Have a Plan

I believe to be successful in anything in life, you need to have a plan. Success doesn't just happen by luck, it takes a lot of hard work and preparation. What is it that you want to accomplish? Write it down, and then write down the steps you need to take in order to make it happen. I happen to be a natural planner. I'm not sure how this happened, but I absolutely love to plan. My absolute favorite is planning vacations. I mean who doesn't like doing that. But I also enjoy making financial plans. Our financial plan changed a little bit when we found out we were going to have a baby. This meant my wife would start working part time when the baby arrived, and we needed a plan in order to make sure we could do this. Here's what our current plan looks like.

Any and every extra dollar we have is being saved. We're trying to accumulate as much savings as possible to cover the expenses that lie ahead. We'll then use that money to pay off all our doctor/hospital bills. Then our savings will help us while my wife is off for maternity leave for 2 months with no income. We'll continue to keep $2,000 in an emergency fund. And whatever we have left will go towards paying off my wife's car. At this point, my wife will working part time ,which means paying down our debt will be a slower process. But it will still be a major priority. As soon as my wife's car is paid off, we'll start working on paying off her student loan, then my student loan. Hopefully we can be debt free, aside from our mortgage, in under 2 years.

Now, there's a variety of things that can throw a wrench into all these plans. At some point my car is probably going to need some repairs. Right now it's at 150k miles and still going strong, but I'm sure it will need some parts replaced before too long. When something like this happens, you just take care of the problem, and then readjust your plans accordingly. I keep saying your plans, and that's not really accurate. The key to a successful plan involves God, we'll discuss this in my next post.

Back in June I posted a blog about what we have our thermostat set on. You can find that article here. We had recently upped our thermostat to 78, and we're having some trouble getting used to it. What we had no trouble getting used to was our very low electric bills. Our bills were half of what most of our neighbors were. I think I can deal with getting a little hot if it means extra money in my pocket each month.

At the time I posted a survey on this site asking what others had their thermostats set to, and I was a little surprised at the findings. 50 percent of the respondents had their thermostats set somewhere between 75 and 80 degrees. It was split with 25 percent saying they kept it between 78 and 80, and the other 25 percent keeping it between 75 and 77. Most of the time when I tell people I keep my thermostat at 78, they look at me like I'm crazy, so it was nice to see I wasn't the only crazy one. We did have one crazy person though, they said they kept their thermostat above 80. How crazy is that? I'm just gonna guess they live up north, and don't have many hot days.

Another 25 percent kept their thermostat between 69 and 71, and 18 percent kept it between 72 and 74. These are the people that like staying cool and comfortable during the summer, and don't mind paying for it. Surprisingly, no one choose any thing under 69 degrees. I thought there would be at least one die hard person that would keep it at 68 or below. I know a few of my friends that keep it at those levels, and we always have to wear jackets when we visit their house. What amazes me, is these are often the people who can't figure out why their electric bills are so high. Kinda funny.

We're now moving out of the summer months, and headed towards fall. I'm sure some of you are excited about that. I personally like the warm weather, but I enjoy fall as well. I just hate those wet and rainy winters. But fall means even lower electric bills, so I can't complain. It also means Christmas is right around the corner. I hope you've been saving up. I know I have.

What's your favorite season of the year? Why?

Wednesday Rant - Fast Food

I'm trying a new idea out today on my blog. It's called my weekly rant. Each Wednesday I'll pick a topic that's really getting to me and just go on a rant about it.

Today's topic - Fast Food

Is it just me or does it seem like fast food prices keep increasing? My wife and I will easily spend on average $11-$12 eating at a fast food restaurant. This may not seem like much, but it seems that it wasn't too long ago that we would've just spent just $7-$8. Now I realize that fast food is still relatively affordable, and more people are turning to it during the recession. But it still doesn't change the fact that if I eat fast food once a week, over the course of a month I'll have spent close to $50. I imagine that number goes up to over $75 for a family of four.

Sonic and Hardees have to have the highest prices. While Hardees has reinvented itself with the angus burgers, they've also reinvented their prices. Sonic just recently added a $1 menu, which was long overdue. But have you seen it? It's a joke. It includes a small coke, a junior banana split, or I think an apple. Meanwhile you'll break the bank getting anything there big enough to fill up a normal person.

McDonalds is still keeping it real with their $1 menu. Yes, they had to change the double cheeseburger to a McDouble, but I don't even miss that extra slice of cheese. The problem is I can't get my wife to eat off the $1 menu. She always wants a Big Mac, and seeing how she's pregnant, she gets what she wants. Unfortunately, I read McDonalds may be raising prices because of the recent minimum wage increase.

Yes, I realize there's a simple fix to all this. Stop taking the wife with me when I eat out. And if prices keep going up, I may just have to do that. Which fast food restaurant do you think is way too high? And what fast food item do you just have to have no matter what the price?

Who I Am

It's come to my attention that maybe we haven't been properly introduced. You may have been visiting my blog for several months now, and realize you don't know anything about the genius behind CMM. Let me set the story straight.

My name is Travis. I'm a 28 year old married guy with my first baby on the way. That's right, first baby, which means all kinds of craziness. It means more money for baby, less money towards paying down debt. It means instead of having a wife working full time, she'll now be working part time. It means saying goodbye to my dream of owning a BMW, and saying hello to 200,000 miles on my Nissan Pathfinder. It means I'll no longer be called Travis, but soon I'll be called Daddy.

I work at an explosives distributor. While, that may sound exciting, it's really not. Hard to believe I went to college for 4 years to end up sitting behind a desk and answer phones for 45-50 hours a week. But, it pays the bills, and I don't hate going to work everyday, so it's really not that bad. However, I'm way more excited about my church and my Savior. He's an amazing God, and it's awesome to serve Him within a really cool church.

As far as my financial background, I wish I had a really amazing story to tell. Most financial bloggers have stories about going bankrupt and having massive amounts of credit card debt, etc, etc. I don't have those type stories. I have a dream. I dream to one day have enough money to do what I want. Work the job I want. Go on the vacation I want. Buy the car I want. Give away what I want.

This isn't really a blog about what I've learned, or how much financial knowledge I have. It's the story of a man who's trying to get to the top of the financial mountain. I hope my story will inspire you, and I hope many more of you will join me on this journey. It's not going to be easy, and I'll need all the motivation I can get.

Baby Step #7 - Build Wealth and Give

We've finally come to the end of our baby steps. We've paid off all our debts. We've saved for retirement. We have a large emergency fund. And some of us have even taken care of our kids college fund. So what do we do now?

Step #7 - Build Wealth & Give

Now that we've got all of our finances in order, here comes the fun part. We can start giving back. It's my personal belief that we should be giving back 10% to our local church throughout our journey. But once we get to step #7 we can really begin to give, and give big. Some of you may be thinking, why would I want to give away what I've worked so hard to get. Here's the thing God has given us everything we have. We are only stewards of His money. He blesses us, so we can bless others. There's nothing more rewarding than helping someone in need.

When we get to this point, we don't need to be selfish. God has put you in this position for a reason. Maybe's it's to help some children in your area who can't afford new school clothes. Or to help a struggling teen mom by buying diapers. Or to help a family who's having a hard time putting food on the table. The possibilities are endless once you've reached this point.

And I'll go one further. God may not wait till you get all your finances in order before He wants to use you to bless someone. You may be saving that emergency fund when He asks you to help. There's some of you reading this, that probably already have someone on your heart. Maybe it's a family at church that you know are struggling right now. If God has put it on your heart that you need to help someone, don't worry about the emergency fund. You help that person, and God will take care of the emergency fund.

We can have financial plans and goals, but don't forget who's in control. No plan can ever take the place of seeking God's guidance. I hope all of my readers will get to this point one day. That everyone of you will experience financial freedom. But if we don't make it, just remember God's in control, and He will always provide for you.

I hope all of you have enjoyed this series. If you did, would you please post a comment and let me know. Also if you would like to receive my posts by email, you can subscribe by typing your email address in the top right corner of my blog, and clicking on the subscribe button. It's absolutely free.

Baby Step #6 - Early Home Payoff

In my last post we discussed baby step 5. Dave Ramsey and I have some differences of opinion when it comes to paying for your kids college fund. He thinks you should, I think you can if you want to, but you shouldn't feel like you have to. In my opinion step 6 should come before step 5. What is step 6?

Step #6 - Early Home Payoff

Dave Ramsey thinks you should stick to a 15 year fixed mortgage, with a payment that is no more than 25% of your income. This seems a bit drastic, but it's pretty smart if you're able to do it. I've heard people suggest you could have a payment up to 38% of your monthly income, but most suggest somewhere around the 33% mark. At 25% on a 15 year mortgage, you'd have to be making some serious cash in order not to be living in a shack.

I have a 30 year fixed rate mortgage, and the payment is around 23% of my monthly income. I could probably afford a 15 year mortgage, but I don't feel comfortable putting myself in a situation where if something happens we'd struggle to make the payment. For example, if my wife or I lost our job, we'd struggle to make a larger payment. With a 30 year fixed, we have the flexibility in our budget to make extra payments toward other debts. Or we can save our money throughout the year and make one large payment towards our mortgage principal at the end of the year. Did you know making one extra payment towards principal a year can turn a 30 year mortgage into an 18 year mortgage?

Regardless of how you do it, Dave and I agree you should try to pay your house off early. By paying the house off early you'll save thousands of dollars in interest. Over the course of most 30 year mortgages, you'll end up paying more than double what you financed. This means if you finance $100,000, at the end of your mortgage, you'll probably have paid around $225,000. Kind of makes me sick to think about.

Plus, can you imagine how great it would be to have no house payment. You would know, that no matter what, you'd always have a place to live. It would mean less stress, and more peace of mind. Not to mention the extra money in your pocket, because you're not sending that big check into the bank each month. This would be a great place to be.

I realize there are arguments against paying off your house early, they've been discussed at length on other blogs. But for me, there's no debate. If you have the chance to get yourself out of debt, you do it. Nothing can replace the freedom you will have once you make that last payment.

Baby Step #5 - Kids College Fund

When we left off we were saving for retirement, now we're saving for our kids to go to college. I was the first one in my family to graduate college, and I'm really proud of that. However, my parents didn't have the money to pay for it, and I'm not even sure they should. This brings us to Step #5.

Step #5 - The Kids College Fund

Our buddy Dave at this point says once we've got every thing in our life taken care of, we should start thinking about the kids. The majority of kids these days are going to go to college, and tuition isn't getting any cheaper. So, he suggests setting up some kind of college fund for the little boogers. His recommendation is an ESA (Education Savings Account), which you can contribute $2,000 a year to tax free. Not too shabby.

While it would've been great if my parents had the money to put me through college, I don't think parents should have to. It seems that kids are taking longer and longer to grow up, and when we continue to provide for their every need, why would they? I don't plan on paying for my kids to go to college. Now, before you report me, let me explain. I plan on encouraging my kids to get good grades, so they can get their college paid for through scholarships and grants. If they don't get good grades, then they'll be having to borrow from uncle Sam if they want to go to college. It takes the responsibility off me, and places it on them. Also, who's to say they'll even want to go to college. There's plenty of other options out there, that don't involve a 4 year degree.

The amount of parents who pay for their kids college really surprises me. I'm not saying anything's wrong with paying for you kids to go to school, if you want to do that. But, I don't think it should be expected. And I don't think there's anything wrong with expecting your children to pay for it themselves. I think this is a choice that should be left up to you. What do you think?

Baby Step #4 - Invest 15% of your Income

At this point, we've decided to make a change in our finances, we've saved $1,000 for an emergency fund, we've paid off all of our debts, and we've increased our emergency fund to cover 3 - 6 months of expenses. You must be feeling pretty proud of yourself by now. Which brings us to Step 4.

Step #4 - Invest 15% of your Income

Investing 15% of your income is Dave Ramsey's idea of a retirement plan. While it will get you to where you need to go, I'm not sure if everyone will have enough years left to succeed. Let me explain, let's say you make $50,000 a year. You invest 15% of your income, and after 30 years you'll have $937,000 if your investments have an 8% return. Sounds pretty good right? The thing is, if you want to retire at 60, you'll have to start investing 15% at age 30. Perhaps, you're further along than I am, but I'm not going to be able to invest 15% at age 30. I won't have all my debts paid off, and I won't have 3 - 6 months of expenses in savings.

This is why I'd recommend investing as much as you can, as early as you can. If you're employer has an employee match 401k plan, you'd be crazy not to take advantage. Right now I'm investing 5% of my income, and my employer is matching 4%. Not too bad. My wife has a Roth IRA (whats an IRA?), and she is investing 3%, and her employer matches that 3%. Put all that together, and we're actually investing 15%. I didn't even realize that till just now. So maybe we can retire early after all.

Whatever you do, don't put investing for your retirement off. Compound interest is your best friend, and the earlier you start investing the better. If you can only invest 5% of your income, do it. You'll be amazed at how much that 5% can add up to after 30 or 40 years.

Baby Step #3 - Save 3 to 6 Months Expenses

So far we've covered steps 1 and 2 in Dave Ramsey's 7 Steps to Financial Freedom. By now we've learned to save $1,000 for a small emergency fund, and we've also learned to pay our debts using the debt snowball method. So, once you get to step 3 we should have all our debts paid off, and at least $1,000 in the bank. Like many of you I'm still working on step 2, but I have to believe once you get through paying off all your debts the rest has to be smooth sailing.

Step #3 - Save 3 - 6 months expenses

At this point you should already have at least $1,000 set aside as your emergency fund. This step builds upon that, you'll be taking your small emergency fund, and turning it into a very large emergency fund. Why, you ask. Because $1,000 is not enough money to cover major emergencies and hard times. This emergency fund will make sure you never have to go into debt again. That means if the economy takes a down turn and you lose your job, you'll have the money in the bank to keep you going until you find another job. If something happens and you need a major surgery, you'll be able to pay the hospital bills. Once you've gotten out of debt, you want to make sure you never have to go into debt again.

How much you save is really up to you. I always recommend to save as much as possible, so I'd lean towards the 6 months of expenses. This means if you have $2,000 in expenses a month, you'd need to save $12,000. Seems like a lot of money right? But, you have to remember you no longer have any debt, which means more money you can put towards savings. Imagine how many people wished they had that kind of money in savings when this latest economic downturn happened. And the thing is, many of them could have had that type of money, they just never learned how to save. They never thought about tomorrow, they were only thinking about today.

We always need a plan for tomorrow. We never know what the future may hold. I admit, right now it's hard for me to be talking about saving 3 - 6 months in expenses. Because all I can think about is how hard its going to be to get out of debt with a baby on the way. I just read, over the course of a child's life, they will cost $221,000. This scares me to death. But, I'm sticking to the plan. I know it may take a little longer, but I'm going to get out of debt. Now, who's with me?

Baby Step #2 - The Debt Snowball Method

In my last post we covered baby step #1, saving $1,000 for an emergency fund. Once, you have finished that step, you can move on to step #2. But whatever you do, don't move on to step #2 until you have that emergency fund in place. Without the emergency fund, any debt you pay down in step #2 can be ruined by an unexpected expense.

Step #2 - Pay off all your debts using the debt snowball method

I'm going to be honest with you, step #2 will probably be your longest step. Most of us aren't going to finish this step in a few months. For most of us, it's more than likely going to take a few years. This can get frustrating at times, but just remember, in the end it will be all worth it. Our goal is financial freedom, and nothing is going to stop us from achieving our goal.

So here's how step #2 works:

First, you take all your debts and put them in order from the least amount to the greatest amount. It will look something like this.

1. Credit Card - $1,000
2. Car Loan - $8,000
3. Student Loan - $15,000
4. Mortgage - $100,000

Once you pay all your bills for the month, any extra money left over should be applied to the smallest balance. For our example, this means if you save an extra $100 a month, that money should be put towards paying off your credit card balance. Some of you may be saying, what if I don't have any extra money each month. Then get some. Get a 2nd job, sell your junk, cut your cable. You have to be willing to do whatever it takes to accomplish your goal.

Once you pay off your smallest debt, you move on to the next smallest debt which in our example would be the car. By paying off the smallest debt quickly you get excited about what you've done and you're ready to get rid of more debt. Once you pay off the 2nd, you move on to the 3rd and so on and so forth, until you've paid off all your debt. Pretty simple right?

I have to admit, I don't fully follow Dave Ramsey's Debt Snowball method. I skipped paying off a smaller student loan, to put money towards paying off a car. My reasoning behind this is by paying off the car I'd be saving an extra $300 a month, where as if I paid off the student loan I'd just be saving an extra $50 a month. My goal is to free up as much extra money as I can for when my new baby arrives. I could've paid off the student loan, then paid off the car, but it would take me an extra 2-3 months. Hopefully, by doing it this way, the car is paid off by the time the baby gets here. Which means, that $300 can now go towards diapers and formula.

Also, mathematically the best method would be to pay off the debt with the highest interest rate first. However, this could end up taking a long time to pay off, which could cause people to give up. This is why Dave Ramsey thinks the debt snowball is the best method. You can get small victories along the way which will continue to encourage you to keep going. For most people, I agree, the debt snowball is the best method. But the important thing isn't the method you use, the important thing is making a decision to get out of debt and sticking to it.

What method do you use? And what have been some of your experiences?