I’ve moved in to my new school and we have already started working! We are on an extended school year and kids are coming to us Monday. I am excited to start at a new school and I am ready to go back since I think I spend more in the summer just because I am off work and thinking about projects and activities that cost money all the time. I have also been thinking about and formalizing how money will function for me in the next school year. I think I have a pretty good start despite experiencing some obstacles for the past 3 months.
Net Worth Update
Since my last Real Talk in July, my net worth has increased a whopping $691.57. My assets have actually decreased since markets haven’t really gone up much and I have been spending out of my house savings account. The biggest change I am focused on and am extremely happy about is the acceleration of decreasing the liability side of the balance sheet. In July when I posted, my auto loan balance was $10,577.02, and that was after making a large payment on it. Since June, my balance has fallen $1,974.38! It should be fairly obvious that I am much more concerned with paying down debt right now than building up assets.
|VLFCU (house fund)||1,814.00||Autoloan||9,777.90|
|Barclays (Em fund)||2,030.73||Student Loan||20,568.84|
Paying off Debt vs. Building Assets
I read a while back that there were some studies done that showed people experience more satisfaction when they add to their savings or investments than they do from reducing their debt levels by an equivalent amount. That is to say, you will be happier by saving $500 than if you paid an extra $500 on your loan. I have been the textbook example of this finding since for three years I continued to pay the minimum amount due on my car loan, even though the original plan was to increase my payment amount as I got raises. But I opened several investment and savings accounts (5) in that same time period. Two cost of living raises could have lead to an additional $10 each and a formal raise could have lead to an additional $200 a month! I never did that. But after listening to the Choose FI podcast and the Bigger Pockets Money podcast, where I have now heard countless stories of debt pay off and how happy people feel to be debt free, I am working hard to change my mindset.
I started to feel a lot of stress about my car loan when I realized I was going to be free of my student loan before my car loan (because of Teacher Loan Forgiveness after 5 years of work) which didn’t seem right. My student loans were an investment in myself and I do consider that expenditure an appreciating asset. My education was priceless in many ways but it also easily guaranteed my current job and I think it will help me in future endeavors. On the other hand, my car is a depreciating asset. I looked up my car’s value on Kelly Blue Book and I found that its value is far less than the amount I owe on it. YIKES! So I have been drastically increasing my payments on my car. When I say drastically, I mean drastically. I am now paying three times the minimum owed. According to the amortization tables I have created and recreated in Excel, I will pay off the car in July 2019. My final payment will be less than $600. That means starting in July 2019 and from then on, I will have freed up a chunk of income that can go back toward saving or my other liabilities.
I have started to realize how much I hate that as soon as I get paid, I have to make sure all of these different banks get their slice of the pie. My car payment is certainly the most annoying because it’s a sizable chunk and my car isn’t something I love. My student loan payment is half the amount of the car payment and I loved going to school and I am still grateful everyday that I got a college education. With my mortgage, I don’t fret about it as much because you have to live somewhere. Either you’re going to rent or pay a mortgage and my mortgage is a lot less than some people’s rent amount. I consider that a winning situation. But when I consider I pay 3 different banks almost half of my take home pay, I get a little peeved. I am tired of it. So, I created the plan to get rid of it. Next summer, I am free from the car loan. And another year later, I’ll be free of the student loan!
Changes in Income
As I outlined in my July Real Talk, I am in this mind warp of a situation of fixing my employer’s mistake of overpaying me by more than $8,000. So each pay check I have been reduced by $1050.52 and it feels like I am barely getting paid. However, there are some good things happening or about to happen!
- I only have two more paychecks like this. Come September 7, I will get a regular pay check. Can NOT wait for this to happen.
- I got a cost of living raise of 2.75% that began this past pay check.
- I got a raise for transferring to a school with a longer school day.
- Because of that huge over payment, I have actually paid the vast majority of my Federal and State tax liabilities for the year. When you get a “bonus” it is taxed at a higher rate than your normal pay because tax withholdings are based on what it looks like you’d make all year if you made that amount every check. Plus, I was already paying a little bit too much by having 1 withholding allowance. So now I can reduce how much taxes are withheld for the remainder of the year by a significant amount. I will simply change my with holding allowances to 8. This is going to give me back more than $100 each pay check.
- I am going to get a stipend at my next pay check for an accomplishment last year.
All of these mean really one thing: more money! I am going to be able to save money again and it will be significantly more than I was able to save pre-repayment-of-district-mistake. Up until the end of May, I was having $150 directly deposited into my Barclays savings account at each paycheck. Now I will be able to have a total of $311 direct deposited into my various accounts. More about that in the next section.
Changes to Savings and Investments
For the coming months until December, my savings and investing plan will be as follows. Anymore, I really prefer investments to regular savings in cash.
- Increase 457 contribution to $200 per check. This increase is $75 worth, a little less than half my raise amount. This keeps my tax liability lower despite the raise in income.
- Deposit entire take home portion of stipend coming August 10 into my Emergency Fund. Emergency Fund fully funded (3+ months expenses).
- Deposit $25 of each check into traditional savings account for the House Fund. Build up small stash to be used on larger house fixes.
- Deposit $175 into Roth IRA each pay check, until that account is maxed out for the year.
- Deposit $110 of each check into taxable investment account until the Roth IRA is maxed out, then deposit $285 into taxable account.
- Open Chase Checking account and set up direct deposit. Earn $300 bonus after the direct deposits in August come through.
Changes to Spending
As I pointed out in my last article for teachers, I just opened a new credit card with Chase. I officially make all of my purchases on a credit card and then pay the card down or off on pay day. I have been doing this for a little while on my Huntington card, but I decided to switch cards to get better rewards. This is making a big impact on my spending plan. Here’s the spending plan:
- Open Chase Checking account and set up direct deposit. Continue to deposit $500 or more each month to waive their monthly fee. Why did I open a new checking account? Primarily because I just opened a Chase credit card to be used for some travel hacking. It will be super easy to pay for all of the expenses I put on that credit card through the Chase Checking account. But also because of their special offer to give a $300 bonus for opening a new account!
- Buy everything on credit card to maximize rewards.
- Buy everything on credit cards to shift my mindset away from spending all the money available in my account to keeping the balance on the credit card as low as possible. When I spent money from my checking account, my mind would automatically think “well I have $200 so I can spend some money right now” or “I have $20 left before getting paid again tomorrow, what should I buy?” Now I am setting limits on how high I should reasonably spend in a month overall and in certain categories. I feel like I am winning a game if I spend less than those limits. I’ll probably write an entire post on this sometime soon.
- Optimize repeated, regular, non perishable purchases. I discussed some of this in my optimizing the cost of dog ownership post. The general idea is to buy things in bulk and spend more at once, but less overall. I am doing this with dog medicines and foods as well as my personal items like vitamin supplements and contact solution. I don’t have a Costco membership, but I have friends who do and they always offer to buy me things. Medical supplies have the best price at Costco. I mean they got me a years supply of allergy meds for $12. At a regular pharmacy or grocery store, $12 would have gotten me not even a month’s supply.
- Attempt meal planning. I have never been able to sustain meal planning in the past. I am hopeful that I can do some version of it now that I have been working hard on reducing my spending over all through these other methods.
I am really excited for the next couple of months. I’ve got a good plan for my finances and my professional life. I think it is going to be an exciting time and I can’t wait to share what I can accomplish before the end of 2018! I have several posts I plan to write for you guys once the specifics become more concrete. I think you’ll get a lot out of them.
What goals do you have for the second half of 2018? Are you tracking your net worth or changing your financial strategy? Share below in the comments!