Budgeting Project: Baby Step #2 - Progress Report 1

As part of my Budgeting Project, I wanted to post Progress Reports for my Get out of Debt goal. I finished Financial Peace University (FPU) the same week I got laid off. But if you've been following my job hunting journey, you know I am starting a new job on 5/23! Yay :)

Getting laid off really put a damper on my budgeting project. I was scared to spend any money even though I was receiving a severance check. I just wasn't sure if or when I was going to get a job, so I really hunkered down. I completely stopped budgeting... I know --- BAD! But I think I was just scared of being in the red and not have anywhere to go from there.

Then, I got a job offer and then I felt free to spend (mostly to prepare for going back to work). I also had an appointment with a Financial Advisor in March, but since I got laid off -- It was just too much for me to deal with at the time. I did end up rescheduling and we met yesterday! Which I'm so happy we did, as now I have hope that YES, I can get out of debt. I just have to get back on the budgeting bandwagon.

I'm following the Dave Ramsey Baby Steps. I'll be on Step #2 (the debt snowball) for a long time...! But the good thing is -- I know I can do it! It might take awhile, but I will endure and make the necessary changes to finish each and every baby step. Right now the projection is that it'll take me 7 years to be 100% out of debt = 2023!! That's being extremely conservative. If I'm more aggressive (which I can figure out how aggressive I can be when I'm getting a regular paycheck), it can be a lot sooner. I am really gunning for 5 years = 2021!

Changes Prior to the Layoff 

Since I started Financial Peace University in January, I made some major financial changes and "found money," started budgeting, and made progress with a few debts (thanks to my work bonus and my tax return).

Started Dave Ramsey's Financial Peace University: 1/14/16, Graduated 3/10/16

Total Debts: 10 debts (not including my mortgage) 

1. Debt #1 - Paid off on 3/3/16! YAY! Paid of the week prior to being laid off. 
2. Debt #2 - CC
3. Debt #3 - CC
4. Debt #4 - Student Loan 
5. Debt #5 - Student Loan 
6. Debt #6 - Student Loan 
7. Debt #7 - Student Loan 
8. Debt #8 - Student Loan 
9. Debt #9 - 401K Loan with old company, going to get a tax hit in 2016 
10. Debt #10 - 401K Loan with old company, going to get a tax hit in 2016

Baby Step #2: Pay off All Debt with the Debt Snowball

2016 - January

• Cancelled Gym Membership $264 yearly savings. 
• Massage Membership (cashed out remaining massages into gift cards) $708+ yearly savings. 
• Made a spreadsheet to do my Cash Allocation. Realized I didn't have enough income to cover my basic costs. Basically, I was in the red. That's when I started making major changes. 
• Stopped my 401K Contribution... this was HARD to do. I was contributing 5% and my company matches 5%... But after doing my Cash Allocation, I knew I had to do it. 
• NOTE: This made a big impact on my take-home pay. 
• New budgeting process: Use the Cash Allocation spreadsheet for budgeting and import the values into YNAB. 
• UPDATE: Seemed to work for the first month, but I think working out of YNAB directly works better for me, so I'm not double doing things/making errors/forgetting things. Plus, YNAB budgets me down to ZERO - essentially doing the same thing as the Cash Allocation plan but automated. YNAB also has a feature where you can put a "goal" to pay off a debt by a certain date. I've started using this feature for my debt snowball. 
• Picked a financial "Buddy" to help me with my budget and to run big expenses by. Had first meeting to look t my Cash Allocation plan and find areas to save. Also, my buddy's the one that told me to stop my 401K contribution... 
• Made a new policy: 1 week "hold period" for large purchases of >$100. 
• This was a HARD decision... I have a house cleaner come 2x's a month to do all the deep cleaning. It is such a stress reliever knowing she's coming and cleaning my house... But when I added up the price, it's over $2000 a year!!! So, with much hesitation - stress - and sadness, I decided to tell her I couldn't keep her anymore :( One last cleaning in February, then I'm done for now. 

2016 - February

• Changed Security System providers. My current provider was $61/month. I moved to another provider for $46/month. I get much more for the price. I had to pay $$$ one-time for conversion and new equipment, but it was put into 3 monthly installments. So, overall savings is about $15/month. 
• Changed my W4 elections. I am getting so much back on my taxes, trying to get more back a month. Have to see how 2016 taxes go and see if I should "up" my elections. The W4 calculator suggested I add +3 elections to what I currently had. But I didn't feel comfortable with that, so only added +1. I might change this next year, depending on how tax season goes.  
• NOTE: This made a big difference on my take-home pay. 
• GOAL: Get a month ahead on my bills. Which I *was* before the holidays hit. I get paid on the 15th and last day of the month. I would like to get to where those two paychecks go to the next month's bills. With my bonus and tax return, this is totally possible and I'm implementing that on my paychecks in March. So, I would basically budget for April with my March paychecks. Moving my budget planning earlier (About the 25th of the month, as all my monthly bills hit by then). 
• UPDATE: Found a "Fancy" Debt Snowball spreadsheet from Life with Sarah on YouTube. I started using this spreadsheet for my debt snowball and LOVE it.  
• Modifying Debt Snowball: Decided to modify the debts I'm going to pay off first. Dave Ramsey says to pay off smaller debt first, to not look at interest rates... Well, I decided to tackle all my credit cards first (due to the interest rates). I have some student loans that have lower balances than my credit cards, but the interest rate is so much higher on the credit cards. Paying one student loan off wouldn't even be a big impact, as the monthly payment is way lower than my CC's. So I'm tackling: 
• 1) Credit Cards - smallest to largest. 
• 2) Student Loans - smallest to largest.
• 3) Other Loans - smallest to largest. 

2016 - March

• Created a spreadsheet for Monthly non-recurring expenses to track: Birthdays for gift costs, special events (baby showers, weddings, birthday parties), Holiday expenses, my personal events (baptism, birthdays, etc), house maintenance (yearly AC inspection, carpet cleaning, tree trimming, etc). 
• The PLAN: At the beginning of the month, I will look at the calendar and estimate the expenses for each of these categories and add it to my budget. I'm hoping that doing this for a year, it'll become a good habit. These were the "small" or "forgotten" items from my January/February budgeting. 
• Set-up a meeting with a Financial Advisor, ELP!  <rescheduled after layoff to May>
• Contacted Zander Insurance Group to see if I can get quotes for Auto / House Insurance. Turns out, I have pretty good coverage already! Decided not to switch. I did change some of my coverage though, as I didn't realize my coverages were on the low-side. This did increase my insurance costs, but it was better to change to the higher coverage and it was still lower than what I was being quoted by the Zander group. 
• NOTE: This is the first month that I actually felt like budgeting was "under control" and becoming a better habit for me. I'm starting to notice where there were gaps in my budget and why I was forgetting things. 
• Bad spending habits to curb: I did a little "free spending" due to my tax return and bonus money to buy some toddler-friendly items for my backyard. What I need to do is NOT do that, even if the expenses are not that big. Because putting them all together, the expenses do add up. I need to "budget" for these items better. Like, if I already did my budget for the month, then I can't purchase those items for the month and need to budget it for the next month. I have a "I want it now!" child mentality when I get an idea in my head for things I want to buy. 

** And then I was Laid Off ** 

Changes-To-Come with New Job 

Meeting with the Financial Advisor really made me feel good. It's really getting me back on track and gave me a clear direction on where I needed to go next. It was nice discussing my retirement and how comfortable I want to be when I retire. I'm very excited about eventually getting past Baby Step #2. I just have to stay focused on the end goal... What are my financial goals? I guess I never really touched on that. They are simple: 

1. Get out of debt and NEVER get back into debt. No more loans EVER. 
2. Have a 12 month emergency fund. I know this is extreme. I'm going to start off with building up to 6 months (in baby step #3), but I really want a years worth. If I ever get laid off again, I never want to be in the position where I feel like I can't provide for my family. 
3. Have adequate life insurance policies to take care of my kids. 
4. Be on a projection to be able to retire by 65. Which surprisingly, I am on this projection with my current retirement accounts. Yay! 
5. Have a good college fund set-up for my children. 
6. Then... eventually be able to DONATE to my Alma Mater, my foster care agency, and my church -- as much as I want! 

After meeting with my Financial Advisor, here are the the next steps for me: 

• Cash Out Stand-Alone Stock - In progress 
• Start budgeting AGAIN - restarted 5/10. Need to see how things look after my first month of a new paycheck (June) to see how much extra I can add to the debt snowball (while cash rolling my IVF cycle). Review budget with Financial Advisor when completed. 
• Retirement: 
• Roll over 401K to Traditional IRA 
• Roll over Variable IRA to Traditional IRA 
• Roll over Pension (from old company) to Traditional IRA 
• 401K Loans: Earlier I mentioned debts #9 and #10 were 401K Loans. I have the option to pay monthly or to take a tax hit. It turns out if I take the tax hit, it's cheaper than trying to pay it off. So, I'm opting for the tax hit. I have enough deductions and itemized expenses that I don't think it'll be that big of an impact on me. But I will budget for next year the amount of the tax hit, in case I end up owing taxes. 
• NOTE: I will NEVER take out a 401K loan again. Dave Ramsey doesn't recommend it and I wish I would've taken FPU years ago. Of course in FPU Dave Ramsey says that once you take out a 401K loan, you'll get laid off. I remember that class and thinking, "Oh crap, I hope that doesn't happen!" Then it did. It does happen. So, never again will I take a loan out of my retirement account. 
• College Savings: Open up a 529 account for my son. This is WAY down in the baby steps. But I wanted to get the account open and add to it as I can. But I really won't be adding much to it until I'm done with the debt snowball. 
• Cash roll my upcoming IVF Cycle, no new debt! Adding as a budget item for June. This is a big ticket item. I'm still considering if this is the right option (a new fresh cycle), but I'll have a separate blog entry on that. For now, I can cash roll it and I will budget for it. 
• Insurance: 
• Review Life Insurance options at new company with my Financial Advisor. 
• Fill any gaps with Term Life Insurance. 
• Designate the beneficiary to all my accounts to my Living Trust, as I set-up my estate planning earlier this year. 

Ok, I think that's it. It's been a crazy thing since the layoff. But I finally feel like my life's projection is back on track. I need to make a lot of changes and really focus on my Debt Snowball with Gazelle Intensity!!! I can do it. I just keep imagining the life we will live without the burden of all these debts. It's going to be so nice being on the other side... when I get there :)