A frugal solution. . . .

I hope you all enjoyed a wonderful holiday! I certainly did, although my frugal tendencies went right out the window when faced with fabulous food, lots of opportunities (and time) for socializing, and, alas, the dreaded spending.

As has been the case since I began my frugal journey several years ago, the Christmas season seems to trigger the 'shopping gene' and I end up not only spending more than I intended to on others, but also on myself! For some reason, the act of purchasing gifts for others seems to get the juices flowing and I end up buying things for myself as well. It's as if all of my self-control, which I wield so successfully during the rest of the year, simply flies out the window for a two-week period.

Although I did score a wonderful new jacket and a pair of boots (70% off!), the upshot is that I had to send my last paycheck not to my second mortgage-holder or to my student loan balance, but instead to my credit card! Aaaarrrrrrgggghhhh! It's frustrating, to say the least.

Although I am kicking myself (even while wearing my fabulous new duds) the silver lining is that I have come up with a plan to help myself avoid this next year. My solution is this: for the first time ever, I'm going to set up a savings account just for Christmas costs, to include travel (airfare to visit the family) and gifts. I had intended to nix my savings (except for the savings that goes towards paying my water and auto insurance costs, of course) so that I could concentrate on sending every extra penny to my debt. However, in the long run, I think sending $50 a month to the Christmas savings account will benefit me by helping me avoid the frenzy of spending that I experienced this year.

Student loan shenanigans. . . .

A few weeks ago, I mentioned that there might be a change in my student loan balance due to an inheritance (of sorts) that a close relative received. Actually, the 'close relative' is my father. Many (many) years ago when I was making some bad decisions in high school, my dad said, quote: "you get into college, and we'll find a way to pay for it". What I didn't realize at the time was that this meant students loans - for me.

After my first graduate degree was finished, my dad commented that when he received an expected inheritance, he would help me with my student loan balance (which was around $50,000 at that time). Over the years since then, I've not counted on that happening, for various reasons. One of those reasons is that I consider these loans to be 'mine', and therefore my responsibility to pay off.

However, just recently, my dad started the conversation again about how he could help me with my student loan balance. The scheme he's come up with has its merits and its downsides. Basically, he will transfer some stock to me equal to about half the balance of my current student loans. Then it will be my decision whether to sell that stock immediately (taking a capital gains tax hit), or to hold the stock with the assumption that the shares will 'split' as they've done in the past (this is stock from a major U.S. company) and will eventually - in who knows how many years - be worth much more.

The merits of this plan are that at a minimum, I'll have about $25,000 to pay down my student loan balance if I'm willing to sell the stock immediately and take the tax hit. The downside? Knowing whether to sell right away or wait and see what happens with this stock. If I wait for the stock to split (and there's no guarantee that this will happen soon, though it looks like a possibility given the direction the stock is heading) and ultimately gain value again, I could have more of my balance paid off than if I were to sell right away.

What a conundrum! Looks like I've got some thinking (and learning) to do! In the meantime, I'm going to continue working on my second mortgage debt while paying at least the interest (but probably a little more than that) on my student loan balance.

Tax savings? Not so much. . . .

I'm obsessed with my second mortgage these days (as you might have guessed if you've read the past few blog entries. . . .). A couple of weeks ago, I discovered that I had only paid about $1,500 in principle on my high interest (8.9%) second mortgage in the last four years! Last week I decided to torture myself further by adding up all of the interest that I've sent to my second mortgage holder; money that I'll never see again.

During the past four years, I've paid CitiMortgage over $10,000 in interest! Granted, I would not be quite so upset about this if my house were actually gaining equity - unfortunately, it isn't, which is just adding to my feeling that each month for the past four years I've been flushing money down the toilet.

"But wait", I thought, "what about that tax deduction that is saving me so much money on my taxes each year? Isn't THAT a benefit to home ownership? Certainly, it's on every real estate agent's blog as being one of the best reasons to purchase a home".

"THIS will make me feel better," I thought to myself. So I booted up my 2009 tax return, and learned that I saved a whopping $1,700 last year as a result of my mortgage interest payments.

And guess what? Since I paid $2700 to CitiMortgage last year in interest payments, only about 20% of my total tax deduction was a result of my second mortgage payments. Which, by my math, means that of the $1700 I "saved" on my taxes, about $330 of it was due to my second mortgage interest. I paid $2700 in (mostly) interest in order to save $330? Sigh. Doesn't really seem worth it, does it?

Again, if my home were gaining equity (aside from the artificial equity I'm creating by throwing money at my principle balance) I wouldn't be quite so perturbed by the falseness of this ridiculous tax deduction argument. I guess the silver lining is that realizing this will help me in two ways as I go forward: first, I will think twice before purchasing another home based even partially on the argument that it will "save" me money on my taxes; and second, it makes me even more committed to getting myself out from under my second mortgage at this point (and eventually, out from under my first mortgage as well!)

Much as I love my cozy house, it's just not sustainable given my income and future goals. I would rather rent an apartment for $500 less than my mortgage payments and pay that additional $150 or so per month in taxes.

In the beginning. . . .

Here's just a wee bit of graphic evidence that my newest battle against debt has begun in earnest! I hope to update this sweet little chart each month as I receive my statements, so I have a visual reminder of why it is I'm working so hard - and will be for at least the next year.


This is a rather small graphic; I believe if you click on it you can see a much larger version, though there isn't a lot of detail at this point. Two months in and I can already see the blue lines decreasing like tiny stairs descending towards workload sanity and financial freedom!

Digital motivator. . . .

When I graduated last spring, I splurged (well, $100 to start and about $70 a month thereafter) on a 'Smartphone' with which I can surf the Internet, check email, listen to podcasts, text, and oh, of course, talk. It's an extra expense that I don't necessarily need, but I wanted to reward myself for completing my program (without additional debt!) and it definitely keeps me sane on my 45 minute lightrail commute each morning and afternoon!

One of the bazillions of things you can download onto the phone is a 'Countdown Widget', which I used to create a clock counting down the days until my second mortgage is paid off. I'm estimating that by the beginning of March, 2012 I'll either have that baby paid off or will be very, very close to it.

Here's (essentially) what it looks like:

Neat, huh? I'm a spreadsheet nerd; I'm constantly playing around with different debt payoff scenarios. This little widget helps me to see the 'light' at the end of the tunnel as I pack my days (and nights) with more and more part-time work that adds to the coffers. It'll be nice to see this number get smaller, and smaller, and smaller the closer I get to my goal. Maybe once I'm down to a year or less I'll add the widget to the sidebar so you can all follow along with me!

Downsizing. . . .

Since my goal is to sell my house in another year or two (depending on this fabulous housing market I find myself in), I'm starting to look around my home with a critical eye, especially at clothing and kitchen items that I've neither worn nor used in the past year. I definitely don't want to spend my last month in my house (assuming it sells) frantically getting rid of things I don't want to put in storage.

Wherever I end up, it's a good bet that my new residence will be smaller than the one I have now, and will not have a garage. Now, I'm no hoarder, but I do have boxes of things here and there that I never unpacked when I moved here over four years ago! To me, that means those mystery items are unneeded; if I've not found a use for them in the past four years, it's as it I didn't own them at all. With that in mind, why not start downsizing before I really have to?

So today, rather than cleaning my floors as I promised myself I would do, I started the task of dividing some of my unused clothing into groups of: 1. nice enough to go to a consignment store; 2. nice enough to go to the Goodwill; and 3. what is this thing even doing in my house? This last group is unfortunately destined for the trash, much as I dislike discarding anything (it's the environmentalist in me that hates to see one more consumer item sent to our already full landfill).

I'm hoping to make a wee bit of cash with the consignment goods, and take a small tax deduction with the Goodwill items. I'm sure that my 'take' will be less than the original costs of these items (I found a $70 pair of shoes I've worn maybe three times because they're too big, and a $90 pair of boots I've worn a comparable number of times because they're too tight), but it's something, right? Plus, I'm trying to figure out how I'm going to fit Christmas into my meagre budget, and every little bit will help!

Satisfaction. . . .

In November, I sent a grand total of $1,452 to my second mortgage holder, which is $1,197 more than I usually pay each month. There's definitely some satisfaction in watching my balance decrease, since up until now I've been primarily paying interest-only (I wasn't aware that this was akin to an interest-only loan when I signed the papers, by the way, though if I'd been a smarter consumer I would have learned that beforehand).

What amazes me is that in the four years that I've had this loan, I've managed to pay it down by just around $1,500. I'm flabbergasted by this.

October, 2006 starting balance: $31,400
November 2008 balance: $30,877.76
November 2010 balance: $29,881.18*

* Note: this doesn't reflect all the payments that I made in November, since some of my paychecks came late in the month.

Know what's even crazier? My November 2010 balance reflects an additional $400 in principle payments that month! So, essentially, the balance of my second mortgage has only decreased by about $1100 in four years of making regular payments!

With financing like this, it's no wonder some American homeowners are in such deep doo-doo. Loans like this remind me of indentured servitude, in which a peasant was obligated to a wealthy landowner (or other wealthy individual) until he died, because the value of his work on the land (which he didn't own) was never enough to cover the amount of his debt to the aforementioned landowner.

Anyway, this is just a rather long-winded way of saying that the satisfaction of finally watching the balance of this evil loan shrink is hard to describe. Perhaps it's akin to watching the pounds on the scale vanish with weight loss, or, conversely, watching the balance of a savings account grow exponentially. In short, it's FANTASTIC!!

In defense of the beater. . . .

I drive a 15 year old car with almost 115,000 miles on it. Hey, it runs (mostly)! I did just replace the battery, it has regular oil changes, and it's definitely due for a tuneup, but it gets me where I want to go. In addition, it's basically free (minus the $80 or so a month for insurance and gas). And for someone who is bent on paying off old debt, that is a good thing!

I do go kind of crazy from time to time wondering about all of the knocks, creaks, and bumps that my car emits while driving. My mind immediately starts adding up the cost of a new alternator, or clutch, or brakes, or any number of crucial auto functions that might need to be fixed in the next few years (I do have the money in my emergency fund for these sorts of repairs, by the way, though I would love to have the extra room in my budget for a 'repair and maintenance fund').

This month, I was convinced that my gas gauge wasn't working. My speedometer and tachomoter haven't worked in years (you get used to it, believe me!) and I've always said that as long as I know how much gas I have left, I'm content to leave those issues alone, since the instrument cluster alone could cost up to $150 to replace, not including labor costs.

I usually spend about $35 to fill up my tank at the end of the month, and with normal driving to the transit station and the grocery store and to my teaching gigs (when the Max isn't convenient), I'm usually left with just a little more than an empty tank at the end of the month. Well, for the last two weeks my gas gauge has been on half-full. No matter where I drove, and for how long, that gauge didn't budge one little iota. Which freaked me out. I've only been stuck once with an empty gas tank, and I didn't like it one bit; I had no interest in repeating that particular fiasco!

So last Sunday, I went to the gas station and got a fill-up, although the gauge still sat at half full just as it has for weeks. And guess what? I only spent $20 and got 7 gallons of gas! Meaning that my gas gauge isn't actually broken, I've just (somehow) driven less this month than I thought I had! Eureka!

I mentally saved myself $400-500 dollars just by putting $20 into the tank! I do wish for a shiny new car now and then, but the value of getting by with my beater might be equal to $90,000 (my remaining debt) when all is said and done.