You are here: Home / Archives for debt service

Big Damn Goal Post. Part 2, a Budget

By Filed Under: Achieving Goals
In my last post, I talked about establishing what my expenses were and having an income goal.
The income goal comes from what matters to me–it’s not some arbitrary number.   Let’s think about a budget and some debt service/debt retirement:

It’s not natural for me to do a few things: be organized, do a budget.  I’ve had to build all sorts of things to do both.  GTD works–my version (of which I’m off the wagon currently, and climbing on).   But, I need to really know what I’m doing with my dough.   See, I’ve pulled myself far out of a deep hole with well-over-six-figures in unsecured debt.  Now, I’ve got to get the rest of the way out so I’m able to take another title shot and eff it up again.

I’m organizing a budget, and the first thing I’m going to do is try to establish my minimum ‘burn rate,’ or the number that exists WITHOUT regard to debt service.   A car payment can be put off for some months without consequence.  Not so much a rent payment (folks, because I wanted to knock out my debt, I radically downsized a while ago.  The plan is working, and when our tiny place is clean, it’s fun, and we’re radically decluttering and making each of our possessions fight to stay owned by us.)

The goal is to know–first–what I’m spending.  No clue.  No clue at all.   I know I’m wasting a bunch of money that we can stop wasting.

Rent Payment    $800
Gas Bill    $120
Electric Bill    $140
Internet    $36
Verizon Cell Phone    $133
Health Insurance    $240
Food:    $420
Car Insurance    $40
Health Club    $32
Gas:    $200
Total: $2146

Now–I can prbably get the food down a little bit, if I had to, and if I was real disciplined about it, but that’s been close lately.   Let’s gross that up for taxes–assuming I’ll have a tax rate at this level of 35%, and we’re at  $2897, * 12 = $34,765 gone before anything else happens.   That’s pretty low, and that’s promising.

Most freelance budgets don’t account for taxes.  I’m using 35% to make up for state and federal taxes up to $100k, and 45% on income earned after that.  Arbitrary to a point but it gives me some cushion.  I’ll get a lot of offsets, but I have to pay both sides of the effing payroll tax.

Now, I still have a car payment of $204, and student loan payments of about $175.  I also owe about $650/month to repay my “let’s stay out of jail” loans from 2005-2007.  The car payment is really nothing. My student loans went berserk when I was faced with going to jail or letting ‘em go.   Easy choice, kids, easy friggin choice.

So, my debt service is looking at $1029.  That’s 50% of my budget, really.  Ouch.  Still, manageable.  So, let’s gross that up again:

$1389.

Add this to $2897, and we have: $4286/month.   $51,432/year. $989 per week.

This doesn’t include a lot of ‘misc’ things currently, like doctor copays and car maintenance.  So, let’s gross this thing up yet again, by 25% to cover those things that I missed.   Let’s then bring this up to $1236/week.  ~$64k a year.  That’s simple enough to hit.  ~$247/work day for everything, including debt service.

That’s seriously thinking small, but it is a number I know I can do, and easily.  The next step is to take the number and subtract 8 weeks vacation (three weeks to move, five weeks for the rest of the year).   52- 8 = 44.   = $1454, which brings me close to $300/day.

Remember, kids, this is without ‘savings.’  Debt reduction or debt service is savings.  I need to build my cash position to about $15-18k in new money quickly so I have maximum operational flexibility.  That won’t be that hard.

I can fine tune this as I go along, as MINT is helping me do that (though the annoyance with MINT is that they don’t letcha put other bills that a bank doesn’t know about into the account–so they can make sure the information is really, really accurate.).  We’re also tentatively planning a move to Portland, OR, which is more and more likely to happen as time passes, and that move will cost $4500 bucks.  Still, the budget is what it is, requiring that I earn $989 per week, minimum.  That’s not that rough, as I’ve certainly been averaging more than that lately.  I have some business expenses which break down as follows:

Basecamp: $25/month
HEAP:  $9/month
Aweber:  $20/month
Hosting:  $25/month (i see this getting to be higher next year).
Misc. Software: $35/month.  (buying say, photoshop elements)
E-Junkie- $5/month.
Skype: $3/month.

Those are reasonably trivial expenses.  Some (Internet/Verizon) have some household overlap–and can be addressed however we want to.

Edit: The actual budget raised a little bit: it trends up to a  $69,000 cash need before savings.  I added some prescription copays, etc, to it so when the sidebar shows up, please realize that there are some differences.   I might circle back to this, but I have a hard target for my income.

All managable.

Super Basic Expense List

By Filed Under: Achieving Goals

money_tree5.jpgThis isn’t meant to be a normative budget–this is just the way things are, more or less, right now. Some stuff can and oughta be deferred. Other stuff makes me money. Budget doesn’t include debt service–just the cash need that I have each month. as of 12/22/2007for now I’ll put it online. These are hard costs. This isn’t a “budget” this is a list of expenses that I have as things are without radical change.

Mandatory Recurring Bills

  1. Housing: $1300
  2. Internet: $26.00
  3. Cell Phones (H + Me) $105
  4. Vonage: $30
  5. Car insurance: $71.
  6. Health insurance: $336 (comes out of my checks, but that’s the cash net)
  7. Electric: $125
  8. Gas: $45 (not on budget–this seems to be about as high as it gets)
  9. Trash: $24
  10. Water: $25
  11. Car Payment: $230 (included here because it would be gone if not paid)
  12. gym membership/Heather: 68

$2335 Cash/month: $27k/ year to have basic living done

Other Household Expenses:

  1. Food: $550/month
  2. Co-Pays: $55
  3. Gasoline: $250/month
  4. Clothing: $250/month (must be doubled–can be deferred

Total: $1175/month: 14100/year

Debt Service:

  1. Student loans (me) $21,500/140 month
  2. IRS: $23,000: $600/month + Refund. each year.
  3. 401k loan: $310/month
  4. Misc “weighty” debt acquired: 7k. Not being served until other stuff is gone, daddy, gone.

    5. $740 * 12 = $8880

Business Expenses:

  1. 900/month: staff stipend.
  2. Lunches/70/month

Total: 970 * 12 = 11640

Totals: 27,000 + 14100 + 8880 + 11640 = $61260 cash. Expenses are $5135/month. This requires a pretax income of 85k-90k+/- to make it. That is an exhausting lifestyle–having that as a base and having to go up from there. Blah. Earning 85k (7k month) +/-) requires the overhead. The Staff Stipend and the Health insurance come out pre tax, and can–to a point–be floated. The student loans can be ditched without much of a penalty, but that’s not the behavior I want to model.

Serious change needs to happen.

Having that kind of overhead to live is not fun–it creates a grind because even if we had $75000 in the bank, we’re only looking at 13 months +/- to be able to survive. The answer is not–as Tim Ferris says to give up the glass of red wine and defer your lifestyle. The answer is to think different:

  1. What can we do to cut expenses in a radical way?
  2. Can we get someone else to pay for us to live?
  3. Can we leverage our intellect to change the game?
  4. Can we cut big expenses? Saving on food doesn’t matter much, but changing our spending does?
  5. Can we sell something on an iterated basis to make us money?

This isn’t a solution that we can “Simple Dollar” our way to the end–while I really like many things about being a mortgage broker, there is nothing unique or novel about that job. I like the freedom, and it’s something that can easily be outsourced. I can build a system in 6-12 months that teaches this, and focus on another source of income….without being tethered to the job.

Chris Johnson is a thinker, taker of risks, and writer. His blog: GenuineChris.Com talks about creating insane personal success through radical transparency.