Financially Independent

Getting Closer to Being Debt Free

Posted by 25 August, 2008 (4) Comment
My wife and I just sold a house. Now, what to do with the funds? We could go out and buy a new car. Hmmm. That doesn’t sound very appealing, especially since we are trying to SAVE money. Maybe we should invest it? That sounds very tempting. With the stock market down, now seems like the time to buy, in my humble opinion. Currently, we have student loans and one car payment. Paying these off sound like the practical, good thing to do, but that certainly is not the “cool” or exciting thing to do. So, investing and paying down debt are the more sensible actions to take. Let’s investigate which one seems to yield a “better bang for the buck”.
Assumptions: Money: $12,000
Rate of Return: 12% (optimistic)
Debt: $10,600
Total Monthly Payment on Debt: $657.15
Monthly Payments Broken Down:
Student Loan #1: $154.00
Student Loan #2: $63.15
Extra Payments going toward Student Loan #1: $150.00
Car Note: $290.00
Investing Scenario: This scenario assumes that we would invest a lump sum of $12,000 and no other monthly or annual investment would be performed.
Investment Balance by Year


Year
Annual
investment


Taxes


Net Return


Total
0
$0.00
$0.00
$0.00
$12,000.00
1
$0.00
$0.00
$1,440.00
$13,440.00
2
$0.00
$0.00
$1,612.80
$15,052.80
3
$0.00
$0.00
$1,806.34
$16,859.14
4
$0.00
$0.00
$2,023.10
$18,882.23
5
$0.00
$0.00
$2,265.87
$21,148.10
The following scenario is assuming we pay off our debts and invest that monthly expenditure that was used for student loans and our car payment. I should note that as we continued paying off our student loan and car payments that it would not take exactly five years, but it is interesting to see how quickly $657.15 per month caught up to a lump sum of $12,000 with no additional money placed into investing.
Investment Balance by Year


Year
Annual
investment


Taxes


Net Return


Total
0
$0.00
$0.00
$0.00
$0.00
1
$7,886.00
$0.00
$946.32
$8,832.32
2
$7,886.00
$0.00
$2,006.20
$18,724.52
3
$7,886.00
$0.00
$3,193.26
$29,803.78
4
$7,886.00
$0.00
$4,522.77
$42,212.55
5
$7,886.00
$0.00
$6,011.83
$56,110.38
In the end, my wife and I chose to pay off our student loans. We not only liked seeing that it probably made the most sense financially, but the other huge factor is that we have a peace of mind knowing we are that much closer to being debt free. Woohoo!
Categories : Financially Independent,Personal Finance Tags :

Month 3 of The Your Money or Your Life Program

Posted by 16 July, 2008 (0) Comment

Hello! It’s me again. Yes, we are actually keeping up with stuff and I have the one person that reads my blog to thank. So, lucky person whoever you are, THANK YOU for keeping me straight. It would be very easy to go to bed right now, but that one person is keeping me up. The one glaring detail that you will notice is that we PAID a butt load in taxes. Fortunately we saved for this being that my wife was a contractor for part of 2007, but it is never fun paying that much to anyone except myself :).

Groceries $568.22
Eating Out $129.52
Gas $514.24
House $69.40
WP $222.35
CC $257.02
Houston House $394.29
Disability/Life Insurance $135.93
Home/Car Insurance $384.15
Mortgage $1,087.19
Student Loans $334.51
Utilities $566.07
Cable/Internet $79.88
Car $496.30
Entertainment $203.58
Clothes $182.09
Work $78.29
Dogs $114.52
Charity $20.00
Taxes $3,609.00
Pharmacy $65.99
Gifts $42.15
Total $9,554.69
Total without Taxes $5,945.69

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Categories : Financially Independent,Personal Finance,Your Money or Your Life Program Tags :

Step by Step to Financial Freedom

Posted by 29 May, 2008 (0) Comment

Financially Free. What does that mean? To me, it means that I have the choice to work or not; that I could quit my job if I deemed there were other things that would make me happier. It means that should the company I work for head down the financial toilet, I wouldn’t have to worry because I am financially free. I’ve thought about how to be financially free for many years. I’ve often thought that it would take a massive amount of money to get there, thus the initial pull to real estate investing.

Does it take a ton of money to be financially free?

At first glance, I thought you had to have millions of dollars to retire early or be financially free. However, after reading about the topic for a year or so, there are many resources that provide compelling points that suggest otherwise. For example, the book “Your Money or Your Life” suggests that you take a look at your spending habits and decide whether your “life energy” is worth the items you are purchasing. Instead of my initial feeling that I must to make a ton of money to achieve financial freedom, this book taught me that my wife and I can simply control our spending and use that towards capital.

There are many paths to being financially free. As of now, we do not have a set plan, but we have a few paths that we will go down until we find what fits us best. We’ve spoken to way too many financial planners, so in that vein I will use buckets to illustrate:

Bucket 1

In bucket 1, we have our current financial situation. We have two 401K’s, 2 IRA’s, stocks and mutual funds, and two variable adjustable life insurance policies in addition to two term policies. Basically, if our other plans fail, we will be just fine with relying on this bucket for our future. I will not be focusing on this bucket.

Bucket 2

The other bucket is our side business. We currently have 2 side businesses (3 if you include this blog) that we are in the process of starting. The two businesses are our real estate investing business and my wife’s cake business. I’ll elaborate on both of those in the near future.

Bucket 3

This bucket is the least defined bucket. We aren’t really sure which path we are going to take with this. At this time, we think we will be splitting our capital and resources between two ideas. As I mentioned earlier, we are following the steps of “Your Money of Your Life” (I’m not sure if I mentioned that J ). The authors suggest investing in bonds. I do not know anything about bonds so I need to educate myself on the subject – which I will be sharing on this blog. The other idea sharing the path with possible bond investment is investing in the latest and greatest mutual fund and etf using a monthly investment letter called No Load Fund X by the Dalworthington Company. I will go into this newsletter more into a future post as well as reveal how my investments have performed since I have been investing using this newsletter.

Categories : Financially Independent Tags :