YNAB BLOG

Can this 24 year-old pay off debt AND fund her roller derby hobby?

magnifying glassLily is a software analyst in her early 20′s, bringing home a net monthly paycheck of around $2,300.

She contributes 3% of her pre-tax income to a 401k, fully matched by her employer. Her health and dental benefits are also covered by her employer.

Lily’s top priorities are:

  • Caring for her Dad, who’s still working, but may not be able to for much longer.
  • Enjoying her hobbies: roller derby, brazilian jiu-jitsu, and yoga.

The Goal

Pay off credit cards, save for a new car, build up her buffer and emergency savings (for herself and dad), and pay off student loans – without giving up her hobbies.

The Budget

Category Budgeted Comments
Pre-YNAB Debt
Chase $200 Balance is $500 at 18%.
Discover $50 Balance is $700 at 0%. Will snowball this when higher rate card is paid off.
Student Loan Payment $265 Around $19,000 total with rates between 5% and 7%.
Giving
Charitable $25
Monthly Bills
Rent/Mortgage $551 Downtown loft.
Ting $35
Internet $70 Moving to an apartment with free internet next April.
Electricity $40
Spotify $10
Yoga $40
Jiu-Jitsu $50
Birth Control $30
Roller Derby $30
Betterment $50
Everyday Expenses
Groceries $100 Cat food and litter included.
Fuel $75 My hobbies and work are near to me so why the high number? Currently, I visit a family member a few times a week who will probably not be around much longer.
Spending Money $25
Restaurants $44
Gear for Yoga/Jiu-Jitsu/Roller Derby $40
Vegan Box $20 It’s a snackbox! Who doesn’t love getting a boatload of snacks?
Dry Cleaning $10
Rainy Day Funds
Emergency Fund $20
Vet Visit $20 I have two kitties that need $120 in (non-urgent) tests so I am saving up.
Savings Goals
Lily’s Savings $200 Personal savings balance is $300.
Dad Savings $200 Balance is $1,400. (Lily funds a savings account for her dad to help out in the event he can’t work.)
Buffer $100
Budget Total $2,300

The more I look at Lily’s numbers, the more optimistic I feel. Yes, total debt balances are high, and monthly payments are eating up big chunk of her monthly cash. But if she gets a good snowball rolling on these goals, she’s not many years away from having everything paid off, with money in the bank.

Here’s how I would go after the goals:

1. Funnel all available money to the Buffer.

It’s a point of discussion and confusion among YNABers, but I consider my buffer my emergency fund. Yes, I’m living on last month’s income, but if I really got in a pinch I’d tap the buffer to cover an emergency and go back to living check to check while I rebuilt the buffer.

In any case, I’d advise Lily to fund her buffer as insurance against new credit card debt. As we talked about the other day, I’d get the buffer (emergency fund) to a level that lets her sleep well at night, then move on to attacking the debt.

Lily can fund her buffer with the $190 extra she’s currently sending to Chase, the $20 she’s sending to ‘Emergency Fund’, and the combined $500 going to her savings, Dad’s savings, and ‘Buffer.’ That’s $710, which means she’s roughly three months from a full buffer/one-month emergency fund.

2. Pay off the credit cards.

Having built the buffer, Lily will be two short months away from zeroing out the credit cards (by throwing the whole $710 per month at the debt).

3. Start funding a ‘Car Repair/Replacement’ category at $100 per month.

Lily’s dad has always handled repairs on her 2002 Chevy Cavalier, but she knows it won’t last forever, and she wants to be ready to replace the car when it finally dies. $100 per month isn’t much, but it’s a hedge against using her emergency fund to cover future repairs. If she ends up not having to pay for repairs, the category becomes a hedge against having to finance the new car.

4. Attack the student loans.

With the credit cards at $0, Lily can add the $670 ($710 original snowball + $60 freed up by zeroing credit cards – $100 for the car category) to her $265 minimum student loan payment and be out of debt in around 3 years, 2 months (according to BallofSnow.org.)

Having paid off her credit card debt and maintained her buffer/emergency fund, Lily would have nearly $900 per month to add to her emergency fund, car savings, and eventually retirement accounts.

Vulnerabilities

1. Willingness to Borrow

Much of Lily’s credit card debt came after a bad breakup that required her to move into and furnish her own place (pots, pans – the whole deal). Unfortunately, another portion of the debt funded her hobbies.

In our emails, Lily and I talked about how risky it is to elevate non-emergencies to emergency status by paying for them with credit cards. She’s already paid down big chunks of credit card debt, and I’m confident she won’t further bury herself in the future.

2. Dad’s ability to work.

Lily has made herself responsible for her dad in the event he can’t keep working. That could mean having to buy more groceries, pay more rent, possibly cover some medical expenses. Of course, I imagine he’d qualify for some sort of social security/disability income and other government benefits that should offset or cover the costs. In any case, the more cash Lily has on hand, the more easily she and her dad could make that transition.

Lily, I don’t think you’re adding excessive risk to your finances by continuing to fund your hobbies – IF you use the rest of you available funds to really get after your debt and savings goals. Keep up the good work, and be careful with those credit cards!

9 Responses to “Can this 24 year-old pay off debt AND fund her roller derby hobby?”

  1. Kait

    She could also add in the $50 that is going to Betterment to her snowball. I originally got really excited about Betterment and decided to throw $100 into it each month (which decreases the fees over not having an automatic deposit of at least $100). I then realized that my buffer gave me greater peace of mind and worked better in YNAB than an abstract “emergency fund” AND once I had my buffer I no longer felt the need to put money in an “e-fund” rather than throwing it at my debt. So, I stopped the auto-deposit of $100 and added that money to my debt snowball. I would say Lily has a similar situation. As much as I really like Betterment, now is not the time for me. I hope to return to it at a later date.

    Reply
  2. J

    If possible move the balance of the high interest card to the low one. That means more of her payment goes to the principle rather then interest

    Reply
  3. Emily

    I assume there are health issues at play with Lily’s dad. Is something like long-term care an option to cover the future?

    Reply
  4. Cara

    It sounds like Lily has health insurance. I don’t know what birth control she is using but under the Affordable Care Act/Obamacare prescription birth control must be covered without a copay. If she chooses to look into this it could save her a few dollars a month.

    Reply
  5. Andrew

    Quote: “I’d advise Lily to fund her buffer as insurance against new credit card debt”

    I don’t agree. She currently has credit card debt costing her 18% interest per year. There is a 100% chance that she will have this debt tomorrow. There is less than a 100% chance that she’ll have an emergency next month which requires the use of credit card spending that she can’t immediately pay off.

    I like the plan of using your buffer as an emergency fund (I live the same way) and directing other small savings bits you outlined (plus the Betterment line item someone above me mentioned) to the buffer first. I just think that the Chase card should be eliminated first, then proceed with the plan you outlined.

    Reply
  6. Dollar Flipper

    Only question I have is if your dad is still working now, is he contributing to his own emergency fund? Just want to make sure that all’s fair in the situation even though it can always get a bit dicey in family situations, especially when you throw $$ in the mix.

    Reply
  7. Tigerlily

    If Lily can use an IUD as birth control, that would save her $30 per month. Once in place, it would be good for 10 years (at least, that is the case for my own non-hormonal IUD). That is a substantial savings when added up over time.

    Reply
  8. Cat Doskocz Thomas

    Need clarification. Lily should only pay the minimum on Chase @ $10 until next month when her buffer is at $710? Then use that money to pay off her Chase?

    Reply
  9. Chris

    How do you manage to spend only $100 a month on groceries? Assuming only the cats are eating cat food…

    Reply

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