Let’s Get Down to Brass Tacks

Day 3 | $0 paid | $90,717 till freedom

Yesterday, I mapped the mountain by laying out the assets and income that will help me climb it, and the liabilities and expenses that will stop me from climbing it. Today, I’m going to make a first-pass at making a path up that mountain by determining what my new expenses and new income will have to be to make it to the top in ten months and pay off my $90k of debt.

Putting the Final Touches on the Mountain
The monthly expenses I listed yesterday are actuals, not necessarily what I have budgeted for. Yes, believe it or not, I do in fact have a budget that I track on a monthly basis. However, there have historically been no consequences if I exceed my budget. For example, my entertainment budget is $850/month, but I’ve been averaging about $1,300 per month. If I were doing real budgeting, then if I spent $1,300 in entertainment one month, I would have spent only $400 in entertainment the following month. I didn’t. I just kept spending, spending, spending.

At the beginning of my fiscal year in May, I laid out the following monthly expense budget for myself:

Monthly Expense Budget

  • Mortgage:$1,441
  • Student loans: $1,057
  • Entertainment: $850
  • Groceries: $330
  • Car insurance: $171
  • Car fuel & tolls: $160
  • Phone: $85
  • Electricity: $68
  • Water: $55
  • Lunch at work: $55
  • Internet: $50
  • Dry cleaning: $40
  • Gas: $36
  • Haircut: $20

Total: $4,418/mo or $53,016/yr

Annual Expense Budget and Status to Date

  • Medical/vision/dental: $500 budget / $260 remaining
  • Clothing: $1,000 budgeted / $214 remaining
  • House maintenance and repairs: $2,000 budgeted / $1,465 remaining
  • Donations: $450 budgeted / ($25) remaining – oops!
  • Car/motorcycle maintenance and repairs: $3,000 budgeted / ($328) remaining – oops!
  • Gym budget: $350 / $25 remaining
  • Christmas travel: $600 budgeted / $600 remaining

Total: $7,900/yr

Total expenses: $60,916

(Sorry if this last part seemed a bit redundant to yesterday’s post. I’m not a professional blog writer and am just kind of winging this…hopefully this is the last re-tracing of steps.)

Now for Revenue
We’ve already talked about my salaried income and how I don’t really want to state it. But let’s just say, for grins, that it’s a nice, round figure like $100,000. If 10% goes to my 401k right off the bat, I’m down to $90k. Then 20% goes to tax, so I’m down to $72k. If my budgeted expenses as outlined above are $61k, and I reset the annual budget and expenses-to-date from this point forward, then I’ll be able to contribute $11k to savings or loans at the end of a year. Since this is a ten-month project rather than an annual one, though, I can put only ten months, or $9k towards loans. 

The $25k loan that I plan to pay off as soon as USB pays me will be paid off with the liquidated IRA funds ($8,000), stock ($14,100), and the balance by cash, or $2,900. So that $9k for loans over ten months actually goes down by that $2,900 to $6,100.

Once I pay this off, I’ll be left with an $871 monthly loan payment. So, I’ll be spending $871 per month on my $66k of Federal loans, or $8,7100 over ten months, 70% of which will be principal, so I’ll chip away at $6,100 of the principal.

So the walk to debt freedom looks like is:

  • $90,717 starting debt 
  • Less $22,100 paid down immediately by IRA and stocks
  • Less $2,900 paid down immediately by already-accumulated cash savings
  • Less $6,100 paid down by savings to be accumulated over next ten months at current course and speed
  • Less $6,100 paid down per regular monthly payments over ten months

Delta to goal: $53,517

But because I want a cash buffer of $4k, I really need $57,517.

So it’s not exactly a “walk,” and it’s definitely no walk in the park. It’s going to be a hustle.

Finally Ready to Make the Path
So I’m off-target by over $57.5k. Clearly, if I want a real shot at making this work, I’ll have to…

  1. Cut costs
  2. Increase revenue

I have to either cut out $57.5k in spend, make $57.5k more, or do a little bit of both that nets me $57.5k extra.

Cut Costs
Where do I cut? How deeply do I cut?

Mortgage: $1441/mo
There is no real way to cut this. I bought the house a year ago using the $8k first home buyer tax credit, and I would have to pay this back if this address ever stopped being my primary residence. The possibility of getting a roommate, however, will be investigated in the revenue section.

>Potential Upside: $0

Student Loans: $1,057/mo
I’m paying off the $25k loan on which I pay $186/mo.

This leaves me with $871/month x 10 months = $8,710 off $66k, but probably only 70% will go towards the principal. So I’ll pay off $6,097.

I’m not going to double-count these expenses since I already included them in my walk above, so I can remove them from my monthly budget.

>Potential Upside from Federal Loans: $6,097

>Potential Upside from Non-Federal Loans: $186/mo | $1,860 through June

Entertainment: $850/mo
Oh, entertainment. We have so much fun together, you and I. The dinners, the drinking, the travel…I will miss you so, so much.

I want to get aggressive on this category. If I completely cut out entertainment for the next  ten months, I will get $8,500 towards my $56k goal.  Not shabby. But also  pretty freaking hard.

I’m going to say $50 a month. Doable? Can I go from spending $1,300 per month to…$50??? Lord, help me.

>Potential Upside: $800/mo | $8,000 through June

401k: 10% of income, taxed
First off, much to the chagrin of all financial advisors everywhere, my 401k is getting chopped. Completely. Ah, glad I brought my work laptop home. Give me a just a second. Okay, zeroed out. Thanks, Hewitt, for your user-friendly, easy-to-use online platform. 10% of my pre-tax salary is no longer going to my 401k, and 4% of it is no longer getting company-matched. Yes, I’m walking away from free money. Bye bye. Now that 10% will be taxed and will go to my loans. It’s too bad I can’t go back in time and put 0% contribution on my first day of work. I guess if I do get fired from my day job, I can use that $37,500 as my Screw You fund.

>Potential Upside: ~$550/mo | $5,500 through June

Groceries: $330/mo
My diet is laughable. I eat Frosted Flakes and Honey Nut Cheerios every morning. On Sunday, I make two boxes of angel hair spaghetti, distribute it into four tupperware containers, mix in parmesan cheese and sauce, and stick it in the fridge. That’s my lunch for four days of the week,and I treat myself to a lunch out for the fifth day. I’m typically too busy at work to even go down to the cafeteria to get something, let alone actually go out.

While I’m making those meals on Sunday, I bake five lemon pepper chicken breasts. That’s my dinner for the week, along with steamed vegetables (from the freezer, naturally), as well as a baked potato. On the weekends, when I don’t go out to lunch or dinner, I have two Hungry-Man TV dinners for a meal. At 810 calories and 36g of fat each, they are just what the doctor ordered.

I also buy protein bars at $2 each and have one a day. I have an apple in between breakfast and lunch. And that’s it–that’s all I eat. The non-edible part of my groceries is what must be going to that $330 month–I will have to spend some more time on this and pareto it out to determine the big hitters. I don’t think the upside will be very significant.

>Potential Upside: $50/mo | $500 through June

Car Insurance: $171/mo
Alright, I wasn’t exactly truthful on the first blog post. I actually have two cars, and I actually do have an expensive hobby, as I wouldn’t have two cars and a motorcycle if I weren’t an automotive enthusiast. I was afraid of being judged–sue me! I promise to be more truthful going forward.

Rest assured that the cars were not expensive at all to buy.The first one is a 2003 Nissan Murano with 127k miles that I picked up for something like $10k. The second one is a 2000 Honda S2000 with 62k miles that I picked up for about $11k. I need the Nissan Murano, a crossover, for household projects, and if I am ever DD for my friends or need to pick a friend up at the airport. The Honda S2000, a two-seater convertible, is…a toy. I’ll admit it. It serves no purpose whatsoever, other than to bring a smile to my face every single time I drive it.

Anyway, I provide that context to explain the $171 ($2k annually) in insurance I spend (and automotive maintenance and repair). It does not include insurance for the motorcycle–that was $392 and is already paid through September 2012, so that’s off the table. I do have full coverage (liability/comprehensive/collision) on both cars, so I could call USAA and ask for liability only and see what kind of savings I could get. I could also ask them what it would be if I sold one of the cars. However, I get a multi-vehicle discount, so I don’t think it would amount to much. The entire call would be just for grins, anyway, as I sure as hell am not getting rid of either of them. The Nissan is a workhorse and the Honda makes me happy. They’re both in excellent condition and I got incredible deals on them.

I’ll be keeping both cars (and the bike), but I’m not sure that I want to drop insurance on them. If I get hit or if I hit somebody (it’s been known to happen), I am looking at serious costs. I’ll check the potential upside with my insurance provider later. If it’s compelling, I might go for it. Not for now, though.

>Potential Upside: $0

Car Fuel & Tolls: $160/mo
Seeing as how I have been trending at $225/month, getting to the budgeted $160 is going to be hard enough.

>Potential Upside: $0

Phone: $85/mo
That’s a Verizon data plan that I am locked into for the next 16 months, plus a discount from my place of work. It can’t go lower. And I refuse to give up data.

>Potential Upside: $0

Electricity: $68/mo
This is an annualized number. It’s closer to $100+ in the summer and $40 in the winter. In the summer, I keep the thermostat at 85 while I’m at work, 76 in the evenings, 78 at night. I run it only a couple of months or so in the other three seasons. So I think this cost is already optimized. And it’s not like I have any servers or a second fridge that draw a lot of power.

>Potential Upside: $0

Water: $55
I would try not watering my lawn, but seeing as how we’re in the middle of the worst drought in a century, that’s probably not a good idea–the cost to re-sod my lawn would easily outweigh any savings from not watering.

>Potential Upside: $0

Lunch at Work: $55/mo
I will stop eating out. Tear.

>Potential Upside: $55/mo | $550 through June

Internet: $50/mo
I’m not going to steal internet. Nor will I go without it–I sometimes have to work from home.

>Potential upside: $0

Dry cleaning: $40/mo
Ugh…I hate ironing so much. And my slacks have to be dry-cleaned. If I iron my button-down shirts, which I wear only during cool months (Oct-Mar), I should be able to cut this in half.

>Potential Upside: $20/mo | $200 through June

Gas: $36/mo
This has been coming in at $23. I mis-budgeted for it when I built my budget in May. Plus, I have no idea how to lower the usage of gas. I hardly cook as it is. Must be the hot-water heater. Well, my showers aren’t getting any cooler!

>Potential Upside: $13/mo | $130 through June

Haircut: $20/mo
I love my TGF haircut. I guess I could shave my head myself once a month, but if I get the promo I’m interviewing for at work, then I’ll be in a B2B role with customer engagements, and I would be judged. No thanks.

>Potential Upside: $0

>Total Potential Upside: Ok, so if I can cut some costs, I am looking at $22,837 contribution to the $57.5k delta.

Remaining delta: $34,663

I still have some annual spending to go attack.

My automotive budget is tapped at ($328). There’s no upside here.

>Potential Upside: $0.

If I don’t get sick, I can save $260. I do need to get my annual physical next month, so I’ll keep $10 for the co-pay.

>Potential upside: $250

Hmm…not sure how I feel about cutting this. Not super excited, but I guess I don’t need anything…

>Potential upside: $214

House Maintenance and Repairs
My exterminator comes quarterly and there are three visits remaining, for which I’ll owe him $100, I think. Hopefully I won’t need any other work done?

>Potential Upside: $1,165

Donations – tapped out

Gym – basically tapped out

Christmas Travel
I don’t think my family would be very happy if I didn’t come home for the holidays. That would be cold.

>Potential Upside: $0

>Total Potential Upside: So on top of my $22,837 that I can save by cutting my monthly expenses, I can save another $1,629 for a total of $24,466. That leaves me with a delta of $33,034.

Increase Revenue

How in the world am I supposed to make $31,534 in ten months?

I have 224 shares of my company’s stock. If it is still where it currently is, I could get $2,350 after tax.

>Potential Upside: $2,350

If I get the new job, I might get a 10% raise.

>Potential upside: $500/mo | $5,000 through June

Tax return
My tax return last year was $1,200, and I moved into my house in the middle of the year, so I paid income tax-deductible property tax for only half a year. I also didn’t realize huge losses on stock like I will this year. I’m going to get bullish and double this.

>Potential Upside: $2,400 through June

I got a decent bonus last year. I was ranked the highest out of my peers, and since the bonus system at my office works like a a meritocracy, that ranking was manifested in my bonus. My compnay also had a great year last year. This coming year, if I get the promo, my peer group will change, and I will not be at the top of it since I’ll be so new to my role. However, in the new pay grade, a greater portion of my salary will be subjected to the bonus, and my company is having a good year so far. To be conservative, I’m going bearish on this bonus.

>Potential Upside: $8,000

Pedi-Cab Job
If I pedi-cab on Friday and Saturday nights and make the low end of what has been advertised, I’ll make $200/weekend, or $100 night. There are roughly 40 weeks between now and the end of June. I am out of town for three of them, and might not start until a weekend from now, so I start with 36 weekends. I’ll want to take some weekends off, so let’s put it at 30 weekends. I have to pay for the bike and rent the cab $10 each time. So minus $500 + $10×60 = $1,100 from my revenue.

>Potential Upside: $4,900

Other Random Job?
$12/hr @ 16 hours/weekend and 30 weekends = $4k after tax

>Potential Upside: $4,000

I have to do it. It’s going to suck like hell for so many reasons, but I have to do it. Just looking at the numbers above, it’s obvious I am nowhere near the $34.5k bogey.

I figure I can get $650 for the room which is already furnished with a double bed and dresser. I will include utilities, which will go up a bit but shouldn’t be out of control.

$650/month x 10 months = $6,500

>Potential Upside: $6,500

>Total Potential Upside: $33,150

Delta from $33,034: ($116).

In other words, I can exit June with my loans paid off and $116 plus my $4k cash buffer burning a hole in my pocket.

The Delta
Now, I went pretty high-level here and there were a lot of assumptions, and tax, when used inconsistently like I did, can make things a little tricky. For example, things like the 401k, raise, and bonus were post-tax, but I didn’t include tax in the pedi-cab job and for the roommates, even though I’ll end up having to claim that. Still, $116 surplus–even if it’s only directonally correct–is not bad at all. If I can stick to this plan, I will meet my goal. Of course, that is a major “If.” For example, can I really find two side-jobs, and work the entire weekend, nights and days?

Can I execute?


Filed under Three-Post Introduction

42 responses to “Let’s Get Down to Brass Tacks

  1. Patrick

    Just found your blog…very entertaining so far! I look forward to following this. You should put some ads up to monetize this…not much, but every dollar helps, eh?

    Also, the easy way for someone to back into your income would be to take your 401(k) value and contribution/match percentage…

    • yeah, I didn’t make it too hard, did I? regarding the ads, trying to make my extra income organically–I don’t want to leverage this blog and try to set an example that anybody can do it…not everybody can drop harvard and $90k and get 1k hits a day…

  2. If all you eat is pasta, cereal and frozen dinners, you should look into using coupons. My wife has been able to get free cereal and pasta with a little effort (and glares at the checkout).

  3. Walnut

    I’m currently vowing to pay down $15k in MBA student loans between now and this next June. I don’t have near the income and have already tapped out on several of your cost savings measures. My extra revenue will likely come from slashing my travel budget (sad day!) and slashing my eating out budget (suck). The thing I’ve found, however, is that I don’t cook cheaply, so I’m not sure this is actually saving me a ton of cash.

  4. Kyle

    Just because you have prepaid your motorcycle insurance does not mean it’s a sunk cost — you can look into cancelling the policy and they will refund you a prorated difference if you choose to sell your motorcycle. I feel this is something you should at least entertain.

  5. Andrew

    You might be able to knock down your food budget if Amazon has your protein bars available as a “subscribe and save”. My wife does a similar thing, and normal Amazon price is lower than the grocery store, and on top of that there’s free shipping and a discount if you have them come every month. It’s not much, but considering your savings goal in food was only $55 a month, it might get you 1/3 to 1/2 the way there, with no effort. They have the same program for things like cereal, but as somebody else mentioned, you can get those for almost free with a little effort at the grocery store.

  6. I found your blog via Ramit Rethi and love it. I live in Austin too and am liking your take on things so for. One suggestion would be to try and get into pedicabbing BEFORE ACL weekend. ACL weekend is huge for pedicabbers and you can make 10x more than average. Also, you eat pretty frugally, so do NOT give up your $55/month lunch habit. I think the $550/year savings just don’t warrant the heartache that comes with giving up something you care about. That’s a very nominal expense, and I recommend that you stick with it! Good luck. Ps: I live in Austin too, so let me know if you ever wanna grab a drink or talk shop

    • BP, getting a drink somewhere super cheap sounds good. Hit me up at nomoreharvarddebt.com. I ditched the pedi-cabbing before ACL, but the guy who trained me said he made $350 in one day. That’s a far cry from the $600 that the owner of the pedi-cab rental place claimed in his recruiting ads. Not chump change, of course, but not $600, either.

  7. Anastasia

    I just came across your block and I have been enjoying it tremendously. I have just gone back to work after 1-year maternity leave (I live in Canada) and now I have a goal of saving $25K towards a small business I want to start. The idea is what keeps me going when I feel completely exhausted from balancing career in finance with caring for a small baby. However, at the moment I am only able to stay within my budget and have to get creative to find room for savings. I love your systematic approach to saving and revenue increase and decided to follow the similar path. Please don’t give up on your quest as I will be looking to your posts for inspiration.
    P.S. your monthly salary increase amount gave out your salary (net of tax) 🙂

  8. Susan

    Bravo to you for realizing that you don’t have to keep those student loans around for another decade or more! I’m in Texas, too, so I have a few suggestions:

    Shop your vehicle/homeowners insurance. We left USAA last year when we learned that an independent insurance broker could save us over $1000 annually. You might look into MileMeter if you don’t put a lot of miles on your cars.

    Learn how to coupon/price match. There are any number of blogs and websites devoted to this topic. And coupon everything possible – oil changes, haircuts, restaurant meals, movies, entertainment venues, and of course groceries and personal care items. You need to keep some entertainment options open for the sake of your sanity since you clearly enjoy going out and having a good time.

    Buy gas at the cheapest station on your normal route. Find the best prices at gasbuddy.com.

    I don’t know whether you have a choice of energy providers in Austin – we don’t here in San Antonio – but you might be able to cut your utilities bill by switching to a different provider. Your gas bill looks high to me. By contrast, ours was $12.51 last month for a family of four adults.

    Look into participating in focus groups in your area. I know of at least one company that conducts focus groups right downtown in Austin. Here in S.A., a focus group meeting typically pays $100 cash for two hours. It’s not much in the long run, but it’s a nice little cash infusion from time to time.

    Surround yourself with like-minded people! This is probably the best advice I have – it’s hard to live frugally and stay focused when most or all or your associates are spending freely.

    Good luck! I’m looking forward to following your progress.

    • Thanks, Susan. I’m with USAA for my auto but didn’t go with them for the home–you’re right, way too high! Loved your ideas, especially the last one. I need to find some frugal peeps to be frugal with.

  9. Another couple of ideas would be attempting to generate some cash from this blog and plasma…. or buying stuff on craigslist and flipping it. On the protein bars, you could try shifting to protein shakes. You can get a decent 5lb tub for $40-$50 and that’ll give you 2 or more shakes a day for a month.

    • I’m thinking about the plasma thing but this girl I know at work has had horrible experiences with it. Protein shakes are a good call. Craigslist can be a shady place…not sure I want to spend that much time on it!

  10. I would strongly urge you to shop around for a deal on car insurance. You may do this online by entering in parameters on various sites and getting quotes. I spent a Sunday afternoon a few weeks back and ended up saving nearly 500$/year and i thought I had a pretty good rate before — and I only have 1 car. The coverage is actually better than my previous company.

    Also, just because you have prepaid your motorcycle insurance does not mean it’s a sunk cost. If you cancel your policy you will be refunded a prorated amount back. If you are serious about paying off your debt, having 2 cars, and a motorcycle is borderline asinine. You should consider selling off the bike before it decreases in value further and save what regular expenses it costs you. You can always buy another one down the line once you are debt free, and appreciate it so much more. I would also urge you to sell off one of the cars, but baby steps…

    • “borderline asinine” haha…it would be borderline asinine if the bike were a Ducati, the convertible were a Porsche, and the SUV were a Range Rover, but it’s two Hondas and a Murano 🙂

      can’t sell my stuff right now…maybe if I get desperate. Baby steps for now.

  11. I linked to your blog today – and I’m an excited new reader. As an MBA applicant, I think blogs like yours are sorely needed to give prospective students a real look at what six figures of student loans mean in terms of day-to-day living. At least you are making a good salary in a city with a pretty reasonable COL, especially compared with LA, SF, Boston, or NYC…

    • hey! I would never make it in a high cost-of-living city like the ones you mentioned. I lived in NYC for a summer and my finances got murdered. Happy to give you any advice on applying to b-school. Good luck!

  12. I am so addicted to this blog already.

    Major respect for what you’re trying to accomplish! I don’t have any debt, (thank you Mom & Dad for paying for college!) but am trying to save up for life post-college. I have 9 months until graduation, so my timeline is similar to yours. I’ve already employed several of your strategies, but there’s definitely more that I could be doing. Granted, I’m working part time for $10/hr so there’s only so much I can do with my income, but it wouldn’t hurt to still try to boost my income.

    All that to say, maybe I’ll join you on your 9 month journey. 🙂 I’m feeling motivated just from reading your blog!

  13. J

    Lease 2 bedrooms out instead of just one! Its just for a year…

    Love the detail, inspires me to push a little harder. Also, check out mint.com, I think you’ll like it, their Android/Apple app is good too…

  14. Cutting health insurance doesn’t seem wise. A single, minor medical incident could derail this whole enterprise. Yet you don’t save even one month’s worth of payment.

  15. Sell the cars and decrease the entertainment budget to >$300/mo. That’s a smarter move than liquidating your IRA and 401K account.

    Selling the two cars nets you ~ $20,000 plus an extra $2,000/yr. you don’t need to spend on insurance. The decrease in entertainments gains to $12,000/yr.

    I then recommend you take that $34,000 and invest in some profitable businesses in Austin(like buying a pedicab rental company). Paying off your student loans isn’t going to save you that much in interest rates but Austin is booming. There are investment opportunities abound.

  16. @Jason-yes, it’s easy to tell others to do the financially sound thing, but it’s clear that he loves his cars/bike. I think it’s actually good that he keeps at least some of the things he loves, since he’ll be giving up so much in order to pay back the debt. How is he going to keep himself motivated if he cuts out everything that makes life enjoyable?

  17. Sarah

    To cut down on entertainment costs check out free events around town. Here are 2 good websites to check out:


  18. Brandy

    Wow…so impressed that you are putting yourself out there! I want start a blog and post all my numbers like you did, but I am afraid that my friends and family will realize how much I make and spend on stupid stuff.

    • I was terrified of doing it, but I’m finding that public humiliation and judgment can actually be therapeutic and great for changing behavior. Step one of AlAnon, right? I think it’s step one for a reason.

  19. Rob morris

    Break the Verizon Contract. Costs about 75 bucks. Virgin Mobile offers unlimited text and data and 300 minutes for 35 bucks a month, no contract. They offer a 200-odd dollar android. So costs of switching are about 300 bucks, and you save 50 bucks a month. 6 months out you are making money.

    Also, why keep the toy car? If you are spending your weekends working you will not have a chance to enjoy it. Also, if you really do manage to pay off the debt in 10 months you will have the funds to reward yourself with an even snazzier toy.

    • Because I like toys? 🙂 You might be on to something there, but going to keep it around for now…

    • John

      Been reading this blog and have to give you props on the Virgin Mobile tip. I knew of them, but I did not know how cheap their plans were. Their cheapest plan has everything I need since I hardly use my phone. I will go from paying $50/month to $20/month since I don’t want data. Thanks!

  20. Zeona

    I think giving up the free money of the company match is a really bad move. Just put in the minimum amount to get the full match. Money invested in a retirement account averages an 8% increase a year, which is higher than any of your student loan rates. You still need to consider your future.
    Also, I shopped around for a long time when I was buying car insurance and found Titan Insurance to be the best deal. $152/mo for 2 cars in Los Angeles. Titaninsurance.com. If you biked to work before, why not start up again, it will save you a ton on gas. At the very least take the motorcycle instead of the Murano.

  21. Reading this from the beginning. This is great, thanks!

  22. Pingback: Emulate Success | Student Loan RAGE

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