Operation Debt Reduction: October 2008 Update

Two months ago, my wife and I finally accomplished what seemed like the impossible: paying off every ounce of credit card debt. Our goal now is to be smart enough with our spending that we can easily pay off our credit cards each month, within our budget’s constraints. So far we are doing pretty well. Given how bad the economy is, smart spending is very important and staying out of credit card debt is just as important.

Now my focus has turned onto four things:


  1. Spending: Keep our spending in check (buy only what we need and saved up for). 
  2. Emergency Fund: Make sure the emergency fund is at least $1000 (and preferably higher, especially with the economy). General practice by people such as Dave Ramsey suggests that the initial emergency fund before we are debt free should be $1000. I would like a little more buffer on that.
  3. Home Improvement Fund: We recently bought a condo and are working on doing various improvements to it so we can have it ready to sell when the market turns around. We already began work, as tomorrow we will have two bedroom windows replaced. Our next goal is to get our sliding door replaced sometime in the spring. We are going to start a home improvement fund so we can fund these improvements without having to resort to signing up for a Home Depot credit card.
  4. Debt Reduction: Next on the debt snowball list, paying off my car loan, which has about $6300 left on it (and at worst, won’t be paid off until May 2011). I would really like to position myself to get this loan paid off if not sometime in 2009, then sometime in 2010.
So my initial thoughts on how to do this?
  1. Simple, stop buying useless crap, stop going out to eat when not necessary, and don’t buy any more gadgets (hardest thing on the list, for me).
  2. We are going to continue putting in $25 a week into our emergency fund. It would be nice we can get this up to $2000 by sometime next year (assuming no emergencies occur).
  3. Funding this is going to work like this: probably $25 a week into a savings account, deposit half of our extra paychecks (on a five paycheck month) into here, and deposit half of any bonuses we get into here. That should quickly build up to allow us to do home improvements such as a new sliding door.
  4. I may do something like just $10 extra a week towards this loan, or $40 a month. Small I know, but that is at least $480 a year extra off the loan. Then add ontop of that the rest of the extra paychecks and bonuses. I don’t think it is unreasonable to get this loan cut in half by this time next year.

One Reply to “Operation Debt Reduction: October 2008 Update”

  1. Chris — kudos to you for this, it’s a great thing to do both from the side of personal discipline and personal fiscal responsibility!

    The trick — as you point out in your solutions — is to START somewhere, however small. $25 a week sounds small but adds up quick.

    A fun exercise I once did to illustrate the value of investing $25 a week long term. If you take the equity market’s 100+ year historic rate of return of 8% (this is well-documented and very realistic in the long-term), and invest $25 a week starting at age 18 never stop, you will have over $650,000 when you turn 65 — on a total investment of about $62,000.

    Invest early, invest continuously, and don’t worry about market ups and downs until ten years before your planned retirement. A good financial advisor is also recommended even if you think you know what you’re doing.

    Good luck Chris! Hope to see you become rich in old age by making small sacrifices today.

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