Success Warrior: The Blog That Embraces ADHD

Why I share our numbers

The progress we are making is probably better than some and no doubt worse than others.  I share my progress because it allows me to put real numbers behind my plan.  It's an example of what can be done.  The numbers should get better and better and I don't do this to brag.  Anyone who follows this plan will have a similar response.  Of course, Your Mileage May Vary, but my wife and I are a good example of what can be done. 

We work the plan just like I teach it.  We don't follow a budget and we aren't as strict as we could be.  This plan is not about strict budgets and going without everything you find enjoyable in your life.  You can work it that way if you like but this plan is for people who want more flexibility but still want to make progress.

The closer to debt free people get, the more options they have.  The more cash you have in your hand, the more choices you can make with what to do with it.  Spend it, save it, or invest it.  Some of all three.  You don't get those choices when every paycheck is already spoken for by the banks. 

When you hear people talk about being trapped in their jobs, they aren't really trapped in their jobs.  They're trapped in debt.  They have to stay working at the same payrate they are at in order to pay off everyone that they have promised to pay for the next 20 to 30 years.  They can't take a job they would enjoy more that pays less.  They can't work part-time while they go to school or get training for what they would rather do.  They can't drop out of the work force and start their own business.  The job doesn't have them trapped, the debt does.

The more debts that you can pay off, the more freedom you have.  I blog about our journey to show that it's possible, to talk about our struggles, to talk about our hopes and goals, and to talk about our successes.

Quite frankly, from where my wife and I started financially, if we can do it, absolutely anyone can do it.

How about some more numbers?

Well, why not?

Last night I pulled all the numbers that we compile each week for our weekly meeting.  What do we have?  What do we owe?  How much progress did we make this week?  All that good stuff.

And then I plugged those numbers into networthiq for February since nothing is going to change between now and the first.  I was curious to see how we had done for the month.  Looking at the graph, we didn't do as well as we did in January.  I'm not sure why.  My wife and I are going to look at the two months tonight and see what we did differently.  Hopefully March will see us making more progress.

That said, the percentages on two of the debts were better than last month.  The car payment for the month doesn't show yet so that one looks worse.  In January we paid off 15.69% of the student.  In February we paid off 16.10%.  We actually paid a little less in actual money but it turns out to be a larger percentage.

Similarly with the house payment, the actual amount was exactly the same but in January we paid off .10% and in February we paid off .11%.  It's a miniscule difference but it is progress and it makes me wonder what we could do when the car and student loan are paid off.  How much can we raise that?  We'll find out within a year.  =)

Tomorrow: more on why I share the numbers.

The plan can work slowly if you like

To make this plan work, the bottom line is that all you have to do is not borrow money again.  Don't get loans and especially don't use credit cards.  It's been a while since I've mentioned credit cards so I'll probably have to do a post on them soon.  Credit card companies are getting more predatory every day.  You have to free yourself from them.

If you don't want to make the sacrifices that we've made, you don't really need to.  We put all our extra money toward our debts but you don't have to do that.  You can spend it on anything you want.  If it scares you to go without, then don't go without but only buy what you can afford.

The thing about going without for a little while and putting the money toward your debts is that you free up more cash on a monthly basis.  Think about how much more money you would have each month if you didn't have any credit card bills.  What if you didn't have any car payments?  What if you didn't have a house payment?

My wife and I are probably going to take a couple months off from paying things down as quickly as possible after we have paid off the student loan and the car.  All we'll have left to pay off is the house and we're going to reward ourselves by seeing what it's like to live without the debts that we've paid off and have the extra cash just laying around.  Then we'll get to work on the house because there is going to be so much freedom for us when that's paid off.

The other benefit to going as quickly as possible is the tens or hundreds of thousands of dollars that you save in not paying interest.  The less interest you pay, the more money YOU have.  A simple fact that most people just don't seem to realize.

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By popular demand, I have started a new blog about events in my life.  The first post is about a chat I had with Don Rickles and can be found at http://successwarrior.typepad.com/chronicles

Looking at the chart of mortgage amortization

If you look at the chart of a typical mortgage, you see that when you get to the last half of the life of the loan, the amount of money going toward principle really picks up speed.  You spend the first half of the loan paying more in interest than what goes toward the principle.

Understanding this, it then figures that you should try to get to that halfway point as quickly as possible.  Even if you don't want to follow through and just pay off your house, you should put extra money into it until you tip the scale.  When more of your regular payment is going to principle than interest, you could go back to the regular payments and you will have saved more than a decade of time and tens of thousands of dollars.

That's what the chart suggests but that's not what usually happens.

Most people either move or refinance every 5 years.  They spend all their time in the very worst period of their loan.  In those same 5 years, they could completely change their life financially.  Instead, they dig themselves into deeper debt, raising the total amount they owe and the amount of their monthly payments.

People get caught in a trap of their own making.  They refinance to lower their monthly payments and then they charge things up to the point where they owe more each month than before.  Most people could get out of financial trouble without refinancing.  Refinancing might be a possible answer for some but once they refi, they need to not charge anymore and pay the mortgage down.

At least to the halfway point.

A tool for people with mortgages or are going to get one

I have looked around now and again for a mortgage calculator that I like and I finally found one.  So I'm going to share it with you.

http://www.apimagazine.com.au/calculators/mortgage/

This calculator will show you how much your monthly payments will be including your insurance and taxes.  It will show you how much interest you're going to pay if you just make your house payments.

Under that is the part that is eye opening.  You can put in an amount that you want to add to your house payment each month and it will tell you how much money you'll save and how much quicker your house will be paid off.  This calculator has a couple features that I haven't found on others.  You can add the extra money at any point in the calculation.  If you have been paying on your mortgage for 3 years, you can tell the program to start adding extra money at month 37 and note how it changes things.

It also has a pretty blue and green graph.  =)

Here's a couple quick examples but I really encourage you to go to the site and play around yourself. 

If you have a $200,000 mortgage at 6% and you pay an extra $100 a month from the start, you will save $50,000 and pay off the loan 5.5 years early.

If you can pay an extra $250 a month from the start, you'll save $91,000 and pay it off 10 years early.

Just about everyone can get to the point where they can pay these amounts.  In fact, most people with houses can probably get to where they can add an extra $1,000 a month to their house payment.  Play with the calculator and see if that doesn't encourage you to put some extra money where it counts.  Paying a little bit extra saves you thousands of dollars and years and years of your time.

More on numbers

It all depends on how you look at them and what kind of person you are as to their effect.  For example, in January we paid off .1% of our mortgage.  I told my wife and she said, "Point one percent?" 

Quite frankly, that seems pretty discouraging.  When you consider how much money you pay and realize how little of it actually goes toward the debt.  The banks have a good deal going.

For my wife and I, the discouragement turns around though and we become more driven to get ourselves out of the mortgage.  It's the last thing on the list but we are going to get to it.  Everytime we make a payment and look at the amount of interest or check the networthiq to see what percentage we paid off, we focus even more on chipping away at our debts. 

With time, the numbers turn around.  The more money that you can free up to go against your debts, the quicker that turnaround becomes.  Tracking those numbers can turn from discouragement to motivation, from anger to elation.  Remember that as long as you don't borrow any more money and continue to put the same amount of money toward paying off debt, the percentage that you are paying off will go up. 

And when those numbers move up, it makes us want to keep moving them up.  Where can we cut costs?  How can we make more money?  How much can we pay off this month?  It becomes a game and in the end, we are the ultimate winners.

Tomorrow: a cool tool for people with mortgages.

Tracking progress for motivation

I gain a lot of motivation just from tracking the progress that my wife and I are making.  Even small differences in the right direction help spur us on.  We use those numbers to see if we can do better the next month.  "How much of a change can we make?" is something we ask routinely.

You can track changes yourself using a spreadsheet or you can find free applications online or you can do both. 

I have a couple of spreadsheets that I use for tracking numbers but I also use networthiq.com because someone else has already done the work for me.  You can keep your results private or you can share them with people.  I can think of a couple of reasons for sharing the information but most people would probably want to keep the information to themselves.

Back to the numbers.  I love numbers.

We are trying to pay off my student loan as quickly as possible.  I enter our numbers into networthiq each month (well, for two months so far) and check the results.  In January, we reduced the amount of the student loan by 15.69%.  That's great!  It won't take too many months of doing that before it's paid off.

Percentages are good too in that they change even if you don't change how much you are paying against your debt.  If you put the same amount of money in each month, you'll pay off a greater percentage of what's left each month. 

Challenging yourself to make a bigger difference and the fact that the numbers look more promising each month are great for motivating us.  Give it a try and see what you think.

On my seat again

Let me start this by saying thank you to everyone that emailed me with their concern.  I do appreciate it.  When doing these posts each day, it's easy to underestimate how much people appreciate them.

Let me also tell you that my wife works at an elementary school or as I refer to it, "The Germ Factory." 

I was recently reading an article of the most unhealthy places to work.  Schools have more germs in them than hospitals.  I could have told you that without the article but it was nice to have my suspicion confirmed.  Hospitals probably actually have more germs but the staff probably try harder to suppress those germs than 7 year olds.

So it comes as no suprise that when a bad virus "is going around" as it is right now, that it landed in my home. 

I am well on the mend today.  I was actually feeling much better yesterday but my son was having his worst day of being infected by this bug so my attention was turned toward him.  Having recently gone through the same illness, I had great empathy for how miserable he was. 

My wife, in the meantime, was spending a great deal of time reading Revelations.  She thought that me going for a week without being on the computer must surely be one of the signs for the End of Days.  It has turned out that it's more like the story of Lazarus. 

I don't smell too good but I'm alive.

The second and ongoing reward

I told you about our initial reward when all we have to pay off is the house.  We're going to relax and do whatever we want with the cash that we have for those months.  Obviously, the faster we pay off these last two debts, the longer we have that freedom

The second reward will start in 2008 when we go back to work and try paying off the house.  We are going to put all the money we have into paying off the car except what we were using for the car payment.  That money we are going to split in two and each of us will be able to use it anyway that we want.

It will slow down paying off the house by a little bit but it could take a couple years to pay off the house and during that time, we don't want to feel like we are completely depriving ourselves.  It will make the time that it takes to pay off the house a little easier to handle mentally this way.  We have made great progress and by the end of this year we will have done something wonderful.  It will be time for us to enjoy some of the fruits of that labor.

We think that even while doing this, we will be able to pay the house payment each month plus almost twice that amount against the principle.  If we are able to do that, the house will still be paid off extremely quickly (relative to 30 years).  We want to be able to use some of our money for things that we have gone without to make this happen.

Tomorrow, let's talk about interest on the house.

We have two rewards planned for ourselves - here's the first one

At some point this year, we will have paid off every debt except the house.  At that point, we are going to completely relax for a couple of months.  We have been going without as much as possible in order to reach this goal as quickly as possible. 

When we get the car paid off, we are going to stop working the debt payoff plan until 2008.  We are hoping to have the car paid off by October.  That will give us the rest of October, November, and December to just relax and take the self imposed pressure off of ourselves.

We are going to buy what we want, when we want (without incurring new debt) for the remainder of the year. 

The difference will make it feel like we have hit the lottery.  Going from spending nothing to spending everything that doesn't go to the house payment, food, and utilities.  I don't know that we'll spend everything and that's going to be even more freeing mentally.  To have the money and be able to spend it is more important than actually spending it. 

Everyone's situation is different but for many people, having no bills except a house payment would free up a lot of money.  That's how it will be for us.

We'll probably take one of those months and build up our savings and then just enjoy the holiday season without any financial worries.