Our ultimate goal is to become debt free. In the meantime, we have set some smaller goals to get us to the larger one. This is all part of our
elaborate simple financial plans. This is just a rough plan and not everything is set in stone although we would like to stick to it.
Both my wife and I have read Dave Ramsey’s The Total Money Makeover. While he has an awesome strategy/plan to financial freedom, we just don’t think it is 100% for us.
One part of his plan includes debt snowballing. This is a really exciting idea that we are going to follow, although not completely. Dave recommends to take all of your debts (except the mortgage) and put them in order from smallest to largest. Basically you pay minimum payments on all but the smallest debt, and use any extra discretionary income to pay off the smallest debt first. Once you pay the smallest one, you take that payment and all of your discretionary income and pay off the next smallest loan, etc. This can be a rewarding strategy because you can see the progress. The only thing with this plan that I can’t or don’t agree with is that he recommends doing it with only a $1000 emergency fund. I’m pretty sure that we would be a little stressed out not having a larger emergency fund so the plan is to do both at the same time. Debt snowball and save for the EF.
Here is our loans other than our mortgage.
- Camper Loan: $7,588.05
- Student Loan: $3,971.53
While the student loan is less than the camper, we want to pay the camper off first. The camper loan is at a higher interest rate, and no tax deduction for the interest like the student loan has. We haven’t decided yet on how much of our discretionary income will go towards debt vs. the emergency fund. I’m thinking probably a 60/40 debt to EF ratio. Our goal is to have both of these debts gone by years end, along with at least half of our EF funded.
We will be taking our tax return and putting that right onto the camper which should take a nice bite out of it. Another thing that we don’t count on in our budget is overtime income. We decided not to include it because overtime is never guaranteed and I don’t think it is a good habit to rely on it to pay bills. So we treat it as we never had it, and mostly it goes towards paying debt. Most of our overtime that we work will go straight to the debt but it will not be budgeted payments. Another thing we are waiting on including in our budget is our refinance (which is still in progress 😦 )
Once both of these debts are paid off, we plan on finishing our emergency fund before paying extra on the house. After the EF is fully funded, we want to attack the mortgage and also save for some fun stuff (vacations, toys). I want to also increase our contributions to retirement accounts, mainly my Roth IRA and start one for the wife also.
Do you have a plan to meet your financial goals? How likely are you to stick to those plans? Do you think you will stray from them?