Monthly Archives: April 2016

Debt Repayment Plan

A few weeks ago I was helping a client create a debt repayment plan and I found a great free tool that I’d like to share with you today.

If you have student loans, credit cards, a mortgage, or any other debt that you’re working to pay off, this tool will help you do it as quickly and effectively as possible.

Specifically, it will help you:

  • Organize your various debts in one place
  • Determine the exact order in which to prioritize your debts
  • Figure out exactly how much money to put towards each debt every single month from now until the last one is paid off
  • See how much money you can save by putting extra money towards your debt and/or prioritizing them the right way

Below I’m going to walk through the most helpful features of this tool so you can see how it works. But first, here are the links to get it for yourself:

  • Excel version: Vertex Debt Reduction Calculator (Excel)
  • Google Sheets version: Vertex Debt Reduction Calculator (Google Sheets)

Let’s dive in!

Quick note: The free version can handle up to 10 loans. If you have more than that, there’s a paid version that costs $9.95 that can handle up to 40 loans. You can get it here. (And no, I’m not affiliated with this company and don’t get paid to recommend them.)

The 2 most helpful features

The spreadsheet comes with a full set of directions that you can follow to fill it out yourself. I’m not trying to duplicate those directions here, but I would like to give you a sense of how this tool will help.

Here are the three features that I think are most helpful.

1. Debt organizer

This is where you enter the important information about your debts. This information is used for the rest of the calculations in the spreadsheet, but it’s also useful simply because it organizes everything in one place. As I talked about a couple of weeks ago, sometimes simply being aware of your financial situation is all you really need to make progress, and this is a big step in that direction.

One of the most helpful pieces here is the Total line, which shows you both your total debt balance and your total monthly payment.

If you’re not sure how to gather all of this information, here are two articles that will help you out:

  • How to organize your student loans
  • A step-by-step guide to crushing your debt (see Step 2)

 

2. Repayment strategy

Once you’re organized, it’s time to decide two important things about your debt repayment plan:

  1. How much you can afford to put towards your debts each month
  2. How you’d like to prioritize your debts

One of the cool parts about this tool is that it’s easy to play around and see how making different decisions here will lead to different outcomes. This allows you to make a decision you actually understand and like instead of having to blindly trust “the experts”.

For instance, here’s what it looks like in my example when I choose to make the minimum payment on all debts and prioritize the lowest balance debts first:


As you can see, my last debt will be paid off in June of 2026 and I’ll pay $18,933.10 in interest between now and then.

Now let’s say that I can afford to put an extra $200 per month towards my debt. How does that change the results?

Save

That extra $200 per month means I’ll be debt-free almost 4 years sooner AND I’ll save over $9,600 in interest. Pretty cool!

How to Get Financial Stability

If financial independence is the dream, financial stability is the first adult step along the path towards that vision.

On the final day of the year, fifteen years ago, I returned home from a weekend away to find my belongings on the lawn in front of the house I was renting. (I used the Internet Archive’s Wayback Machine to fact-check myself using my old, anonymous personal blog, my first time reading those entries in over a decade.)

My roommate thought I was moving out at the end of December, and when I wasn’t around, she moved two people into the room I had been occupying for several months. I had been planning to move out at the end of January, and the roommate knew this. But my name wasn’t on the lease, so perhaps she thought she could do whatever she wanted.

A later entry brought back the memory of a related event: I visited that apartment again ten days later to pick up a few remaining items, and the new occupants were moving out because that roommate committed some kind of check fraud. But I digress…

Being forced out of my living space with no notice on New Year’s Eve was the end of a particularly bad year. I lost a job, lost my car, and lost my girlfriend. I had moved to northern New Jersey for a job I no longer had. I was in my mid-twenties, but I wasn’t financially an adult. I survived by spending on credit cards, avoiding student loan bills, and accepting help from parents.

With the necessity of moving in with family as 2001 became 2002, I vowed to turn things around for myself.

I wasn’t necessarily aware of the idea of financial independence, but thankfully, that is how I can describe my situation today. In early 2002, I just wanted financial stability. And I had to figure out how to get there.

After college, I chose a career somewhere between education and nonprofit. The organization I was working for was meant to be a stop-gap while looking for a teaching position, but I did enjoy it, and I didn’t put enough effort into moving forward. It cost me more to work as a nonprofit employee than I was earning — and I wasn’t even spending a significant amount of money.

1. I FOUND A NEW JOB.

Instead of looking for my ideal career, my priority was earning money and getting back on my feet, taking control of my situation. Nothing is permanent. I could work on my loftier life goals while at least working somewhere during the day that would allow me the flexibility to plan for the future.

Without a car, I was limited to jobs that were accessible by walking or by traveling on the train. I turned to a technical temp agency. That’s how I earned money over breaks during college, and I knew I had many skills that would serve me well in corporate settings. I found something right away — an executive administrative assistant at a major financial firm.

This had no relation to my degree, but it was a job. And it paid 50 percent more than what I was earning at the nonprofit organization. Theoretically, I could even stay involved with the activity I was passionate about on weekends while working a “regular” job.

2. I DESIGNED A BUDGET.

My dad helped me brainstorm a basic budget on the back of an envelope. That’s how I remember the situation. This budget had to take into account paying off a cash advance from my credit card, consumer spending on my credit card, and my student loans. I intended to move out and be less of a burden on family as soon as possible, so I budgeted for rent, as well. And savings for the future.

Partly because I wanted to stick to my budget and partly because I needed some self-reflection time to recover from bad choices, I also saved money in the first few months of my new job by staying in a fortress of solitude.

The budget was essential for setting myself up for financial stability.

3. I TRACKED EVERY PENNY.

I used free software to meticulously track my spending, making sure I was staying within my budget and paying my bills on time.

You can only have a clear picture of where you’re going financially if you know where you are. It is incredibly easy today to get a full snapshot of your finances at any time thanks to technology. Apps communicate directly and securely with banks, so you all you need to do is check your phone to see where you stand. The app adds your bank balances and subtracts your debt, and the result is your financial net worth.

And beyond your net worth, you need to know how that changes over time, so you track your income and expenses, too. Today, I use Personal Capital and Quicken.

Financial Milestones

Just like Jennifer Garner’s character in Thirteen Going On Thirty, I thought I’d have all my sh*t together by the time I reached the big 3-0. I’d be an adult. Let’s be honest, this is just a grown-up version of the thought that plagued all of us in middle school: “When I’m sixteen, I’m going to be incredible!” And as we got older, that number just got higher. I’m fully convinced that I’ll be 55 one day, thinking, “Oh I’ll probably have my life together by the time I’m 60.”

Truth be told, we probably won’t ever feel satisfied with certain aspects of our lives. And I guess part of the fun of being alive is never really feeling “done.” We always have to improve, and we always have to grow. That said, it’s kind of humorous (or, at the very least, pathetic) to look back on some of the milestones I thought I’d hit by the time I reached my third decade as a human on this planet. Some of them are sheer wishful thinking, and some make me cringe with embarrassment.

I may be “thirty, flirty, and thriving,” but I definitely didn’t meet these goals – and you know what? That’s okay.

1. Expectation: I’ll definitely own a house by age 30.

Reality: I still rent.

My husband and I live in the Boston area, which is basically the same as any housing market in any big city: ridiculously expensive. Even the suburbs of Boston are very financially challenging, with houses of decent size and quality rarely dipping below $350K. Buying a house is often perceived to be the ultimate “adult” milestone, but in my opinion, there are a lot of perks that go along with renting that I’m not entirely sure I’m ready to give up (aka the beauty of not having to shell out thousands of dollars when an ice dam causes major flooding, which is what happened to us last year).

2. Expectation: I’ll have a relatively fancy car, or at least a new one.

Reality: I still drive the first car I’ve ever owned.

While a new (read: new to me, but probably still used) car is possibly on the horizon for me in the near future, it definitely won’t be fancy by any standards. I currently drive an ‘05 Jeep Liberty Sport, and while it’s cute and practical for those Boston winters, it’s not shiny or glamorous by any means. No joke: my car sometimes makes farting noises, so that definitely wasn’t a part of my “vision” for the big 3-0.

3. Expectation: I’ll invest in a solid collection of high-end beauty creams.

Reality: If I’m dropping $$ at Sephora, it’s probably on NARS Orgasm.

There’s a little voice in the back of my head that often whispers to me, “Shouldn’t you be buying eye cream or something?” (Idk, isn’t that what we’re supposed to do when we leave our 20s?) The truth is though, I can’t bring myself to spend money on stuff like that. I’m sure it’s beneficial, and I’m sure there’s probably some beauty consequences that are headed my way in four or five years, but I’d just rather spend money on #LipKitByKylie, or something.

4. Expectation: I’ll earn a tremendous amount of frequent flyer miles.

Reality: I’ve spent a lot of time in coach.

While I do love to travel, I very rarely do it in style. I’m all about those flight/hotel/car bundle websites, like Expedia, which is great when you find a hot deal, but not as great when your flight gets canceled and you have to spend your entire trip arguing with customer service or waiting to fly standby. Anyone know how to get a private jet? A free private jet?

5. Expectation: I’ll have a closet full of shoes, à la Carrie Bradshaw.

Reality: I’ll wear my favorite pair of flats until they have holes in the bottoms.

Even now, when I watch reruns of Sex and the City, and even though I know it’s a TV show, I get so irrationally angry. HOW DOES SHE HAVE THAT MANY SHOES?! SHE IS A WRITER! I AM A WRITER! It’s just so unfair. Then again, Carrie Bradshaw didn’t have any money in her checking account because she spent it all on shoes, so there’s that.

6. Expectation: I will have a crystal clear understanding of various retirement plans.

Reality: I still need to google “What’s the difference between a 403(b) and an IRA?” on a semi-regular basis.

Nothing makes me feel dumber than meeting with financial planners. Hats off to those who work in finance, because I think you have a different brain than I do. I make it my mission to know as much as I need to know in order to maintain my retirement plan healthily, but when it comes to the details, I’m just as fuzzy as when someone tries to explain how football works. (What’s a “first down” again?)

7. Expectation: I’ll finally stop giving into impulse purchases.

Reality: Ooh, are those chocolate-covered gummy bears?

You know how some checkout lines put certain items on shelves that are perfect eye-level for children? I feel like most checkout lines appeal to me in the same ways. As much as I try, I cannot resist that chapstick that smells like pomegranate, or that ridiculously cute tiny notebook. I definitely try to cut back whenever possible, but I have no regrets about the occasional luxury gummy bear purchase.