In my last PTFO post, I talked about calculating my net worth and coming up with a preliminary budget that included my wife’s income. I didn’t include our budget in the last post, but I’ve decided to do it here for completeness sake. The bare-bones version of our monthly budget looked something like this:
| Mortgage | $2,500.00 | Gas | $150.00 | |
| ADT Security | $45.00 | Food/Dining | $500.00 | |
| AT&T | $90.00 | Other | $1,000.00 | |
| Cable/Internet | $90.00 | |||
| Maid | $400.00 | Total | $4,975.00 | |
| Utilities | $150.00 | |||
| Water | $50.00 |
Estimating that our net income would be around $18,000 a month, I figured that we would have about $13,000 left after accounting for our monthly budgeted expenses. Knowing this, I was able to come up with a plan to pay off my credit card debt, save up an emergency fund, and to pay off my student loans in five years.
Based on the initial budget, I adjusted my plan for the credit card debt and decided to pay it off in full at once. For my student loans, I owed about $300,000 at an annual interest rate of roughly 6%. Using available online calculators, I figured out that I would need to make monthly payments of about $5,800 to meet my goal of paying off the loan in five years. Just as an FYI, the minimum payment would be about $2,200 a month over a 20-year repayment plan.
In calculating our emergency fund, I went with the amount that would cover our minimal living expenses for six months. To come up with this amount, I adjusted our monthly budget to just cover fixed expenses, gas and food. I cut out the $1,000 in the “other” category, which is essentially discretionary spending. I also cut out the $400 monthly payment to our maid, as this is not really a “necessity”. After doing this, the adjusted monthly expenses would come out to about $3,600. I added the minimum monthly payment that I would have to make on my student loans, but I excluded the credit card debt, as that would be paid off in one month. I came up with about $5,800 per month, which I rounded up to $6,000. So my estimated emergency fund value would be at least $36,000 ($6,000 x 6 months). I rounded up and set my target to $40,000. My wife and I already had a combined savings of $10,000, so we had to save an additional $30,000 over the next six months in order to reach my goal.
Using these numbers, my plan looked something like this:
Month 1: Months 2 through 6:
$5,000 credit card $7,000 loans
$6,000 loans $6,000 emergency
$2,000 emergency
In reality, my plan went off without a hitch. After six month, I had paid off my credit card debt and fully funded our emergency fund. What’s more, I now had an extra $6,000 a month in cash flow that I could now use for other financial goals, which I’ll talk about more in the next post.
Thanks for reading!
Some Random Guy Online 