Past, Present, Future

So, for years I have read personal financial books and the message generally has run something like this:

- Save 10% of your money for emergencies and for the future
- Invest in 401K to take advantage of the company match, and compound interest. Make sure to invest the maximum amount for which the company will match.
- Stop using your credit cards
- Pay off debt, starting with the credit card with the highest interest rate percentage
- Pay off the rest of your loans in descending order based off of interest rate.

Sound familiar? This has not worked for me for 10 years. What has not worked? For me, focusing on paying off the highest interest rate account has made it hard. I start paying it off, and then either something happens, like a baby is born, a car has issues, someones needs to go to the doctor, etc., then I begin racking up credit card debt again . Also, I found that for me, saving 10% just never really happens.

So, let me back up and show you where I was at maybe 5 years ago, then show you where I'm at today, finally where I'm hoping to be in the next 18-24 months.

The Past- this is approximate
2006
Item Amount Owed Rate
Ford Focus loan $13,000 10%
Chase card $5,000 25%
US Bank Card $14,900 12%
Capital One card $1400 27%
College Loan $6,000 2%
Total $40,300

So, I started with the obvious, paid off the Capital One card. That happened pretty slowly, about a year to pay off the $1400 or so. I found with part of my money going 401K, and trying to save, that it took me forever to pay anything off. My wife and I then focused on the Chase card. At about 25% in interest and balance at $5,000, it was ridiculous. We managed to get it take care of in one year, which was a long year.

By 2008, we had the Chase and the Capital One paid off. However, we had been living above our means, and continued racking up our credit card debt. As mentioned in my prior post, my sense of entitlement to enjoying my life provided the justification for buying basically whatever I wanted, whenever I wanted it. Normally at this point if I were to have followed the typical advice, I would have begin paying down the US bank card, as it was at 12% interest, and my Ford interest rate was 11%. However, what happened was that my credit card amount stayed the same. I still owed approximately $15K on my credit card, as we spent more than we made (Entitlement!), while the Ford was down to about $12-13K. 2008 looked something like this.

2008
Item Amount Owed Rate
Ford Focus loan $9,000 10%
US Bank Card $14,950 12%
College Loan $4,000 2%
Total $27,950

Life was moving along, and I had gotten a raise at work despite (or possibly because of) layoffs in my office later that year in 2008. At this point I decided to try something new. Rather than be logical and focus on the higher interest rate card, I decided to pay off my car loan. And, even more brilliantly, I would keep paying the same amount on our debts (about $800-900 a month), as we paid off the Ford. OK, if anyone who has done any sort of reading on personal finance at all, they should be saying "Dave Ramsey!".

So, in hindsight I can say that perhaps I was not as well read on personal finance as I thought, but after reading 5 books on the topic and talking to a certified financial planner, I can say that I at least thought I was fairly knowledgeable. What I now love about Dave Ramsey, that the others leave off in general, is that he understands what it's like to be human. Most other personal financial writers apparently believe humans follow Adam Smith's economical point of view, that humans are inherently logical and make the best economical choices for themselves. I, at least, do not follow this pattern, nor do I believe most people. So, when I stumbled upon Dave Ramsey's snowball theory of debt reduction unknowingly, I began to really gather some steam in paying down my debts. However, real life once again reared its ugly head.

My wife and I had talked about our dreams, hopes and wishes. We had gone to CNNMoney.com and used their Money 101 Lesson 1: Setting Priorities to talk about what we really wanted to buy. This was a great exercise, and for any married couple that are discussing the priorities on what direct to route money, this is an excellent starting point. What turned out was that I had wanted most of all to pay off debt, and what she wanted most of all was to buy a new car (Honda Pilot) and to get braces. Now, being a 1 car family and with me using the car on weekends for my part time job, I understood how she felt. We had been arguing about the car for about 3 years. Apparently, having to stuff her in the back seat of the Ford Focus while going camping, with her wedged between our 2 kids in their car seats, while our car was cramp packed in the front seat as well as hatchback loaded with gear, was the last straw. So, we decided we "needed" an 8 passenger SUV. Yikes. Well, it was either that, or begin imagining what it would like to be single again, and I was not at that point. So, after we paid off our Ford Focus, we decided to buy a used Honda Pilot in the summer of 2010.

And, that basically brings me up to the present:
2011
Item Amount Owed Rate
College Loan $1,400 2%
Braces $3500 27%
OnPoint Credit Union Card $6400 7%
US Bank Card $7800 12%
Honda Pilot loan $10,000 10%
Total $29100

Now, the plan will be to follow Dave Ramsey's Total Money Makeover to get us out of this debt. I will update the blog when I have any significant news, but by no means am planning to update this weekly.