Refocus on the Debt-Paydown Roadmap

Day 13 | $24,666 paid | $66,051 till freedom

There’s been a lot of writing about pedi-cabbing, roommates, potential promotions, motorcycle issues, etc., and I just want to take a moment to try to articulate exactly how each of my cost-cutting and revenue-increasing initiatives impacts or contributes to the final goal of paying off $90k of student loans in 10 months.

The last time I talked comprehensively about my financial situation was in “Let’s Get Down to Brass Tacks” when I created a plan to overcome the hurdles that I wrote about in the post prior to that titled, “Sizing Up the Mountain.” I talked through a lot of numbers, but I never took the time to clearly summarize what it all meant, or lay it out in such a way that would show whether I was on track or not to meeting my goal.

After some thought, I’ve decided to do a debt-paydown roadmap. It’s like a pro forma income/cash flow statement with a twist, since I didn’t think a pure pro forma income statement or cash flow statement would have adequately expressed the “cut costs+increase revenue” framework that I’ve been talking about for so long. In other words, if I just look at what I’ve spent and what I’ve made, I wouldn’t have a view at what costs I cut and what revenue I made incremental to my salary–a critical view when financial behavior has to change.

On the roadmap below, my base revenue–as opposed to incremental revenue from things like the pedi-cabbing gig–is factored into the “Savings by Maintaining Initial May 2011 budget.” I created a budget in May 2011 based on my salary and budgeted expenses that predicted I would end the fiscal year at $11k in cash savings. However, at the end of August, I was actually poised to end the year lower due to not sticking to my  budget (e.g., spending $1,400/month on entertainment instead of the budgeted $850 does not help). Now, once I subtract the $700 I used from savings last week to close out the $25k loan (instead of $2,900 like I earlier predicted) that was mostly paid down with the liquidated stock and IRA, my budget predicts a $12k close. I want to use all of this but $4k to actually pay down my loans. Therefore, the $8k gets spread over the 10 months as $800/month.

Line-Item Explanations:

I already went into the details of each line item in Brass Tacks, so below is just a brief recap to jog your memory and provide a little additional color.

  • Pay off $25k loan: I will no longer be paying $186/month to the $25k loan; starts in October
  • Stop 401k contribution: from 10% to 0% salary contribution to 401k; net of tax
  • Entertainment: from $850 monthly budget to $50; save $800/month
  • Groceries: from $330 monthly budget to $280; save $50/month
  • Lunch out: from $55 monthly budget to $0; save $55/month
  • Dry cleaning: from $40 monthly budget to $20; save $20/month
  • House repairs/maintenance: $1,465 remaining in annual budget; take down to $300; save $1,165 or $116/month
  • Automotive repairs/maintenance: $935 remaining in annual budget; take down to $200; save $735 or $73/month
  • Medical: $260 remainng in annual budget; take down to $10; save $250 or $25/month
  • Clothing: $215 remaining in annual budget: take down to $0; save $215 or $21/month
  • Get tax return: fingers crossed–wild guess at this point; with the losses I realized on the IRA and stock liquidation, my extra income, property tax, etc., it’s anybody’s guess. Or a CPA’s.
  • Get bonus: fingers crossed; net of tax
  • Cash RSUs: fingers crossed; 224 shares at current stock price net of tax; June vest
  • Get raise: fingers crossed; supposed to get offer letter this coming week; net of tax
  • Pedi-cab job: spend first month paying off bike; expecting $100 a night, $200/weekend; I miss a couple of weekends in October due to travel; net of tax
  • Roommate 1: first and last month’s rent due at signing; net of tax
  • Roommate 2: yes, I have to get another one; first and last month’s rent due at signing; net of tax; pays first couple of months in September, but doesn’t move in until October, which is why October is $0
  • Monthly debt pay-off: instead of figuring out what my debt balance will be each month based on interest, I just assumed that only 70% of my debt payment will go towards principal. Hopefully that’s not too aggressive.

Key Take-Away: This is directional, but I have about $4,655 to go find, and that’s assuming I execute this somewhat aggressive plan perfectly. This is different than the surplus I originally had because I’m assuming only one job here instead of two. Oddly enough, I just haven’t been able to find extra work on the weekends as easily as I thought I’d be able to.

There is no room to mess up, and I’ll have to get creative to find additional income and/or cut costs. I want to preserve net worth so I have to avoid liquidating assets, but I have a couple of cars and a motorcycle in my backpocket if I have to use them.

By the way, I signed two roommates today. One moves in tomorrow, the other moves in at the end of the month. I took readers’ advice to suck it up and moved all of my stuff out of my office/man cave.  I’m writing this post from the desk that I moved into my bedroom. It definitely sucks, but it’s temporary. We’ll  be one big happy family here in not too long.

Enough writing, I gotta go pedi-cabbing.

Here’s the pro-forma:



Filed under General Status Updates

4 responses to “Refocus on the Debt-Paydown Roadmap

  1. Nippycrisp

    You can’t take a loss on an IRA; as the gains aren’t taxable until distribution time, nor are the losses deductible.

  2. Sarah

    Would you consider extending your goal by 1 month? It seems like you could probably handle that extra $4500 in just one extra month at the rate you’re planning. I don’t think the extra month would make your accomplishment any less admirable.

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