loans by December 2012 (15 months).  Who knows, if I come across some money, it may be less than 15 months!  Unfortunately, once all is said and done, I will end up losing another $800 in interest.

The emergency fund is probably the most important savings account.  Think of it as self-insurance.  You save for an unforeseeable event: loss of income, furnace goes, or the roof springs a leak.  So how much do you need to keep in an emergency fund?  It all depends on your comfort level and what you are saving for.  You may even want to have different, targeted, emergency funds.  Some people recommend saving for at least 6 months of expenses.  Personally, with everything going on in the world, I would save for at least 12 months of expenses.  This will give you some flexible time to look for another income.

My current emergency fund is for anything at this point in my life.  Once I reach my ultimate goal of $20,000, I will set this account aside and name it the “Loss of Income Fund”.  The $20,000 will keep my current lifestyle afloat for about a year.  I may even open short-term CDs to make some more money rather than letting it sit at a lower interest rate.  To keep my savings on track, I could direct the money a few ways:

• Keep putting money into the “Loss of Income Fund” after I reach my goal
  • Every $1,000 I go over my goal, a 1-year CD gets opened
• Create a new emergency fund targeted towards another goal
  • Maybe an “Emergency Home Repair Fund”?
• Send it to another savings account for non-emergencies
  • Vacation fund
  • Auto fund
• Save more towards my Roth IRA

I also use my emergency fund for when I overspend on my credit card the previous month.  I refuse to maintain a balance on my credit card unless I have no other choice.  Most of the items are unforeseen expenses and this is where it is very nice to have a fund to tap into.

Do you have an emergency fund?  How do you use it?