So, the new year is upon us. We’ve said good bye to 2017, and have a whole new year to look forward to. I’ve made my resolutions and now it’s time to dig a little bit deeper. For today’s post, I’m going to be discussing more of my financial plan for the new year. I’m definitely doing things differently this year. I’m more motivated! More focused! More determined! And, with your help in keeping me accountable, I’m more confident that I can successfully execute my plan for 2018. That being said, I am mindful that life is what happens when you make plans. So, I’ll nonetheless remain flexible if need be. But, here is a more in depth look at my financial plan for 2018.
Increase Minimum Contributions To Dividend Portfolio
The first thing that I intend to do is increase my contributions by $220. Currently, I contribute $790 to my portfolio. By increasing the contributions to $220, that brings my monthly contributions to $1010. You see, we all like it when companies raise their dividends. I like that model and seek to emulate it. So, why shouldn’t I raise my monthly contributions to my portfolio every year? That’s exactly what I intend to do! So, where will the extra 28% of the money go? I’m glad you asked.
I’ve noticed that my contributions to my most costly stocks have been dismal. Before, I was investing only $30 in AAPL, GWW and MMM. Well, I’ve now increased those contributions to the more respectable $50 each. I’ve made other slight adjustments as well to many of my other holdings. However, of the $220 extra I plan to contribute, $80 of that will likely go to a new company I plan to purchase soon. Hint, that company will likely be a DRIP.
You see, my portfolio is housed at two separate entities: Computershare, where I have my DRIPs and Capital One Investing, where I do Pseudo DRIPs. Because I have the maximum of 12 stocks in Capital One to get maximum use of their Advantage program, any additional stock purchase I make in 2018 will likely be in Computershare. I already pay $12 a month in fees at Capital One, and were I to add another company, I would be paying $1 per month extra per company. $12 is enough for me for right now. The companies I invest in through Computershare offer no fees (or super low) fees and I expect to carry on that trend in 2018. So, that extra $80 a month would go to a new company in Computershare.
Here we go again. Last year, I had a goal to contribute $2000 towards my student loan. I even went as far as creating a debt tracker to monitor my progress. Well, as indicated in a previous post, that was a total disaster. I didn’t even keep up with the debt tracker. So, now I’ve decided to tackle my student loans again. Before, $2000 was too much of a lofty goal and when I missed a month or two, I just got demoralized. But, no use crying over spilt milk. Besides, it’s a new year and I have extra motivation this time around.
There are a couple of reasons why I haven’t been paying down on my student loans. The first is that the interest rate is a low 2.625%. Just the average yield on my dividend portfolio exceeds that. And so, it appears to make financial sense not to try and pay down the student loan early.
The second reason is that I also want to buy another house, either in late 2018 or early 2019. It should be noted that paying off my student loan would have the negative effect of reducing the average age of my credit accounts. Thus, my credit score would likely decrease. So, I’ve sort of been paralyzed trying to decide if I should pay off my student loan and save for a down payment later, or vice versa. Well, I can’t take the debate anymore. So, I’ve decided to finally get rid of my student loans first (again). Here’s how.
Devil Is In The Details
As of today’s writing, the balance on my student loan is $19,707.84. The minimum payment is $97.61.
Now, I get paid twice per month. Around the 15th of the month, as soon as I get paid, I will immediately send $500 towards my student loan. I’ll have to look into whether or not I can make that automatic. I already have the minimum payment coming out of my account automatically around the first of the month. Even if I can’t make it automatic, I’ll do it manually. This will force me therefore to live within this newly established budgetary restriction.
Usually, when the first of the month arrives, I have some money left over from the previous paycheck. That could be as small as $50 or larger. Whatever this amount is, I plan on adding that to my student loan payment as well for the first of the month. More importantly, I’m going to take the money I get from renting my house and put it towards the student loans. That comes out to be around $1350 or so per month. Before, I was saving this money to be used for repairs or a down payment for a house, and so far I have only about $3000 saved. Well, I’m going to stop saving this. I’m going to hold onto the $3000 in case I need it for house expenses, but use the income to pay student loans. So, with $1350 (or a little less if there are house expenses the previous month), plus $500 from my salary, that gets me to about $1850. Hopefully, I can find the remaining $150 by reducing expenses, etc. I fully intend on maintaining my increased contributions to my portfolio, and keep paying the $97.61 separately to my student loan.
But wait, there’s more. Rather than track my student loan payment on my debt tracker, I intend to make regular posts on my blog about my progress. So, you can expect, at least once a month (and maybe more) that I will be updating you on my payment details. So, stay tuned.
Although not entirely certain, there is a strong likelihood I’ll be moving to a very expensive metropolitan area for work. If so, my intentions are to buy another house. Rather than continue debating with myself whether I should concentrate on buying a house or paying down my student loans, I’ve decided to pay off the student loans first, and then concentrate on buying a house. I will be able to begin executing this plan around October of this year when my student loans are paid off.
Now, I already own a house that currently has a tenant. My mortgage payment is around $1100 a month, but I receive $1350 in rent, after property management fees are accounted for. Sometimes, I’ll get a little less than $1350 if there are minor repairs, but generally, that’s what I receive. My goal for right now is to use the income I receive from the rental and save all of that towards a down payment, beginning in October or November 2018. In case you are wondering, I pay the mortgage from my paycheck. So, I realize it’s only a $250 difference, but work with me.
I’m being very aggressive with not wasting money this year. I don’t consider it wasting money if I’m contributing to my dividend portfolio, paying down my student loans or saving for a down payment.
Just so we are on the same page, I don’t plan on blogging about how much I’ve saved towards a down payment on any sort of regular basis. Only about the payments I’ve made to my student loans.
Ultimately, I would only be able to do all the above if I reduce my expenses in 2018. A big part of that is not eating out everyday and spending a lot less on alcohol. It’s only a few days in, but so far so good. I’m very excited about the rest of the year. I’m constantly reviewing my budget to see what realistically makes sense to cut. Right now, I’m not ready to give up Netflix or Hulu just yet. In fact, I’ve already added to my expenses, by having a subscription to Chess. I’m also contemplating a subscription to World of Warcraft. Finally, the one thing I might buy myself this year is a Virtual Reality headset. But overall, I think I can tighten up my budget, reduce my expenses and make it happen.
It’s going to be extremely difficult for me to make extra money during the first half of the year. Honestly, the best opportunity for me to make money is getting a refund on my taxes, which might be possible after the recent passage of the new tax bill. However, in the latter half of the year, there will likely be increased opportunities to make extra money. That will help my financial plan overall.
Fully Fund My Starter Emergency Fund
Last, but certainly not least, I need to fully fund my starter emergency fund. I like Dave Ramsey’s approach and his first three baby steps. His first baby step is to have a starter emergency fund of $1000. My emergency fund is currently sitting at a dismal $350. I’m not counting the $3000 I have set aside for house repairs, etc. So, I need to get that to $1000 as soon as possible. Were I a strict follower of Dave Ramsey, I would do this first, even at the detriment of contributing to my portfolio. Well, I’m unwilling to do that. So, somehow, I have to build my emergency fund while maintaining my current levels of investing, and level of paying down my student loans.
Because of the need to get my emergency fund back up, I contribute a minimum of $50 every pay check, so about $100 every month. My problem last year is that I kept dipping into my emergency fund for non-emergencies. With a renewed focus that comes with a new year, I’m planning on not doing that in the future.
My plan is that if I have any amount of money left over after making the $2000 payment to my student loans, to use that money to fund my emergency fund. Later on, after I pay off my student loan, I’ll worry about establishing 3-6 months of expenses in my emergency fund.
I am determined to make 2018 a very successful year. I aim to fully execute my financial plan and weather whatever obstacles life may throw my way. With perseverance, drive and determination, I am confident that I can succeed. In the words of Yoda, “Do or do not. There is no try.” In 2018, I will!
Do you have a financial plan for 2018? What are your thoughts? Let me know by commenting below.