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Halfway There.

February 26, 2010

Today is the last working day of the month, which means it’s payday. Since I am young, in debt and live in the most expensive city in the country, my world kind of revolves around payday. It’s not that I think money makes people happy, but it certainly makes life a lot easier around here considering how much everything costs, from a box of cereal to a movie to even a bottle of soda at Duane Reade. I was having dinner last week with a new friend of mine, and she said that her parents actually sent her boxes of cereal from her hometown out of state because it was still cheaper to buy and ship then it was for her to buy the same amount right here in New York City!

Considering all that, its no wonder it has been difficult for me to pay down my debt and save anything in the meantime. Although I did receive a raise when I started my new job, and have been working on freelance jobs for a number of  years, its only been recently than any of that really seemed like it was making much of a difference.

It’s difficult for me to know how much to save in any one area, because even though I know I need to pay down debt, I also know that I don’t want to go into any more debt in the meantime. I have started an Emergency Fund, which I’m slowly (very, very slowly) starting to fill. I’m actually getting a little more anxious to fill it up so I think I might bump up what I put in it, just for a few months. My job is very secure, so I’m not terribly worried, but right now I only have a couple hundred dollars and I know that really wouldn’t help if anything major needed to be purchased. I’ve read that people who are in debt should have baby emergency funds of $1,000, which to me seems reasonable. In addition to having a low-risk job, I also don’t have a car and I don’t own my home, so there won’t be any unexpected car or home repairs that I need to worry about. A thousand dollars seems do-able and I am hoping to have that amount saved by the time my debt is paid off, so then the money from  my debt can just switch to my savings. Brilliant, no?

At my last job, I started a 401K as soon as I was eligible. I was 22 years old and really proud of myself that I already had a 401K. I’m not sure how much money is in it now. I have the paperwork somewhere, but I remember that it wasn’t a lot. I only had my 401K for about a year and a half before I left, and with the economy it didn’t have time to accrue very much since I was contributing the bare minimum on my salary. I’ll be able to join my new company’s 401K plan in June, and plan on signing up right away. I’ve heard that 3% of your income should go to retirement, but I’m still trying to figure out if that’s doable on my income. I am also planning on transfering my old 401K to a Roth IRA, but I don’t plan on contributing to that account until my debt is paid off. There are so many accounts to contribute to that I feel I will be too financially stretched and likely to fall back into debt if I try to do any more than that.

I have a couple of other savings accounts for specific items that I’m saving for. What I love about ING Direct is that you can have as many accounts as you want, with no minimums or fees. So I create accounts depending on what I’m saving for and then figure out how much to allocate for each one. Even though a lot of people might say its more important to pay down debt, I also think it’s important to save so that you don’t feel like you ever need to use your credit card. One of the reasons I had a hard time last year paying off my card was because I was quick to put money back on the card and then say “Oh, I’ll just pay this amount plus what I was already going to pay towards my debt…” But it’s easy to get carried away. While I don’t contribute a whole lot to those accounts, I hate the thought of depriving myself and I know that I would be so quick to go back to my credit card if I wanted to buy something and didn’t have the money. There are also some things that take a long time to save for, especially big ticket items that will need a lot of money when the time comes, like vacations and a wedding (ahem – don’t get any ideas). I’d rather start slowly now then feel pressured to save a lot in a short period of time. Too many of the debt reduction programs I read about focus on self-deprivation. I can’t do that. I can’t do that with my health either! (Hello, cupcakes!) I think of this as a happy medium. A compromise.

Next week, I’ll be sending another transfer from my checking account to my credit card (both are run through Bank of America, so I can do everything from the same online account). After that, my debt will be less than $3,000. In March 2009, my debt was $7427. Although most of the debt was paid off from the sale of my car, and sadly not much from the extra income I’ve earned, my debt is more than half of what it was. I’m determined to get it completely paid off, but the end of the year.

Who knows, maybe I’ll actually be able accomplish #78 and pay off my debt by September 28.

We’ll just have to see.

13 Comments
  1. February 26, 2010 10:32 AM

    Yay for being debt free!🙂 I can’t wait until I’m there. Oh, and by the way, I’m young, in debt, and live in a very affordable small town and my life still revolves around payday.😉

    • February 26, 2010 10:37 AM

      Something tells me that unless you are independently wealthy, most people revolve around getting paid.

  2. Kassie permalink
    February 26, 2010 12:12 PM

    I only recently got control of credit card debt, so kudos to you for your 20-year headstart! It’s worth it!

  3. February 26, 2010 1:17 PM

    go you! i am also very into my finances, in that i like to know where everything is going…i have a problem in that i aways want to go shopping even when i dont have the cash in hand…

    but i have no debt, except for my car and school loans. and about $500 on a credit card that should be paid with the next paycheck. i also have about $4 grand in savings. so i’m ok…

    i DO need to set up my 401K, if i put in 5% of my salary, my company matches 4%, so thats 9% of my annual salary that can go toward retirement!!! i’m an idiot for not having signed up already…you just gave me the extra push!

  4. February 26, 2010 1:17 PM

    I too love ING because I can create separate accounts for kids, savings and large upcoming expenses so I can accrue what is needed instead of hitting it all at once.

    I’ve heard that 6 months of expenses in an emergency fund is what is recommended. To me that is almost impossible. I also live in one of the most expensive areas of the country.

    baby steps.

    • February 26, 2010 1:59 PM

      Six months of living expenses for me is approximately $15,000 (and that’s on the low-end, “not spending a dime” estimate). If I wanted to be truly honest based on what I spend right now, I’d need $18,000. So not gonna happen for awhile.

  5. February 26, 2010 4:18 PM

    You are doing so great girl! Just keep tucking away that cash. I know its hard living in the city and not spending every dime every payday on fabulous shoes, dinners and nightlife, but once in a while a splurge is in order. Remember to treat yourself every now and then =)

  6. February 26, 2010 4:19 PM

    Sounds like you’re making great progress!!

  7. Colleen permalink
    February 26, 2010 4:39 PM

    Way to go Allison!!

  8. February 27, 2010 2:24 PM

    While I don’t consider myself to really be saving any money, I also try to do all of my purchasing with debit/cash instead of putting it on my card. Aside from the fact that it puts me further in debt, it just seems like continuing to use my cards that way perpetuates the habits that got me into debt.

    Yesterday was payday for me too and I’m really excited to make a big payment on my card. That’s the fun thing about getting out of debt!

  9. February 28, 2010 4:14 PM

    On your way! That is fabulous! Jeepers, I dont even want to begin to look at my loans for college.. Hello debt for the rest of my life!

    Best,

    Hannah Katy

  10. March 1, 2010 9:03 AM

    You’re making GREAT progress!🙂

  11. Corri permalink
    March 3, 2010 1:13 PM

    I’m proud of you! Living frugally is such a challenge, and you seem to have such a great balance between paying off debt while still enjoying some fun.

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