Saturday, August 29, 2009

Financial Makeover

It is always good to revisit your finances when changes in your life occur. In our case, we need to adjust for additions to the family, paycheck changes and school tuition increases.

Snowball Payments
Recently we bought a new house and set up snowball payments. Should these weekly payments be stopped because of a lack of paycheck? This dilemma is greater because this will affect when our home is paid off. My gut reaction is to definitely make the snowball payments because more interest accrues without the payments being made. Snowball payments are certainly voluntary but they are a form of debt reduction and still considered important to pay on a regular basis to pay off our house early.

Church Donations
If we regularly contribute a portion of our income (ex. 10%) to our church; what should we do during the weeks without a paycheck? Do we not make payments at all or do we reduce our payments by a percentage because our total income for the year has decreased? Our options are
A) No payments for 4 weeks
B) Reduced payments for the rest of the year
C) Combination of A and B

My instincts say that B is the best option. This way the church maintains a steady stream of income and there are no additional decisions to make such as when to start making the payments again.

Savings Transfers
We make 2 savings transfers each week. $40 for a savings account and $120 for future tuition payments, pool membership and funding a retirement account. Since the bills are going to be the same (no reduction); these transfers need to remain the same. The $120 amount needs to be revisited because this weekly amount was based on a lower tuition amount. Now we need to adjust the amount based on the higher tuition rates and based on additional students in school.

As we go further into this discussion, another item comes to mind. The reality of the downturn of the economy is that everything cost more. Many of us have broken the rule of spending less than we make. During this overall financial transformation we need to keep in mind that for the last year we have been regularly supplementing our income with our savings. Rather than waiting for the breaking point, lets prepare now for the ultimate goal.
Spend less than we make ALWAYS!

No comments: