Since it’s clear the Obama Administration is going to be giving 100% of the stimulus money to failed companies like GM and AIG and nothing in cash to the middle class, Kristen and I had to make our own bail out plan. (Sorry for the dig on Obama, I was a big fan of Bush’s free money system!)
Our challenge was pretty simple. How do we live on 70% of our income for the next 24 months? If we could do that, this is what we would have at the end of it.
– No debt
– 3 months living expenses in the bank as a rainy day fund
– 1 months living expenses in the bank as general savings
– Still faithfully giving to our church
Our 2008 scenario was like this. Prior to moving to California we lived at about 105% of our income. Basically, we had been swallowed by inflation and struggled to recover. Each month we went a little deeper into debt. When we moved to California we had about 4 months where we lived at 200% of our income. Why? We had two houses, we moved 2500 miles, and stuff like that.
Our plan, live on 70% of what we bring home after taxes. Roughly, the breakdown looks like this. (+/- 2% per month)
10% of our income to paying off debt accumulated in 2007-2008. (Our credit cards jumped from 17% to 29.99% last year, we alone in that?)
10% of our income to savings.
10% of our income to regular charitable giving.
This is where the McLane plan differs from the pop culture financial planners. Most of them would say, “Concentrate on paying off the highest interest thing first, then focus on savings.” I’m not going to lie… I can’t bring myself to not save and spend that much paying down debt while not putting anything into savings.
We’re about 3 months into this plan. It seems to be working for us. For those in love with budgeting, it’s a semi-budget. It leaves about 20% of our money as flexibility… which really works for us.