No Progress

In the past month, we haven't really made any more financial progress.

We spent a lot more on vacation than we had budgeted. We delayed in booking the trip, so prices went up a bit over what we had expected. We also splurged a bit while we were there. We had set aside $1000 for travel & accommodations, and had planned to spend an additional $500 while there. We ended up spending close to $2500 in total. We charged everything, and we'll pay off the trip this month.

We had a few extra bills this past month, including our annual homeowners association dues. The combination of vacation and the extra bills meant that we only paid the minimums on the remaining credit card debt.

We're still saving up for the down payment on the new car, setting money aside for car insurance on the new car, saving up for more home renovations, continuing to pay down credit card debt. Although I'd like to continue building up our emergency fund as well, and pay extra on other debts (car, student loan, mortgage), there isn't enough to do any of those until at least mid-summer.

Bleeding Money

Now that we've got plenty of breathing room each month, and the credit cards are at a point that we could pay them off entirely (if we wiped out our emergency fund, that is), we haven't been very focused at staying on track. We've been eating out a lot (at least 3-4 times/week, usually a lot more), I haven't been clipping or using grocery coupons, and we've allowed our miscellaneous spending to creep up.

Hubby also decided to buy a new car, it's been ordered but won't come in for a month or so. Although he could pay off the remaining credit cards, he's decided to instead focus on putting as much as possible for a down payment ($3000+), that way the monthly payments will be less. I'm not sure of the final price, but it will be in the $25k range. It'll be financed over 5 years, so we'll have payments of roughly $400/month.

Our other car's payments are $350/month, with almost a year and a half left.

I hate that we're taking out that much more debt, especially when the existing car was only just paid off and still runs fine... but the reality is that we're wasting at least that much in eating out and other non-frugal spending each month too.

At any rate, we haven't made much headway lately. In fact, we "reallocated" $4k from the short-term savings/emergency fund to put towards the down payment and an upcoming Florida vacation.

We're currently left with $6k in savings, which is a healthy start but nowhere near where our emergency fund should be.

Budget for 2011

Starting in February, Hubby and I are going to switch to a new budget. So far we've just been splitting our "extra" money, using about half to pay down credit cards and the other half to stash in emergency savings.

With our new budget, we're going to set aside money for several short-term savings goals, as well as to regularly save for non-monthly bills (like car insurance). It means hitting pause on the emergency fund, but overall it should be a better system.

Here are our anticipated categories & savings amounts, per month:

Vacation - $200

Car insurance - $210

House (maintenance/repairs) - $300

Mortgage (principal reduction) - $800

It's great to have so much "discretionary" income in our budget, it really makes it so much less stressful to know that we have a bit of a cushion to absorb unexpected items. Our immediate goals are to finish paying off credit cards (currently around $7k) and then to pay off the second mortgage. However, it'll probably take about 3 years.

Fall Updates

I updated the progress bars on the right side again, it feels so good to see the credit cards decreasing so much!

As soon as some of the pending payments clear, we'll be under $10k in outstanding balance on the credit cards! And I know that seems like a lot, but it's nothing compared to the nearly $50k that we once owed a few years ago. We're lucky in that we never quite got to the point that we were desperate, we were always able to pay our bills and the minimum payments - but we also started paying off back when minimum payments were only 1-2% of the balance (so on $50k debt, we were only paying like $600/mo), and our interest rates were mostly fixed rate balance transfers of 0-3% APR. If we'd waited a couple years to start paying it off more aggressively (and stop buying more stuff on credit!), we would have been in a rough situation. It seems like those great balance transfer offers all but disappeared, and minimum payments increased to 5% of the balance - so our monthly payments with interest would have been easily $3000/mo! When all that hit, we still had to absorb payments of half that, which was tough but fortunately still possible for us.

One of the cars is completely paid off, so we're down to a single car loan! I wish we could make the paid-off car last a few more years, and use the would-be car payment to pay off more debts and to save up for a new car, but it's my husband's car and he wants to get a new one next year... so I'm just hoping the credit cards will be paid off completely before the new car (loan) comes.

House Renovations, 2nd Mortgage, or Emergency Fund?

Although DH still has quite a hefty chunk of credit card debt, all of mine is gone (and has stayed that way!). That has freed up $1200+ each month that can be put towards other expenses and goals.

While I'd love to see all of our credit cards paid off completely, I've learned that I should let DH pay his own debts off. Although he wants to be free of them, he is also still willing to splurge on purchases with the intent of paying them off quickly... but it doesn't seem to work out that way. Those purchases accumulate, and by the end of the month are often $1-2k! We've paid off some of these 'smaller' balance cards several times over!

So instead I'll be putting the extra money elsewhere. I've been debating whether to add it to our emergency fund (currently $5000), set aside money for future house renovations, or put it towards paying off our second mortgage. The debt-freak in me wants to pay off our second mortgage as aggressively as possible, but strategically, it would probably be better to have that money in a liquid account.

One of my options would be to set up a savings goal through SmartyPig, using it to set aside money for the sole purpose of paying off the second mortgage. It wouldn't make much sense to have 20k+ sitting there waiting to be sent off, but I could build up a few thousand dollars in there (sort of a dual purpose, secondary emergency fund & mortgage principal reduction), then start sending all the extra money to the mortgage company.

How do other people balance paying off large long-term debts (like mortgages) with emergency savings? Our emergency fund represents a bit more than 1 month, but if only one of us lost our job (and could collect unemployment), we could likely last 6+ months.

Cut in Pay

In the upcoming months, I'll likely be asked to start taking furlough days. In my case, the furlough days will be unpaid days, sort of like a temporary layoff, but will probably be structured as a day off every so many work days.

I don't yet know the details, but it'll most likely represent at least a 20% pay cut. And realistically, it'll be closer to 30%, because I'll lose overtime pay as well.

We're trying to watch our spending a bit more, cutting back on things we don't really need. On the home improvement front, we'll only be spending money to complete projects that we've already started, or critical maintenance items - but no new projects.

Paying in Cash?

Over the past few years, we've asked for a cash discount on a few larger purchases.

1. A local building supply store offered us a 4% discount on vinyl siding for paying in cash (which is probably pretty close to the amount they would have had to pay in credit card processing fees).
2. A well repair company gave us I think a 3% discount for paying in cash (paying by personal or certified check was the quoted price, cash was a 3% discount, credit was a 3% surcharge).
3. A gutter company gave us a 30% discount for paying in cash.
4. A landscape company did some tree trimming, and they gave us a 10% cash discount.

We're currently in the process of getting estimates for a major project, and I've been inquiring what sort of cash discount they each offer. I don't want to hire someone that's trying to get around paying insurance, taxes, workers comp, etc. - but I think a cash discount is a legitimate thing. It costs companies money to pay credit/debit card processing fees, they are accepting a risk for chargebacks/reversals on credit cards (for fraudulent use on stolen cards), on insufficient funds or stop-payments on personal checks, forged checks, etc. Paying in cash on completion gets the money in their hands, and eliminates the need to potentially send out invoices or spend time on collections.

But it's a risk for the homeowner, certainly. On the job where we hired the gutter company, we made sure that everything was on paper. We had an official estimate/quote, we didn't make payment until the work was completed to our satisfaction, we got a receipt and an unconditional waiver of lien. We didn't exchange funds in front of a notary or banker, and we didn't have the waiver of lien notarized, but we also weren't talking about a lot of money either.

Now that we're looking at some major work items, I'm not sure whether I want to pay in cash. Truthfully, I hate that the credit card companies make so much money off each time I swipe a card, and ultimately I'm paying for it with higher prices. I'm okay with paying taxes, because the money we pay in taxes means more money spent on public services that ultimately pay our salaries (education, public safety, infrastructure, etc).

I'll take a risk on small jobs, but I don't want a shady contractor to try and come back after us for more money down the road. I'm not hiring anyone that I don't trust, but you never really know either. I'm also not entirely sure what the legal ramifications of paying in cash are - cash is legal tender, but I don't know if I would need to get into issuing a 1099-MISC or various IRS forms once I exceed a certain dollar amount. I always get receipts, and once went so far as to get a signed waiver/release of lien, but I don't want to deal with finding a notary and having everything witnessed & notarized. I've also heard conflicting statements on whether paying by check is sufficient to get a cash discount (since they don't have to pay the card processing fees), or if it has to be greenbacks (since checks take longer to clear, and have a greater chance of being fraudulent). And certified checks are somewhere in the middle - but on at least two occasions, certified and personal checks were not accepted for the cash discount price. (At the time, both places told me that there was a cost of doing business for them to accept checks: recording relevant information, bank fees for handling/cashing checks, the time to clear, and the time for an employee to go physically deposit & then withdraw the money)

Does anyone have experience with cash discounts for home renovations or other projects? I'd love to hear about your experiences.