The Positive Effects of Paying Debt Off

Debt sucks. You work hard for your money and watching it go to someone else is no fun. The only thing worse than debt is when you’re in debt and not in control of it. I’ve been there once and I never want to go back. I had just graduated and got married and had yet to face the reality that was (mostly my) debt. My husband brought a small amount into the marriage but by comparison to me, peanuts.

We were making the minimum payments but never came up with a plan to pay it off, we were incredibly stressed out. To add to it all we now had a baby on the way and I was about to go on maternity leave (with significant reduced income). We came up with a plan and I’m happy to say we’re making great progress. Along the way there have been many amazing side effects from paying our debt off.

Emotional Well Being

There is an indescribable feeling that comes with having full control over your money. When you finally know how much is coming in and going out, is an amazingly peaceful feeling. The anxiety goes away. Though it’s never fun sitting down for that first time to calculate debt owing, it’s necessary and brings a total calm with it when you finally know. As you start paying your debt down it just feels good, an accomplishment that you can see as you log into your accounts.

You Have More of Your Money

As your debt is paid off, more of your money is actually yours. Now that we paid off one of our large loans, we can finally work on saving to buy a second car that we desperately need. We’re still working on our remaining debts but we have the flexibility of taking care of something that our family needs as well, and it feels amazing.

You Appreciate What You Have

When you’re not in a situation to drop a wad of cash on new clothes for example, you appreciate what you have much more. You become resourceful too. There were times we may have needed something but many times we made do without whatever it was. Though we have never embarked on a deliberate no-spend challenge, we have lived these last few years really only buying things we literally need, there have been very few wants. Even once the debt is gone, are we have more disposable income, I know our appreciation for things (including our money), will stay. We will forever be conscious consumers, never a bad quality.

Being in debt can be down right terrifying and paying it off is required. It isn’t all bad though, there are many positive effects that come when you pay your debts off that can be hard to imagine when you’re at the beginning but ask anyone who’s already started, or already succeeded and they will confirm that facing your debts will be one of the best decisions you ever make.

What was the best thing that came from paying you debt off?

Would You Rather Have a Dream Home or Dream Budget?

Source: Free Digital Photos

Source: Free Digital Photos

I admit that though we’re a few years away from moving, I waste far too much time perusing the local real estate market. Consider it homework. I’ve said it before but this house is far too small for our family. We will probably bring another child home in this current house but will need to move before the kid needs their own space since we really only have two dedicated sleep rooms (third bedroom is necessary home office space which Mike uses for work). I have no issue with kids sharing a room, especially while young, but this is only one reason on a big list why we need to move, and so, I obsessively search the local listings to see what we may want when time comes.

Though we don’t love our current location there are quite a few perks to living where we do such as proximity to childcare (daycare and family), great school zone, convenient for amenities and we’re a decent location for family visits, which we love. We however crave much more privacy (not an option anywhere near our current house, regardless of price range), more storage space (indoors and out), and a neighborhood with more kids (a lot of retirees in our area despite great school zoning).

Though we love a lot of ‘non-negotiable’ items about our current house (schools, family), we’re not against totally picking up and moving within, I’d say, a 45 minute radius of where we currently live which is one of the reasons we’re looking now, so in a few years we have a better idea of areas we’d like to narrow our search.

The issue I’m finding though, is deciding if I’d like my dream house (a term I use loosely) or stay within my dream budget.

I like where our numbers are at now (especially as debt decreases and our wages continue to increase). Though we could comfortably afford it when the time comes, I really don’t know if I want to increase our mortgage by $500-$600 per month. I know it will go up when we move, for no reason other than there’s an 80% chance we’ll move to an area with increased property taxes (we’re currently crazy low for the area we live) but I like the idea of keeping our mortgage and property tax payment lower than $600 per month difference.

Accepting a $500-$600 per month increase would definitely get us the house we want, and need, with quite a few options to choose from. My homework is showing me that less than this (predicted) increase and we’re looking at older homes that will require a decent amount of work. Though this isn’t always the case, $500 seems to be the threshold between finding a home we could move in and be immediately happy in, and finding a home with the space we need and maybe even the location we want, but requiring quite a bit of work.

Obviously there are ways to decrease this dollar difference, we could save longer for a larger down payment. Realistically by the time we’re done paying our debt off, have another kid and oldest starting school (I don’t want to move her once she’s too established), time won’t be on our side. I’m not completing all the above and then saving for another 18-24 months, I’ll just be honest. We will be gone within three years. If the housing market remains the same that it is, we won’t get anywhere near what I’d like for our current home too, a fact I’m bracing to accept.

So as I continue to play imaginary number games, I’m curious, would you rather have the dream house (great location, layout, school, mostly move-in-ready with 1-2 young kids and working full-time) OR get a home that you may not love but works better for your budget? (Again, it’s not even a matter or affordability, we could comfortably do it, I think I’d rather just have more money for other stuff, stuff I can’t even define right n0w, probably travel??).

Vacation Destination Real Estate Prices Help Property Owners to Make Interesting Moves

Real estate prices in popular vacation destinations have recently skyrocketed. This has driven rent prices up with it. If you rent or own a seasonal getaway home, then there are a few things that you can do to save money. You might even be able to profit from some of these shifts in the market.

The Nantucket Case Study

Nantucket, Massachusetts is surprisingly small for a place that’s so popular as a vacation destination. It’s located on a 50-square-mile tract of land that’s south of the Cape Cod area. Due to it’s small size and prime location, real estate prices in Nantucket have been skyrocketing for years.

A four-bedroom residence once went up for sale on the island for slightly under $30 million. Rent costs have been increasing along with the costs of property.

Real estate mogul Louis Ceruzz made a very smart move when he decided to stop renting a home on Nantucket and instead bought a home. He’s the chief executive of a prominent real-estate developer in Connecticut, and he knows a good deal when he sees once. He had been spending his summers on the island in rented homes for 20 years before that.

While renters are free of most of the obligations of owning a home, they have to pay whatever property owners demand. The cost of owning a home in a popular vacation destination can ultimately be lower than the cost of renting one each year.

Some enterprising individuals may even decide to rent out their summer homes during the winter months. This can help to defray the cost of owning the home. It might even be profitable in some situations.

Southern Winter Living Becomes Permanent

Many people who are retired or who work in seasonal industries keep second homes in warm southern states. These individuals often live the rest of the year up north.

This type of a seasonal migration can become quite expensive, but it’s more popular than ever. An estimated 1 million people move to southern states in motorhomes each year. So many people own second homes that analysts haven’t even been able to provide any reliable statistics on the numbers.

Those who are finding the cost of making the trip down south every year are finding that they can sell their northern homes and make their second homes permanent destinations. Real estate prices have rebounded in many areas, which make this sort of a plan possible. It can put cash directly into the pockets of owners as well as help them to avoid a costly trip.

Landlords Sell Off Homes

In a few areas, particularly in the Four Corners region, some people have purchased several different homes near popular vacation destinations with the intent to rent them out. Some of these property owners have found that their homes often sit empty. This can get rather expensive.

This has made some people put a little work into their homes and then list them on the real estate market. Vacationers and seasonal travelers who are looking for bargains have often been paying prices for these homes that help their current owners to take home a decent profit.

Deciding What to Do

If you already own a second home, then you might not want to act too quickly. Take a moment to examine the current market conditions. The same goes for if you’re looking to buy something in a popular destination. Shopping around can help you to find the best deals. Always make sure to do your due diligence before opening your wallet, and you can end up really loving your living situation.

Confession: We Don’t Have a Budget

Source: Free Digital Photos

Source: Free Digital Photos

I tell people all the time that we have a budget. Friends, co-workers, you guys, but if I’m being honest I’m totally lying to you. We do not have a traditional budget. Honestly, traditional budgets just don’t work for our lifestyle and it took me a few years to figure this out. Everyone was telling me that we needed one. If we were going to be successful at anything we absolutely needed one. But guess what? As I just wrote about, we paid off over $27,000 worth of debt in the last year, and we didn’t have a budget.

I’m not a budget hater, in fact I’m a huge advocate for them. I really think 9 people out of 10 will benefit from having one, I also think there is a small portion of the population who can manage without one and that’s ok. It is personal finance after all.  I’m not suggesting you throw all caution to the wind though. I said we didn’t budget, I didn’t say we weren’t monitoring our money. Big difference.

The frustrations I was having with a traditional budget was that it was usually done monthly based on salaried income. We’re paid bi-weekly and have varying income. Living by a traditional monthly budget was leading to major frustrations for me. I’m not saying it can’t be done but I’m explaining I didn’t like doing it, so I started to look into a system that made more sense for us.

How we control our cash

Though we don’t have a budget what we have instead is a money monitoring system. Mike created a spreadsheet that is broken down into our specific pay periods. We happen to be paid on the same day which makes things a little easier but basically the speadsheet is established in such a way that it does this through calculations:

$$ amt in bank account + predicted income*- expenses**=leftover ”carryover” amount to next pay period; automatically repeated as many times as you want, calculation carries forward.

Note: * predicted income: I predict our incomes for months at a time (usually in a worst case scenario) and then change to exact amount when we actually get paid. If pay is different than predicted, I adjust other categories like debt repayment amount. Our **expenses are all monies out for the two-week period.

What’s Different?

To start, all cash gets deposited into account ‘B’, where 100% of bills are paid from. Every two weeks I transfer $xx from account ‘B’ to account ‘A’ where we do our day-to-day non-budgeted spending.

The difference between what we do, and a traditional budget, is that I don’t ”budget” for any non-bill (groceries, eating out, gas, clothes, cash etc). Instead I allocate a dollar amount to us for the two-week period and we then decide how to spend it. Sometimes, usually, we don’t decide at all and we just know we have that amount to ”live off” for two weeks. Sometimes we spend $250 on groceries and $50 on eating out, other times we spend $150 on groceries, $100 on eating out and $50 on candy. Obviously this is an exaggeration but our two-week spending varies (I almost always allocate the same dollar amount to us though, and it’s more than the $300 example I just gave).

I should also note, what I consider a fixed expense is also different from the traditional budget vocabulary. Our minimum non-mortgage debt payments every month are about $950/month. Obviously this won’t pay off $27,000 a year though, so our minimum payment is actually set at $1,650/month in my spreadsheet, the $700 difference is its own payment with a date attached. It gets paid as its own bill. Same with stuff like birthdays. If we have an upcoming birthday we set aside $xx the pay period prior to, and treat the gift as a bill.

I also don’t add any of our freelance/extra/overtime/expense income to my spreadsheet. If we make anything, it is decided when the time comes what is done. No surprise that 95% of the time it goes on debt, but sometimes we splurge and have fun, like buying a 60″ television 😉 I don’t like the idea of creating a system based on monies over and above what we earn in our careers.

Don’t tell me how to spend my money!

Sometimes I like the idea of playing the money game of ”you only have so much money for X thing” but most of the time it drives me kind of crazy. When it comes to our Christmas budget, it is a true budget that we follow to a T. I have fun setting out to see what I can get for my husband and daughter within our set dollar amounts, but month-to-month I like a little more fluidity. If I want to blow my whole two-week dollar amount on chocolate and wine (though we’d die of starvation and had no gas in the car to get to work), I want that freedom which is why our money monitoring system works. It works because our priorities are set and we live life around them.

Do you have a traditional budget? Why, why not?