Week 1 Goals: Completion

My 3 goals for this week were as follows:

1) To prioritize our loans and find a way of graphically tracking our progress.

2) To set a savings goal for us to apply to the purchase of our house.

3) To audit our bank statements for the last few months and see where all of our extra money is going and how we can fix the problem.

Prioritizing

The first goal was fairly simple. I decided to work from smallest to biggest loan using the snowball method. While many people say that you will save more money by working from biggest to smallest, the success rate of that method is significantly lower than smallest to biggest. There is, of course, a human factor here, and just like anything else, we want to see that our hard work is making a difference. If I were to start by paying of our largest loan ($27k), it would take 4-5 years by itself. That would mean that we would have to keep ourselves on track for that long to see the first bit of difference in our budget. Rather, by starting with the smallest loans first we can knock some of them out pretty quickly, cross them off and see a short term difference, even if it is a small difference. This is reassuring and motivating because you start to see results much faster. Plus, by paying off the small loans first I can apply their payments to the larger loans as we go along. If I did things the other way around I would be making the smallest payment to the biggest loan and the biggest payments to the smallest loans, which seems like it would slow us down.

These graphs are posted full size in my previous post as well.

Saving

The second goal for the week was to set a reasonable savings goal for us. We are moving into the house as of July 1st, but we will be renting it from my mother to begin with. Once we have enough for closing costs, we will purchase the house from her. The price for the house is agreed at $140,000 which we were already pre-approved for last year. However, due to complications with Jason's job, we were unable to purchase last year. We plan to give it another shot, and this time we are going in with fewer loans, more savings and extra income. Another thing to keep in mind for us is that I just went back to work this month, so if we try to buy the house in the next 6 months my income will not be counted since my length of employment is not long enough to show a stable source of income. Therefore, it benefits us to wait until Dec/Jan anyways, and since the only remaining derogatory account on Jason's credit report will reach it's Statute of Limitations in January of 2013 it will also be removed at that time. Once we hit the end of January 2013 we will have all of our tax info (Jason's job and all of our loans post their tax forms online by Jan 31st of every year. The only thing we will be waiting for is my W-2 this year) so we should be able to do our taxes early in the year, which will either give us a boost to our savings or can be applied to student loans, or both! So we have several reasons to wait until the beginning of next year to pursue the actual purchase of the house. 

I decided to set our savings goal at $6000 for now. We have gotten several estimates on the closing costs and they have ranged from $4300 all the way up to $5600. Last year our closing costs would have been roughly $4400. I think these are fair estimates, and by going to $6000 we can have a little extra cash just in case. As far as dates go, I would like to be in the mortgage process by March of next year, which gives us 10 months. $6000 in 10 months would be $600 a month put into savings, and I am pretty sure we do not have that much extra cash in our budget to set aside. Instead I am figuring that we can put $2500 from our tax return into savings, which leaves us with $3500 over the next 10 months. $350 a month isn't so bad. For the last 4 years our tax return has been between $4-5000 every year, so only putting $2500 into savings should leave us plenty of wiggle room if our tax return comes back much less than expected. I don't foresee that happening though, since our situation has not changed at all. 

As you can see, we already have about $750 in savings at the moment as well, but I think that money is going to go toward the penalty for breaking our lease early next month. If that's the case then we will be working from zero here too, and I will adjust the graph accordingly.

Tracking

The third and final goal for the week was to track our spending over the last several months to see where we can really rein in. I was a little disappointed to find that A) our biggest weakness is eating out and B) that it was extremely difficult to track certain portions of our budget. Tax season just finished up and because of that we see a huge increase in savings during March, and then an even bigger decrease in savings in April. The issue is that we did our taxes early on and they were auto deposited into our savings account, but we had already budgeted our tax return to pay off 2 loans and to get the car fixed. We did pay off the two smallest loans we had, which saves us about $63 dollars a month on our student loan payments. The other huge chunk of money went to car repairs (new water pump, oil change, stabilizer bar links, alignment, tires). I also had trouble tracking gas purchases separate from grocery purchases because we generally buy gas at the Safeway gas station, which is also where we get our groceries. So when trying to organize this information I found that some of our gas purchases may be included with groceries, while others may be in the "Other" category, artificially making our grocery budget look outrageous. 

May is the first month in a while that had us back on our regular budget, but it doesn't account for money spent on babysitting or laundry, and I somehow managed to leave out our other utilities for all three months. We pay them with our rent and they have been about $160/month altogether. Even May had some erroneous spending with Mother's Day gifts and whatnot. It is also notable that we reached the end of our 6 month promo period for internet, so our rate went from $36/month to about $72/month.

What I have found is that we do have a weakness for fast food that generally means we eat out once a week. I would like to cut back on this because it isn't helping anything at all. The key to cutting back on this expense is to have food that is quick and easy in the house. We go out to eat when we don't feel like cooking, so having meals that don't require much effort could be a huge help on this front. I would also like to make an effort to pay off our little credit card so that we are not making multiple $100+ payments and still carrying a balance. It has been put away so we won't be adding anything to the balance of that card for a while, but it is important for us to carry a small balance on the card and continually make payments for Jason's credit score to continue rising. I would like to keep this under $100 for the entire month. Lastly, I would like to put money into savings and keep it there. My savings totals reflect that we have been putting money into savings, only to transfer it back out for one reason or another. This needs to stop. I'm sure I can find a solution in our "other" category by cutting out extra trips to the store for soda or miscellaneous shopping.