financial freedom

Taking Advantage of The Housing Boom

10.08.2010 by juliegumm@yahoo.com //

The next huge step in our financial journey really came in 2004 when the housing market in Phoenix went absolutely crazy.

The house that we bought for $199,900 over a year earlier was suddenly worth about $350,000. Crazy right? So of course Mark starts talking about selling and I start rolling my eyes at him.

At this point we’ve been married 11 years and moved 7 times. I was tired of moving. Plus I loved our house and our neighborhood.

And, as I was quick to point out, what was the point of moving when everything was hugely over inflated.

So we did some research and began to look at new housing developments that were a little further west (the city of Phoenix just keeps spreading out) and had not yet peaked like the rest of the city.

And I learned something. I shouldn’t look at model homes unless I want to move. Because of course once you look you find something you love.

It didn’t take us too long to decide to make the leap and we signed on the dotted line for the construction of a new home. We downsized a bit (going from 3300 sq ft to 2700 sq ft) and after our construction options I think our final sticker price was $215,000.

They told us construction would take 6-8 months.

It took about 12.

Of course all that time we were praying that the market would hold because we weren’t going to put our current house on the market until we were closer to the move time. The market had been so crazy that houses were literally being bought within hours and I was NOT going to have to deal with a whole temporary move thing.

When it finally came time to sell we listed the house and sold it within a few days for $385,000.

From the proceeds we held back money for movers (my stipulation although we packed all the boxes ourselves), paint, landscaping, window treatments, etc.

But everything else was spent on the down payment which left us with a $65,000 mortgage.

And then we started to do some math. By this time we were making more money and we had continued to keep our budget pretty simple so we moved money around and figured out that by dumping everything extra at it, we could pay off the mortgage in 2 1/2 years.

And so we cheated. We totally skipped baby steps 4 & 5 and went straight to paying off the mortgage. We were so motivated because we could see the light at the end of the tunnel and could almost grasp total financial freedom.

Only later would we realize how important that freedom would be.

…to be continued

The “B” Word: B-U-D-G-E-T

08.06.2010 by juliegumm@yahoo.com //

Part 5 of our Debt-Free Story

So Dave Ramsey lays out these 7 baby steps ($500-1000 in an emergency fund; pay off debt except house; 3-6 months expense in emergency fund; invest15%; college funding; pay off mortgage; build wealth – MORE DETAIL). (We’ve kind of adapted our baby steps/financial plan but that’s a different post.)

Well to get to any of those places there’s one thing that needs to be in place and that is a budget.

Preferably one that works. Our previous attempts had not.

We quickly realized that we were going about it all wrong. We were trying to come up some perfect one-size-fits-all budget in our nice yearly spreadsheet. Sure we accounted for things like Christmas but other than that life was supposed to be the same every month. Right?

Yeah, not so much. When we finally realized that the budget had to be a monthly thing it was like the light bulb went on. Sure, a lot of the expenses stay the same but there are always things to take into consideration.

Is it back to school time (school supplies, clothes)?
How many birthdays will you be celebrating that month?
School pictures?
Company coming (bigger food budget)?
Car registration?

The bottom line is this: You MUST tell every penny of your income where to go. Add up your income, list your expenses. If you have extra put it toward your baby emergency fund or your debt. If you don’t have enough? Well, now we’ve got an issue don’t we. (We’ll come back to that.)

I will be the first to tell you that some of our first monthly “budget meetings” were not pretty. Not that they were screaming matches but there was much we disagreed on (why did I need a “misc” category; should golfing come out of his fun money or the general budget). But, we learned to compromise and we knew that if it didn’t work that month we would revisit the issue the next month. And the biggest thing is that we had an agreed upon goal that we were both excited about working toward – paying off our debt.

Dave has some great forms to get you started on his web site.

You might really be struggling to figure out what to put in some of those categories. If you’ve never tracked your spending before you may have no idea what you spend on groceries every month. Take your best guess (maybe look at old debit/credit card transactions) and then save EVERY receipt for the next month to track what you spend.

What if there’s not enough money? If you run out of money before you run out of expenses then there are two things to be done. ONE – cut your spending and TWO – pay the most necessary expenses first (in drastic situations).

The second one is a bit complicated to get into here but I will address the first one briefly. Sometime I’ll do a more detailed post on ways to trim the budget.

There are 3 main areas that seemed to be the first to go to when it comes to trimming the budget (not counting selling cars, etc that have HUGE payments).

1) Eating Out/Entertainment – The average American family spends $225 a month eating out. That’s incredible isn’t it. It adds up quick – a family meal out, some stops at Starbucks, run through the drive thru on the way to/from the kids activities, order a pizza in, lunch for the working spouse(s). One word for you: STOP. Brown bag your lunch, store some frozen pizzas in the freezer, keep a bag of snacks in the car to stave off hunger until you can get home. Budget a modest amount and stick to it. In our strictest budget days we allotted $30 to this category.

2) Groceries – $700. That’s the amount the Jonses (family of four) spend on groceries each month. We knew one couple (w/ no kids) that was spending $900 a month and had no idea that it could be done on so much less. I know families of four who spend $70/wk ($280 a month). I feed our family of six for about $400 a month. I do some coupon clipping but it’s mostly shopping the sales, stocking up when I can and cooking wisely.

3) Cable/Internet/Cell Phones – We’ve come to expect these things. We deserve these things. We need these things. Yes, some are necessary. We need high speed internet at home for our job. Can you downgrade or eliminate your cable package? Can you shop for a new cell plan that’s cheaper? Get rid of your home phone?

Ah, I digress – sorry I get excited about this stuff.

So once we figured out our budget the next problem was figuring out how to stick to it.

Dave Ramsey has a plan for that too. It’s called The Envelope System which I will introduce you to next week.

Driving our Debt Around

07.23.2010 by juliegumm@yahoo.com //

Part 3 of our Debt-Free Story

As I’ve mentioned, I come from a family who drove cars until they died. In the entire time I grew up I only remember my parents buying 4 cars including the one they had before I was born. One was a 1970 Ford. Then a Pontiac hatchback and two Honda Accords.

The Ford lasted about 17 years before my brother totaled it. One Honda met the same fate (different brother) and the other two were driven until it no longer made sense to repair them. The 3 kids never had their own vehicle but we managed schedules and shared the vehicles w/ our family of 5. There was lots of carpooling and ride sharing going on.

I told Mark early on in our marriage that if it wasn’t a convertible (my dream car) then I didn’t much care what I drove.

When we graduated college I was driving our 92 Nissan Sentra. About three months after we’d moved to San Antonio I got into a fairly minor accident, rear ending someone when my brakes locked up on a wet road. It did a pretty good number on the front of the car despite being pretty low speed.

Suddenly Mark was determined that I needed a “bigger, safer car”. I’d seen the cars Mark had driven in high school. “Bigger” meant “grandma” car. No thank you! We compromised on a Dodge Intrepid which we purchased, trading in the repaired Sentra.

Of course that meant trading in my $156 car payment for a $267 car payment.

A couple years later Mark decided to downgrade the debt he had on his truck. We sold it to his parents and he bought an older used Mazda 626. This seemed like a turning point in our car buying patterns. Our car debt was going down, not up!

Oh wait…

About a year later, Mark got an itch to buy an SUV. We only had about a year of payments left on the Mazda 626 so I pleaded that we not get rid of it. So that meant it became mine and we sold the Intrepid (again to his parents) and bought an ’97 Ford Explorer.

It was during this time that Dave Ramsey implanted himself into our lives and our car buying habits would soon change forever.

By the way – if you’re counting, that’s 4 years of marriage; 6 vehicles.

Archives

Taking Advantage of The Housing Boom

The “B” Word: B-U-D-G-E-T

Driving our Debt Around

Financial Freedom

Taking Advantage of The Housing Boom

I Met Dave!