The Gazelle Has Left The Building!

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photo credit to Paul Brink

We are the gazelle, our lendors/creditors are the cheetah (hunter.)

“Deliver thyself as a gazelle from the hand of the hunter, and as a bird from the hand of the fowler.”  – Proverbs 6:5

In the past I have gotten into some pretty hefty comment debates with various readers about saving money while paying off debt.

If you don’t remember those discussions, you can read these two posts to catch up:

Basically we ran into a few things that made us realize that $1,000 for an Emergency Fund was just not enough in our case, so we made personal finance personal and did what worked for us by using 75% toward debt repayment and 25% toward savings.

A Changing Of The Guards

Now that we have our Emergency Fund built up to the amounts equal to roughly one month’s expenses, we have decided to set aside “The Balanced 75/25 Method” of debt repayment/emergency fund savings and focus on full strength gazelle intensity.

To us, building our initial EF up to these levels – THEN turning the gazelle intensity back on – just plain made sense. We feel better, and the gazelle has left the building, so things are good.

Why one month’s worth?

The main reasons we needed one month’s expenses:

  • Wisdom – if something goes wrong we have prepared by setting a decent amount aside. $1,000 just didn’t cut it in our situation.
  • Security – my wife feels more secure with that money there, and at the end of the day, if she feels more secure everybody is happier!
  • Preparedness – this is like the manly version of security.  I feel more prepared knowing that even in the unlikely event that both of us lost our jobs simultaneously, we would still have over one month of time to fully devote to finding jobs without having to worry about whether we could pay the bills that month.

So what’s next?

Now that we are able to focus 100% of our available money toward debt we are going to attack our debts one at a time.  Here they are in the order we plan to pay them off:

  1. Lending Club Loan – Like I have said before, the math doesn’t work out, but I am still faithful to believe that we can have this paid off by 12/31/2009.  We started this loan at $11,000+ just 2 short months ago and have already paid this down to $8,500.  Maybe you know of some rich dude/dudette who wants to donate to a good cause?
  2. 2nd Mortgage – We’re breaking slightly from the debt snowball method here and tackling this one 2nd because the interest rate is quite a bit higher than our student loan rates.
  3. My student loan – This is a smaller of the two student loans and the one with the higher interest of the two, so that works out nicely.
  4. Her student loan – This will be our last non-mortgage debt to pay off because of its super low rate.
  5. 1st mortgage – and once this is paid off – you guest it – WE WILL BE DEBT FREE!

It is so true that simply having a plan in place gives a lot of financial peace in and of itself because you understand what needs to be done, how long it will take, and that it is just a matter of time, patience, and fortitude.

What about you?

How much savings is right for you?  Are you happy with the $1,000 Emergency Fund that financial guru’s like Dave Ramsey promote, or are you like us in that you feel more prepared and secure with slightly more money?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.



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1 Financial Samurai

Good work Matt! What is the ETA you think for your 2nd mortgage to be paid off? It’s funny, cuz 2 years ago, I took out $100,000 in my HELOC at 3.25% to pay down $100,000 in my primary mortgage for my rental that costs 5.25% so I could arbitrage down my blended rate. The process is written in an article entitled “Going Broke to Win Big: HELOC Edition.”

I firmly do not believe even with all this monetary expansion that inflation is coming back. But if it does, we should ironically leverage ourselves to the hilt and not be in cash! I love cash, it’s the only thing I count in my “Net Worth” really, but that’s a different topic of conversation.

Best, FS

2 Matt Jabs

I haven’t sat down to calculate out the ETA’s of these debts yet – but doing so is already penciled into my TO DO LIST.

Once I do it, I’ll publish a post about it and link to you for asking. 🙂

3 Financial Samurai

Sounds good Matt! I think once you have an ETA for all your debt payoffs, you’ll probably start consciously trying to BEAT that ETA!

It’s like the 30-yr mortgage. One extra principal payment shaves off 4-5 years, and starts getting folks excited about continuing the path for faster and faster debt payoff!

Have a good weekend Matt!

FS

4 Matt Jabs

Oh I guarantee you are right. Whenever I set a date to accomplish something… I ALWAYS try to beat the date! That is the beauty of setting goals. 🙂

5 Lydia aka Ms. MoneyChat

I too had a slightly higher EF when I was paying off debts. Now that I’m down to just the mortgage, I would like my EF to be a year’s worth of expenses. I’m in a single household so for me I prefer 12 mos instead of 3 -6 as Dave recommends or even 8 as Suze recommends.

6 Jason @ RedeemingRiches

Thanks for updating on this. I personally like to have 3 months worth of expenses. I think your 75/25 approach was a good one and now that you have that EF built up to 1 month’s worth of expenses I think it’s a good idea to knock that debt out!

I’m looking forward to that “Everything’s Paid Off” post you’ll do when you’ve finally TKO’d your last debt! =)

7 Matt Jabs

“I’m looking forward to that “Everything’s Paid Off” post you’ll do when you’ve finally TKO’d your last debt!”

Ha! You and me both man! 🙂

8 Lakita

I am also doing the modified FP plan. I aggressively put away the first $1K then shifted the focus to debts, but I never stopped financing my EF…even if it was as low as $25…I don’t want to stop the “habit” of feeding that account

9 Matt Jabs

You bring up an awesome point Lakita. I think forming those “pay yourself” habits and sticking to them no matter what (even if it’s only a few bucks/month) holds such wisdom! Way to go… we’re getting there together! 🙂

10 Gary

That sounds like a good plan to me. It is a lot like what I did a couple years ago. Today I have a full 6 month EF, and 10k in a car fund that we add $250 to each month. The only debt we have is our 1st mortgage that we are on track to paying off in 3 years. Sooner if our part time business takes off. I can tell you that the full EF helps us sleep well at night. Having the car fund even helps more. When the business starts bringing some money, even better yet!

11 Matt Jabs

Awesome Gary, great to hear from someone who’s sitting in a place I’ll be in a couple years. Godspeed w/your card biz man, thanks for stopping by.

12 Gary

Never give up Matt! While you are at it, check out our website and send someone a FREE card on us! We love it when people do that!

God’s blessings to you!

13 Paul @ FiscalGeek

Way to get on it Matt, CHEETAH!!!!! Having some form of emergency fund is definitely important but nothing beats the intense focus you can get by throwing everything you’ve got at your debt. Way to go!

14 Matt Jabs

CHEETAH!!!!!!!!!

Great comment Paul, I laughed out loud when I read it! 😀

15 Greg

Hey Matt,

Way to go!

I think DR wouldn’t disagree with your plan – I think his $1000 has more mass-market appeal just based on simplicity’s sake. (Imagine him trying to explain the 75/25 deal over the radio…it could get a tiny bit overwhelming). I’m pretty sure the 80/20 or 75/25 method is the method he advises for businesses to follow in similar situations.

As DR has said before, it’s more about behavior modification and FOCUS than it is specifically about the numbers.

Keep up the good work!

16 Matt Jabs

Yeah, I think he’d agree too… that guy is the cats meow – the bee’s knees. 😉

17 Mr. Not the Jet Set

I honestly can’t recall what we did for the Baby EF… it’s been too long ago!

In our FPU classes, we don’t get much in a twist if folks want to put away more that $1k to start with. Especially with the way health insurance goes these days….

What’s most important is to understand *why* Dave recommends $1k.
1 – It should happen quick – this is a cushion, not the whole sofa. He want’s you to knock it out and get on to paying down your debt.
2 – It should make you a little uncomfortable – this is great motivation to keep that gazelle intensity up through the debt-snowball and into the fully funded EF.

$1k is the default and if you can justify a little more – $2k total? – then that’s fine so long as it adheres to the above. Otherwise, get the $1k and go! Go, go, go!

18 Matt Jabs

Yeah, we did the $1,000 straight outta the gates, then developed the 75/25 Balanced Method to build our necessary security while entering debt repayment.

19 Michael B.

You mentioned paying your mortgage more aggressively due to the rate of interest vs. your student loans. Did you factor your mortgage interest at .7 to account for the tax deduction you will receive in April when you made your allocation decisions?

Best,
Michael B.

20 Matt Jabs

Great question Michael. Actually I did NOT do that. BUT, I also get a tax deduction for the student loan.

I am going to run the numbers for both of these and come to the best conclusion – and that will be solid data for a new post, which probably means I’ll mention you for bringing it up! Thanks man.

21 Peter

sounds like you guys are hitting it hard now – gazelle intense! When we did the FPU plan we did slightly more than the $1000 emergency fund as well. We felt led to go to a $2000 emergency fund – which is good because we then ended up having a $1800 bill shortly thereafter. I think the key is this – don’t get carried away, but if you’re feeling led to have a slightly larger EF – go for it.

22 Matt Jabs

I definitely think – getting the $1,000 first, then moving to 75/25 until you’re comfortable, then going gazelle – is the best way to go.

23 Brian

This is great Matt. I totally can see you walking away from all of these debts before even you can imagine! The determination in which you show is quite impressive and inspirational. If you can do it, so can anyone!

Here is to helping you boost that income to make it go that much quicker!

24 Matt Jabs

Thanks Brian, that’s the message – anyone can do this if they just get fed up with debt, get a plan in place, and get started!

25 Money Funk

Well, we owe like $3000+ of interest per year. Then again, we owe a lot of debt. But we are chislin’ away at it.

My question: But doesn’t that percentage that was deemed to the EF now suppose to go to the lump sum savings (aka – gift fund, annual insurance, house maintainance costs, etc…)? Of course, that is if you are following Ramsey’s plan.
Do you consider those funds to be part of your debt category? Or are they allotted in the Savings? Or do you cover yourself for those categories?

26 Matt Jabs

Hey MF: No, the 25% is not going straight toward debt. The money for Non-Monthly Lump Sum Payments is already figured into the necessary categories in our budget, but are not part of savings or debt.

Hope this helps man. Check out that post I linked to in this comment, it covers exactly what you’re asking about.

Cheers!

27 Credit Card Chaser

Awesome job Matt and I just wanted to say that I strongly agree with your statement about simply having a plan in place gives peace. Whenever I start to really get bogged down with things whether it is personally or with one of my businesses it has always helped me to take a step back and then write down some goals and develop a plan of action. Just taking the time to write those things down certainly brings me peace.

28 Matt Jabs

It is an amazing exercise, and one that eluded me most of my life. By nature I am not a goal setter, but I have turned into a very passionate believer after seeing how powerfully it has effected my life!

29 Jason @ One Money Design

Matt, I like how you’ve made your approach to savings and debt reduction “personal” as you say above. You really do have to evaluate what makes most sense for YOU. While there are great roadmaps to follow, such as the Baby Steps, there is not a one approach fits all. Pursue God first in your finances and you’ll find your way to debt free day before you know it! I know your enthusiasm and motivation is a blessing to many.

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