Project 2020 - Eradicate debt
Currently I am $413,667.26 in debt. Granted, most of that is mortgage debt, some of it is a car loan, but there is also about $15K of that which is credit card balance. I have always been someone who spends aggressively. I have been of the mindset that I should have what I want and that the chips will fall where they need to and I’ll be okay. I am still technically correct - I have over $250K in savings and over $50K in liquid cash (emergency fund), but I don’t want to tap into either of those in order to get myself out of this stupid debt that I have accumulated in the past year. So, what am I going to do instead? I’m going to attack the debt with every ounce of my intelligence this year. I just finished reading Marie Forleo’s book - Everything is Figureoutable - and it inspired me to make this my project for 2020. It’s something that I feel passionate about - both to learn more about and also to take action.
Here’s the breakdown:
Mortgage: $389,188
Car Loan: $7,138
Amazon Credit Card: $3,995
American Airlines Citibank Card: $13,344
The main things that I will be looking to eliminate in the coming 12 months are the car loan, Amazon card balance, and American Airlines card balance. I will also be looking for ways to save enough money to make 1-2 extra mortgage payments this year and all years in the future. Using this calculator, if I do make 2 extra payments each year then I’ll shave 10 years off our 30 year mortgage. That being said, the mortgage is more of a nice to have rather than a necessary thing. The Amazon card and American Airlines card are the highest interest debt that I carry and I need to prioritize those first. After that it will be the car (which technically has a lower interest rate than our mortgage, but I can also realistically eliminate it in a much shorter time period).
Strategies to eliminate this debt:
Be aware of my spending - this may seem obvious, but I have largely ignored my spending up to now. I’ve always had a good job, I’ve always saved the maximum amount for my 401K/IRA, I regularly invest, etc. But with the birth or our two children and the increased costs associated with raising them I neglected to curb my spending habits to counterbalance those increases. For example, in 2019, I spent close to $7,500 on personal care - haircuts, makeup, skincare, massages, etc. That’s $625 a month! In addition, I spent $8,500 on food and entertainment - looking back through my credit card statements, I was shocked at what I was spending on Uber Eats alone. I pride myself on cooking for our family on a regular basis, so it was SHOCKING to see how much I was spending on ordering in.
Set spending goals by category for each month and track to those goals - after reviewing my finances for 2019, I looked at the averages that I was spending per category, looked for places where I could pare back, and set a goal for myself by category for the average month. Here’s what that looks like:
Please note that in the budget above there is no line item for mortgage or childcare - those are already drawn down on a separate account that my husband and I both contribute to on a monthly basis.
You can see that this is a rough budget and doesn’t take into account seasonality - spending $100 on gifts will work great for the average month, but will completely miss the mark in November/December with 3 kids and a husband. That being said, it gives me something to aim for and measure against for the next few months.
The main areas that I’ve identified as opportunities to eliminate spending:
Taking away my extra savings that I was doing monthly. This may seem counterintuitive, but I was putting $800/month towards an emergency fund that is now totally built up. I have stopped those automatic deposits in favor of redirecting that towards debt reduction.
Clothes/other random crap - I was pregnant for most of 2019 and never felt comfortable in my own skin. I bought a lot of clothes and things that I didn’t need to make me feel better and my bank account suffered as a consequence to that.
Groceries - again, this may seem counterintuitive, but I was not meal planning effectively, I was utilizing Amazon Prime Delivery rather than getting groceries myself, and I was paying tips for those services (close to $500 in tips in 2019). If I simply meal plan with more regard for expense and switch to grocery pick up (I still don’t want to actually shop for myself), I think I can get well over $1500 in savings in a year.
Healthcare - I had a baby last year which is EXPENSIVE. I spent $6000 on healthcare in 2019 (not counting my actual insurance premiums which get deducted automatically from my paycheck). In a normal year, I’ll see the doctor 1-2 times. This year, I saw the doctor 20+ times, had a major surgery, and a 3 day hospital stay. I don’t anticipate 2020 being quite so steep for healthcare (knock on wood).
Travel - I spent $4000+ on travel last year. One nice thing about having a brand new baby - you lose all will to travel anywhere. I say that, and I literally am flying out on Sunday with my baby (but it’s all paid for with airline miles and I am going to visit and stay with my 93 year old grandmother).
Personal Care - as previously mentioned this is my kryptonite. I spend way too much on personal care. I love all things makeup and skincare, I have a nine step skincare routine each evening and I relish it because it’s usually my only alone time each day. But I have to get this spending in line. I can still treat myself like a queen but do so on a budget. I am moving my haircut/color appointments to 3 times per year - once every 16 weeks. I am booking more budget places for massages (if I get them, which I definitely will because breastfeeding and having two kids kills your back). I will limit my luxury skincare product purchases to what I truly need. I went a little bit nuts during black friday last year with stocking up on all my favorite stuff.
Here’s the biggest opportunity for me - simply buy less stuff that I don’t need. I have found that my biggest trigger of all for purchasing random stuff is social media scrolling. I swipe up nearly every time that I open Instagram. I do it without even thinking. I am limiting my social media screen time to 15 minutes per day and I am actively trying to close the app at the first inkling of wanting to swipe up.
There are some other little tricks I’ll be employing - switching to Mint Mobile over Verizon for example. I own my iPhone, but still pay close to $70/month on Verizon. By switching to Mint I’ll pay $240 for the full year and get more data per month. That means I’ll save $650/year on that switch. I am not allowing myself to buy anymore books until I read all the ones that I currently have queued up on my iPhone. Last year I read 25 books in a year, and I plan to do about the same this year, but I have 15 that I have purchased on my phone and not read. After that, I want to explore the library as an option - I’ve heard that I can rent books that I can read on my phone which is key for me actually doing it. I read mostly in the middle of the night while breastfeeding our child, so turning on a light and holding/managing a paper book is not an option. I need to convenience of the screen. Spending less on eating out - no more Uber Eats unless my husband is willing to pay for it or I am truly desperate. The fees on those services are just ridiculous. I don’t plan on never eating out, but I will happily drive to pick something up to save $20 in fees per order.
The reason that I am so obsessed with this is because I am tired of being a slave to work. I work and work and work and feel like I never have enough money - because I don’t. Because I’m spending it on crap I don’t need. If I would just buckle down and focus on paying off debt and then investing the extra once the debt is eliminated, then I could feel free to spend more time with my kids, to relax a little bit, to not feel so trapped by lifestyle.
If I stick close to my goal budget per month then I should have about $1,700 extra dollars per month to pay down debt (and still be able to pay off what I’m spending each month). With that in mind, I could easily pay off the American Airlines card, the Amazon card, and more than half of the car loan in the next 12 months. If I pinch my pennies even more I might be able to get the whole car debt paid off and pay a bit of extra towards my mortgage principal. I can do all this while still saving for retirement, saving for my kids’ college, and having a decent budget for myself each month - $900/month for clothes/random crap, personal care, and food/entertainment is nothing to sneeze at. I’m going to make this a game and I am going to fucking crush it.
I’ll be posting here each month as I track myself towards my goals and pick up tips and tricks along the way about what’s working and what is killing me. I look forward to posting in 2021 that I am debt free aside from my mortgage and that I’m working to reduce that each month.