2008: Starting off on the Right Foot

One of the best pieces of advice I've pulled from many PF Bloggers is to set concrete goals, and keep them reasonable. As a PF Newbie, I am still very unsure about my goals, torn between my desire to sweep away the debt, save for the future, and still concerned about having enough money for the here-and-now - our "fun" money.

The key to improve any process is to understand what is wrong in the first place. I am starting off 2008 by taking a harder look at 2007 - what worked well and what could be done better.

In our case, savings, or lack thereof, has always been a fault. Even though we sent any extra money towards our debt, we had to resort to credit cards for every little crisis. We were working against ourselves. In the last few weeks of 2007, we established and started funding two short-term savings accounts, one linked to each of our checking accounts, so we can absorb any little shortages without running up the credit cards. In addition, we established a long-term savings account which will be the foundation of our emergency fund.

Another huge downfall of our personal finances to date has been the absence of retirement plans. I finally enrolled in my company's 401(k) plan, which will match $1000 at 50%, and I will be maximizing their contribution by contributing $2000 each year, for a total of $3000 annually after the company's match. This contribution is far short of what we will ultimately need for retirement, but at least we will take full advantage of the matching funds. I also started a Traditional IRA account, which will start with a $50 monthly contribution. Again, far short of what we should contribute at this stage, but a start nonetheless.

Debt Reduction takes center stage in our PF planning for 2008. In December, I managed to reduce our $48,000 to just over $40,000, and I want to continue that progress through the New Year. Although $8,000 in one month is very unusual, and in this case was fueled by several gifts and my year-end bonus, $1,200 per month in debt payments is attainable. Our strategy for allocating payments in the past has fallen short of idea, too, as I tackled the lowest balances rather than the highest interest rates. Our tendency to use the credit cards for unexpected expenses and impulse buys repeatedly set us back as well.

I am very excited rolling into 2008 about the possibilities that exist with our personal finances. I have never been as motivated as I am now to tackle our debt problems and start saving our money. In order for us to stay motivated, though, our plans will have to include some room for fun. One of our savings accounts is our Vacation Fund, and we will have enough saved by the fall for a 7-day cruise - paid with cash, up front, with no credit involved - for the first time in my life. Such an indulgence may seem irresponsible with so much debt, but the power of such a reward may be the motivation that my wife and I need to stay on track for the year.

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