Debt to Dreams

Sorry for the delay, Here is the data from 2 months ago. The life of a resident may appear glamorous on TV with shows such as ER and Grey’s Anatomy embellishing the drama. However, the real reason this post is late is the combination of our 5 month old at home and lots of call at work.

When I look at this list I have to ask myself; “are these really sources of alternative income?” If you take a quick look at the list of my sources of “Alternative Income”, there isn’t much alternative about it…YET.

There isn’t anything unique about collecting interest from a savings account.

Many of us had savings accounts from a very early age. The only unique spin on our savings is that over $60,000 of the balance is in the form of 0% balance transfers from the credit card companies.

The family farm is pretty unique in America today but it’s not a reliable source of income due to the challenges associated with agriculture.

This will be interesting to follow as the generations change. Will we have a younger generation interested in farming again given the surge in commodities? Will we be able to increase our profitable without becoming a large corporate farm? How will the search for bio-fuels affect agriculture in the USA? I don’t have any answers but I do believe that I will see tremendous changes in how we feed and power our world.

My venture into the wide world web definitely would definitely qualify as alternative income.

It is a field far from my formal training and is done in my spare time. How this will turn out remains to be seen. Currently I am not covering my expenses and hosting fees but the potential for this to become a secondary source of income remains. The largest challenge for this income stream will be devoting the amount of time needed to write good original useful content.

And I haven’t won the lottery yet…..

I apologize for being late with these posts. I remain dedicated to this blog and continue to find bits of time to keep up with drafts, etc… Unfortunately/fortunately I don’t sit at a computer at work and thus I am always 24-48hrs(a week perhaps) behind the latest news of the blogsphere.

A positive tidbit about being busy is that until I sit down and fill out my spreadsheets, I don’t have an idea how we are doing each month.

From what I see here, we did well in March on containing the borrowing costs for our $197,000s worth of Debt!!!

Although having over six-figures of student loan debt will be significant financial burden for many years into the future, I choose to focus on a couple of positive points.

• The first benefit is steady work. My wife and I used our time in college(and after) to gain marketable skills in industries that had a history of having steady jobs. I actively pursued a career in health care knowing that in the future I should at least have a job if economic times got bad.
• The other positive point is that a student loan is one of the better forms of debt to have. This year my wife and I were able to reduce our taxable income through the interest paid on our student loans. It doesn’t reduce our taxes dollar for dollar like a tax credit could but it does help with the mental anguish.

Those of you who have been following along may notice that I have removed the $4,000+ of student loan interest I accumulated in 2007 from my February totals. I have been using a modified form of cash accounting with this series and do not want to account for the interest accumulated until it is actually paid.

The trap of doing this it that it visually appears to minimize the total costs of carrying these loans for a full 30 years. To keep the total costs of these loans in perspective I will total the interest paid for the life of the loan.

One quarter into 2008 we are finally feeling the difference between having dual incomes with no children and a single income with one child.

Our impending move at the end of June(as I transition from being a Resident to a Fellow) has caused my wife to drop to part time at work rather than having to find and pay for childcare for a few months.

While this has been great for our family, it has slowly become a challenge for our finances. We have gone from a household living off of a six figure income with minimal expenses to one having to live on roughly half that income with slightly higher expenses.

We have gone from striving to get ahead to striving to get by.

The mental difference between the two is dramatic with every financial decision now being well thought out. It helps me appreciate the struggles that many families face trying to get ahead when it seems that they are doing everything they can to get by.

It has been important to remember that the drop in income does not fundamentally change what we are trying to accomplish financially.

It instead helps us focus on making sure we are on doing the little things better so our big picture remains bright.

The common response in this situation is to focus on limiting your expenses. This is something that we have been slowly working on for the past 2 years and is slowly reaching a plateau as we have eliminated all of our easily eliminatable expenses.

It is equally important for us to do what we can to maximize our income beyond working more hours because this is no longer possible.

When we were getting ahead, I was focused on maximizing our monthly gains and the best way to increase our savings. Now that we are just getting by, small changes in fees/percentages/expenses are the only variables that we have control over.

Example: We have been relatively complacent watching interest rates fall on our cash equivalent savings. As I write our Emigrant Direct accounts are earning only 2.75% APY. After a quick look over at Bankrate.com, I found multple other less popular(for a reason) banks offering much better rates(up to 4.05%).

That is an additional $1,500/year gain just for taking a few minutes to open a different online savings account.

Another Example: Our health plan has long had a heath survey to take with a financial reward for reaching certain health milestones. This week I finally filled out the survey(it took digging up some old medical records) and now have a $30 gift card to Amazon.

These are little things that brought in a little more money for our household. 2008 looks like it will be a year that the little things will make a big difference.

Even if we are just getting by, that means we are still getting ahead.

My wife and I have been tracking our expenses diligently since January 2006. The process of actually sitting down and developing a system for keeping track of where our money is going has been enlightening and the most useful step towards financial independence for our young family.

In 2007 we were able to make dramatic cuts due to the cost savings of combining two households and other various one time savings.

In 2008 the “one time expenses” have gone the other way and hindered our progress vs last year. The result was an extra $1,294.90 being spent in the first quarter.

That being said, here are where our dollars went for the 1st Quarter of 2008:

1. My Landlord took 18% : Our rent would cover the mortgage of a very reasonable house in most parts of the country. Renting is one of the prices we have to pay to complete my training. Although we would prefer to be building equity, we are trading that equity for the flexibility that renting provides to a busy Resident. The last thing I want to do post call is to fix broken stuff.

2. Our Doctors took 14% : I find it interesting getting bills from physicians and hospitals know that one day I will be sending out the same bills. After seeing what is being charged for medical services I find it very believable that medical bills are the most common cause of personal bankruptcy. The caveat here is that I rather be bankrupt and alive than rich and dead.

3. Our Grocery(and Farmers Market) received 14% : This is a marked improvement for our family. Since we have gotten married my wife has done a great job of slowly helping us eliminate waste from our food budget.

We came from two different families which had two very different approaches to food. This was easily identified by looking in the refrigerator. My family always had a full fridge but at times had to throw out a lot of extra/old food. Her family had a relatively empty fridge. With her running the budget our refrigerator is looking a lot like the one she grew up with. We are less wasteful, saving money and healthier for it.

4. The Insurance Industry got 8% : As a very risk adverse individual, one of the first things I did after finding out my wife was pregnant was to update all of our insurance policies. I went through our Renters, Life, Disability and Auto insurance policies to make sure that we were carrying the appropriate coverage for the life changes ahead.

The end result is that I can sleep soundly at night know that my family will be on a stable financial footing should anything happen to me or my wife. The one form of insurance which is contributing to the majority of our insurance costs is my disability insurance policy. Given my ongoing training, this was a very important decision for us which I covered in this post last fall.

5. We gave the struggling airlines 5% : With a new baby and our family currently living 3000+ miles from our hometowns let it suffice to say that we have had to make a couple of transcontinental flights so far this year.

As difficult as air travel can be, the cost to cover this distance is very reasonable compared to the time and fuel it would take to drive. It has also caused us to give some serious thought on where we would like to end up settling once I am finished with my training.

In summary it looks like we will be close to our goal of spending <$50,000 for 2008. We still have some significant expenses for the year: a move cross country, some auto work and perhaps some more medical bills.

It will be close, but we will have to do better than we did in 2007 because we will not have the luxury of having two full time incomes to pick up the slack.

We have reached the end of a rough 1st quarter to 2008. We are still well below our net worth peak of -$45,237.37 in November of 2007 due to multiple factors.

This was to be expected after our family navigated the expensive holiday season and added a new family member to boot!

Voluntarily cutting your family income by 50% in the middle of a recession isn’t normally viewed as the best way to get ahead financially. However it appears like we are pulling it off and I believe that we will be able to get away with it for a couple of reasons:

1. This will not be a permanent drop in income for our family. In 3 short months I will be moving on to the next stage of my training and starting a one year Fellowship. Although my monthly salary should stay about the same, my work hours should decline somewhat and I should be able to work a little overtime.

2. The change has allowed my wife to become a more active participant in our family’s financial story. Since she is no longer able to “just work a little more overtime” to pay for a splurge here and there, she has made it a personal challenge to decrease our family’s expenses so that we can still maintain some slight growth in our net worth.

Here are the results for March:

1.Cash and Savings: As I mentioned in my Savings percentage post last month. Our savings will likely continue to see-saw throughout this year.

I refuse to return to my old habits of being penny wise but pound foolish, so we are keeping a little more slush in our checking accounts to cover our expenses each month. Once we have finished paying the bills and we are sure we won’t need the cash, we then send it to savings. With the interest rates on cash accounts falling, the incentive to maximize our cash returns isn’t there.

2. Investment Accounts: Most of our investment accounts suffered a slight decline in March. I have begun to educate myself more in this arena and hope to make some changes here over the next 2 years that will result in a more balanced portfolio.

Although I did manage to max out my contribution to an IRA for 2006 and 2007, I did so with only a rudimentary knowlege of portfolio management. As I become more knowledgable and opinionated I hope to offer some useful insights.

3. Credit Card Debt: We paid only the minimums again this month. This debt is entirely in the form of 0% balance transfers and actually makes up the majority of our cash savings.

It is costing us nothing to keep this balance on our books and is earning a dwindling but respectable cash flow each month. The return was much more attractive 6 short months ago, but it has been an easy way to earn an extra couple thousand dollars.

4. Student Loans: My wife and I continue to chip away at our educational debt. I have to admit that it is frustrating to see the balances fall so slowly. On the positive side, we did recieve a small tax benefit for the interest we paid over the past year.

While 2 out of 3 of our loans are in current repayment, we will not bear the full brunt of this debt until this fall when I begin making payments on my $114,000 loan.

In summary, March was an ordinary month in the life of a young middle class family in America.

We miss being able to place $3000 cash into savings each month but this year will help us appreciate just how hard it is for most Americans to make large financial changes quickly.

The good news for us in February was that we were able to move a significant portion of our earnings to savings.

In fact we were able to move 102% of our EARNED INCOME for the month of February to savings/retirement.

Before you look at those numbers and blow them off, let me provide some details.

Like most households our monthly household expenses are cyclical. Some months we have more expenses than paychecks, etc.. To smooth out our financial reports I don’t include the balances of our checking accounts in our list of assets each month.

I do this for a couple of reasons:

First, we are normally very efficient at not letting our excess cash sit around. Anything over our normal monthly expenses we quickly transfer to our online savings account. A couple of clicks of a mouse and our money working for us as soon as possible.

Second, our bills are due throughout the month. To make our updates as simple as possible, I make our monthly updates as if all of our bills are paid. To be able to pay off our bills the week I make the summaries, I don’t report the slush I keep in checking.

Here are the results: (earnings are pre-tax)

The first two months of 2008 have been quite a transition for us. With so many changes at the beginning of this year: New baby, wife pulling back to part time, etc… We wanted to be sure we had the cash flow to cover our expenses without having to dip into savings.

To do this, we cut back our savings in January and early February until we were sure that we could pay our bills. The excess we then sent to savings at the end of the month.

We may continue to have this see-saw patten for the first part of the year with some months being more cash intensive than others.

The important number is the year to date(YTD) savings percentage.

With January being the last month that my wife was able to collect a full time pay check for 2008, I expect our savings percentage to slow decline over the course of the year.

On one and a half incomes, our day to day living expenses will consume up a greater proportion of our earned income each month.

Although this will be a challenge for us, I believe that it will help us in the long run as we learn to become more thrifty and manage our expenses wisely.

Hope you enjoy the journey as much as we do.

This is my third post in this series detailing exactly how much my wife and I spend each month financing our family. When I made the list I was surprised by the variety of different ways we spent our hard earned dollars financing the modern banking system.

At this point, I am almost appalled by how large the numbers are getting and we are only 2 months into the year.

Here are the results from February:

A quick summary of the results:

Banking Expenses/Fees For the average American, the banking system has a number of products out there to help you avoid banking fees IF you are willing to jump through a number of hoops. To keep our fees down we use direct deposit and rarely use ATMs. If we are traveling and need cash we just use cash back from our debit card and use credit for everything else.

Credit Card Expenses It is no surprise that we have some charges here. Although we carry a large credit card balance, it is financed through 0% balance transfers. The majority of the $225 we have spent in this category is for annual fee’s on a couple of our Airline Cards and a premium card. I think over the next 12 months we will have to decide if these cards are really worth their yearly fee.

Investment Expenses/fees This is one category that still looks good but I have the feeling that I really need to do some better detective work. Most investment fees are buried in the investment so that it is difficult to discover just how much it is costing you. My contributions to my IRA last month were to an existing no-load fund. In theory there should not be any additional fees other than the yearly operating expenses.

Student Loan Expenses/fees The number that jumps off the table above is the extra $4000 in student loan interest accumulation. I realized last month that I was not accounting for the interest accumulating on my $100,000+ of student loans still in forebearance. Although the total for 2007 was reported last month, it was accumulating at the rate of about $335/month for the past year. Since I only get the bill quarterly at best, I’ll only report the change in balances at that time.

The interest alone on our student loans is greater than all of our monthly expenses except rent and food.

All of a sudden that $100,000 education isn’t looking to cheap.

February is well behind us and the calender is telling me that we are half way through March. I finally managed to drag myself out of the hospital and crunch our numbers for last month.

To state it plainly: Nothing Impressive

The economy is hitting the skids and the Fed dropping rates quicker than I can refresh my account page. This is causing me great angst. The main driver behind my alternative income, our credit card arbitrage, is becoming worth less every day.

When I decided to finally started to maximize my 0% balance transfers last July, I was expecting to earn 5% or more on this balance for months just by placing it in an online savings account. After the Fed’s rapid series of rate cuts, 3% is starting to look like an attractive rate. I am kicking myself for not hedging a portion of this money in CD’s when rates were higher.

Also my Internet derived income PLUNGED from an all time high of $6.36 in January to $0.16 in February. This is more in line with the historical averages of my earnings from my internet related adventures.

February was also a slow month on the farm No harvests right now and if I ever expect to win the lottery I think I am going to have to buy a ticket.

Nothing Impressive BUT, it is extra money in my pocket and yet another stepping stone on the way to financial independence.

A bit late with the results…… mostly because I was afraid to look but we eeked out a slight gain for the month and that is all I could ask.

The realities; read “challenges” of our family becoming a single income household are becoming more evident at this time.

Here is the Damage for February:

Here is our guidance for February:

1. We continue to place the majority of our savings into short term, cash-equivalent savings. I am not a sophisticated investor, but right now I don’t see many bargains out there and most of the major expenses facing a young family (1st home, moving, young children) are looming ominously on the horizon for us.

2. I made a lump sum contribution of $2000 to my IRA for the 2007 tax year. I had already contributed $2000 throughout the year in monthly contributions and my wife an I both decided that this was a good use of a couple of thousand dollars to help decrease our taxes again this year.

3. I also recharacterized my Roth IRA contributions for 2007 to a Traditional IRA contribution. After much reading and deliberation I decided that less taxes this year was better than the promise for less taxes in the future. It is too easy to see congress attaching some form of income/net worth stipulations to the tax-free benefits of the Roth IRA.

4. We also had another 0% balance transfer offer fall into our laps with no fees attached. With the addition of this $5000 balance transfer, we now have over $67,000 in 0% APR balance transfers from various credit card companies. Unfortunately, the Fed is making this a less lucrative proposition each month as they cut the interest rates.

While cutting your family income in half right when the economy is going into a recession isn’t at the top of everyone’s to do list it appears as if we will be OK.

The day is fast approaching when I will finish this stage of residency and proceed to move to the next step of my training. This will bring with it a fresh set of choices once again.

I currently have some old fashioned views on personal finance and I believe that saving as much of your income as possible is a sure fire way to financial independence.

As someone who is currently trying to climb out of debt, saving a larger and larger portion of our income has proved to be the most difficult part of trying to get ahead.

Since how much we can save is such an important part of our family’s financial health I thought I should do a better job of following this information each month.

So, new for 2008 is our Earned Income Savings Percentage!

As you can see, we are not off to a great start in January:

I chose to base the calculation on my Earned Income for a couple reasons:

• First, the majority of Americans only have earned income to contribute to savings
• Second, my alternative income is not very stable or accessible for placing in accounts

For a comparison, I included our finances from the month of December. Here is some insight to those numbers:

December was an abnormal month for us financially.

• Our Salary Income was relatively stable for the month, with a slight bump in our Alternative Income
• Our Monthly Expenses we much higher than normal due to my Private School Loan repayment
• We were able to contribute such a large sum of money to savings due to a 0% balance transfer

In January we saw an increase in our day to day living expense due to increased insurance costs and some travel plans for the spring. This increase in living expenses and my desire to make contributions in lump sums kept us from contributing anything for the month of January

In the past two months we have gone from saving 96% of our income to saving 0% our our income. When it averages out a realistic goal for 2008 will be for us to be saving about 10% of our gross income.

As I progress up the food chain and become fully salaried I hope to push this number to 50% or more but only time will tell. I may be a bit optimistic with those numbers but aiming high never hurt.

For our 2006 tax return we had a CPA file our taxes. First out of laziness and second out of some apprehension on my part of making a mistake with the calculations. Since the CPA filed the taxes, I took a cursory look at the finalized return but didn’t dive into it.

This year, I decided to do my taxes on my own before we have a professional file them. I was hoping to develop a better grasp of the tax implications of my financial decisions while we are still in a learning phase. After this weekend, I’m glad I did.

This weekend I learned the importance of paying attention to the tax implications of your various accounts. I learned this that my wife’s “IRA” account will present us with a capital gains distribution of over $3000. What? Why are we being hit with capital gains? Shouldn’t they be rolled over into the account until retirement? Well, with a quick check, I learned that this account is not a tax-sheltered IRA like the one I opened last year.

This money was post-tax money that should have likely been placed in Roth IRA or the like. Currently it is just a fancy, very volatile savings account. Since it is not a tax sheltered account, we are responsible on paying taxes on the capital gains distribution. The irony of this is that these will likely be “paper gains” if the market continues its jittery fall this spring.

I found a good Morningstar article that does a better job explaining the reasons behind this but here is what I learned that we need to consider doing:

1. We need to consider switching this money to tax-managed funds Apparently these funds make an effort to realize some losses on holdings when they have to realize gains on others. With this tax consideration, these funds can come out ahead.

2. We need to consider switching to EFTs for this account. They apparently don’t have as many strategies available as the tax-managed funds but are a good second choice.

3. When switching out we need to be aware of funds that have had large returns over the past 3 years. These funds will have a huge tax bill regardless of whether we make any money or not because capital gains are based on gains that the fund realized and distributed to all shareholders equally regardless of their cost basis.

So if I go running to emerging markets right now, I could buy close to the top AND get hit with a large tax bill. Note to self, don’t do this.

I made an attempt last year to get this series off the ground. However life got in the way of digging through a years worth of financial statements so I put it on hold for 2008.

The focus of this series is on how much of my hard earned income is being used to Finance my life. I wanted to include everything from credit cards and student loans to how much it is costing me to manage my retirement portfolio.

This is the information that I should have been aware of three years ago and will likely be a real eye opener to anyone who has a significant amount of debt of any type.

Here is the Start of the Year:

Here are my thoughts on the categories:

1. Banking Expenses: Our family has rarely spent a significant amount of money here. We don’t use out of network ATMs, we don’t bounce checks, and there are a ton of free checking options for anyone who willing to use direct deposit. Given the major turmoil rocking the financial industry right now, I wouldn’t be surprised to see the banks looking for some way to squeeze some money out of us here.

2.Credit Card Expenses: We had done very well here until last month, hence the $180 out of our pocket. I missed one of my credit card due dates by a day and was hit with a late payment fee and the ubiquitous finance charge. The majority of this category however is the yearly fee for a couple of our frequent flyer cards.

3. Investment Expenses/fees: I have not made any investments this year and thus have yet to pay a fee. This was the category that killed my attempt at following my borrowing costs for 2007. Most of the companies I use to manage my investments don’t go out of their way to show you how much they are charging you to invest with them. My goal for 2008 is to follow this metric carefully because the only thing I can control with my investments is my allocation, costs and tax burden. Control what you can control and don’t worry about the rest.

4. Student Loan Interest: This category is surprisingly low. Out of my monthly student loan payments, only $66.07/month goes to interest and the rest to principle. This is also due to the fact that this only represents the loans I am actively paying off. The bulk of my consolidated loans accrue the interest lump sum at years end(it accrues all year long but the company only sends out quarterly statements) This category will be much higher come next month when my statement is accounted for.

So, I spent almost $250 of my hard earned post-tax income last month financing my modern miracle lifestyle.

That same $250 invested every month for 30 years at 7% average return would be over $300,000 by the time I was 60. Not a million bucks but a heck of a lot better than giving it to the credit card companies every month.

Since working for your money has become quite passe, I figured this would be an interesting metric for our family to begin to follow.

I cannot take credit for the idea. There are many individuals that have spent the time and energy to develop a well diversified source of income for themselves outside of their day job through activities such as:

• Peer to Peer loans in the form of Prosper and Lending Club.
• Personal Retailing through their Ebay accounts
• Landlording through the development of their own personal real estate empires.
• Blogging!! with the help of Google Adsense.

Looking at that list I find all those options to be very reasonable sources alternative income to consider for just about anyone. There are some pretty amazing success stories of individuals being able to quit their day jobs and making a living with these alternative sources of income.

The catch is that their success was not instantaneous, but was transformed from hours of work by these individuals in developing, researching and refining their alternative income streams.

Most people pursuing these income streams don’t consider these endeavors work for 2 main reasons:

1. It is something that they were doing before as a hobby and would continue to do anyway even if it did not provide them with an income.
2. They are able to do it on their own terms, hours, etc… with no-one to answer to except themselves.

With that as inspiration, here is our start: (Note, all amounts are Pre-tax dollars)

As you can see we don’t have a very diversified source of income and some of the items I listed are very difficult to expand upon or grow in the future without drastic lifestyle changes. I included them more for reasons of personal accounting rather than listing them as something I can build upon.

Currently our only sources of income other than my job as a resident are:

The interest we earn on our savings and 0% balance transfers: My wife and I hope to continue to grow our cash savings even in the mist of falling interest rates.

The occasional dividend check from my wife’s family’s farm: We have absolutely no real control over this unless I were to decide to abandon the practice of medicine and join the agricultural community full time.

The money generated by the advertisements on various websites in various stages of development. Not something I am pursing as actively as others. I do have quite a few interests outside of medicine and I will continue develop them more out of personal satisfaction rather than monetary reward.

Gift money and other forms of windfall income: Something many people don’t consider but something I wanted to follow. Basically I am including things such as the stipend I get for meals on call, book fund money from my department and the $20 my parents still send on my birthday. Also when I win the Lottery, I want somewhere to make a note of this

In my defense, over the past 12 years I chose to focus those hours on learning a highly specialized skill that I hope will one day provide a financial reward to balance the emotional reward it already provides.

To protect myself and my future potential earnings I have disability insurance!!

In 2008 I hope to be able to slowly refine this metric. Over the long term, I will look to expand my sources of alternative income so they can make a more meaningful contribution to our net worth. I am very realistic however that these endeavors will never come close to replacing my day job.

By the numbers we are off to a rocky start in 2008. The $6000+ drop in our net worth is the largest in the past 13 months.

About half of this loss was due to the falling market but the other half was due to the interest from my consolidated student loans for 2007 finally being capitalized.

Fundamentally our household is in good shape and should be in good position to weather a possible recession.

Here are our numbers from January:

Guidance for January:

All of our Credit Card Debt is in the form of 0% balance transfers The banking community has allowed up to borrow this money which I have placed in a FDIC insured online savings account, pocketing the interest earned. This money makes up the bulk of our cash savings. Our true cash savings is only $23,735.25 of the $87,253.25 listed.

Our Investment accounts all fell in step with the market for the month of January. Our project for this year is to take this motley mix of funds and develop a more diversified, lower cost portfolio. If this year does indeed become a recession we will have the opportunity to “buy low” into some new positions.

Once again I am waiting until I do our taxes to decide if it makes sense to invest in a Traditional IRA for 2007. By waiting until tax time last year, I managed to buy into a rather high market which has currently resulted in a slight loss. However, I still need to lose an additional $600 for this to have been the wrong decision.

I have continued to keep our vehicle listed as an asset and will continue to do so until we drive it into the ground. I will not list any additional vehicles or material goods in the future because the true value of these items are difficult to accurately assess.

In my attempt to revalue our vehicle for 2008, the Kelly Blue Book value actually Increased (likely due to low miles) which I find hard to believe. I decided to just keep the value where it is until it shows a definite decline.

I finally received my quarterly statement for my consolidated school loans which capitalized the interest for 2007. I am undecided if it makes financial sense to be paying off this interest to keep it from capitalizing. I haven’t calculated it but in essence that additional $4000 is going to cost me an additional $120/year for the next 30 years. It is too late for 2007 but it will be an option to consider for 2008 once I figure out the present and future values, etc….

I remain undecided about what to do with my Federal school loan. The interest rate remains fixed at 5% which is currently the highest interest rate of all our debt. With interest rates on my savings falling, I will wait to see how much of a tax benefit I can derive from the interest paid on this loan. If there is a minimum benefit and the economy continues to sputter along, we may allocate some capital from our savings to rid ourselves of this debt, similar to what we did last year.

Our day to day finances continue to be a challenge. My wife has decided to remain part time with the birth of our first child which has constrained our monthly cash flow. We are approaching this as a challenge and an opportunity to squeeze the excess out of our spending(due to necessity) so that in the future we will be able to use these gains to increase our savings.

Remember, focus on the process, form good habits and the results will follow!

Although I have been blogging about my finances for a relatively short period of time I have been following my credit card debt since July of 2005.

I have found that an often overlooked key to success is the development of a system that works for you.

How do you keep your money in your wallet and bank accounts?

Everyone starts differently, my system slowly developed from this: a blank index card.

I still use my index card system today to keep a list of all my credit card accounts, how much I owe and when my next payment is due.

When developing your system, the main idea is: simplicity is your friend!

You don’t need an overdeveloped computer program or an online database. If you start with a complex program that takes and hour or more just to download and set everything up you will have to overcome quite a bit of inertia to keep it going.

Just a simple list of all your accounts will enable you to answer the major financial decisions we have to make:
- how much money do I have?
- who do I owe money to?
- what is it costing me to borrow this money?
- who do I have to pay and when?

Once you have been doing this for a few months it becomes second nature and you no longer have to think about it.

The month is still young, it isn’t too late to begin a new habit in 2008 that will improve your finances.