Tag Archive | "snowball method"

Timebox your way to better financial health

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Timebox your way to better financial health


Timeboxing is a concept normally used in project management, especially software development. Don’t worry though. This post is not about software or coding. Rather, this post is about breaking down a large task into smaller tasks and giving each one a due date.

Usually, a schedule is broken into various timeboxes, or chunks of time. Each timebox can be days, weeks or even months. The point is to find a way to create manageable tasks or projects, prioritize them and then execute.

Timebox Example

Timeboxing and your finances

So let’s talk about how this relates to financial planning. For our example, let’s say that you have debt. A lot of debt. Something in the ballpark of $20,000 across three credit cards. You also have a goal to save money for retirement. Eliminating debt and saving for retirement can feel like conflicting or daunting tasks. That’s when timeboxing comes into play. Break it down and make it specific and manageable.

Eliminating debt is a series of steps.

  1. Create a budget
  2. Eliminate excess spending
  3. Pay more towards your debt
  4. Use the snowball method

Saving for retirement is also a series of steps.

  1. Create a budget
  2. Create an investment plan
  3. Eliminate excess spending
  4. Eliminate debt
  5. Put money into retirement accounts
  6. Put more money into retirement accounts

You’ll notice that some of the steps for both goals are the same. And eliminating debt is really a step towards the larger goal of saving for retirement. So let’s put timeboxing to work for you. Get out a piece of paper (or do this in Word, Excel, etc) and create a series of boxes.

  • Box 1: Create a Budget 
    I’m not going to cover how to create a budget in this post (though you can read this post on how to budget to learn). Creating a good, realistic budget should take 1-3 weeks depending on how complex your finances are. So write “Create a budget” in the first box and give it a due date of 1-3 weeks from today.
  • Box 2: Create an Investment Plan
    You can work on goals concurrently or at the same time. For example, you can work on creating an investment plan at the same time as you are working on creating a budget. But a good investment strategy may take longer to develop. So we’ll write “Create an Investment Plan” in this box and put a due date of 1 month on it. For overlapping goals or tasks, you can put the goals on top of each other to visually show that you have multiple things you are working on. A word of caution though – do not give yourself too many tasks to work on at the same time. That will in part defeat the purpose of timeboxing. Don’t overwhelm yourself. Make things simple and manageable.
  • Box 3: Eliminate Excess Spending 
    As you create your budget, you’ll find areas where you are either overspending or you just don’t need to be spending. For example, Dining Out could be reduced from $200 to $100 a month. You can cancel monthly subscriptions to magazines, newspapers or other media. Canceling and making final payments may take 1 month. So write “Eliminate excess spending” in the second box and give it a due date of 1 month after the Create a Budget due date. You can later add to the box, as a checklist of sorts, the specific expenditures you are going to eliminate.
  • Box 4: Pay More Towards Your Debt 
    With the additional money that you are able to save from eliminating excess spending, start paying as much towards the debt with the highest interest rate. In our example, let’s say that one of the credit cards, a Capital One card, has a balance of $2,000 and an interest rate of 24.99%, and you can now pay $400 towards that balance. So in this box, write “Pay Down Capital One” and give it a due date of 5 months (assuming you can pay $400 a month towards it). Though, please don’t forget to keep paying the minimum on the other cards.
  • Box 5: Use the Snowball Method 
    Once you have the first card paid off, you can take that $400 and put it towards another credit card (learn more about the snowball method). So write “Pay Down Credit Card #2” and its due date in the next box. Hopefully you are getting the point. Make as many boxes as you need for each debt that you plan to pay off.
  • Box 6: Put Money into Retirement Accounts 
    With the dent eliminated, you’ll be able to put all of that money towards your retirement accounts. For our example, let’s assume that it will take 18 months to complete the first four boxes. So in this box, write “Contribute to 401k” or “Contribute to Roth IRA”. You’ll probably not have a due date in this box since you should be saving until the day you retire.
  • Box 7: Put More Money into Retirement Accounts 
    Rinse and repeat. Once you’ve reached this point in your life, you’ll want to re-evaluate your budget and look for all new ways to save money or make more money. Actually, you should be doing this all along the way. So write in this box “Find New Ways to Save”.

Nothing that I’ve presented above is new or revolutionary. Rather, timeboxing is just a way of making a plan. It’s about taking the big task of saving for retirement and breaking it into specific, actionable goals with due dates.

Benefits of timeboxing

The immediate benefit is the value of having a plan. Instead of feeling frustrated or powerless, you’ll feel empowered by your plan to reach your goals.

The bigger benefit, in my opinion, is what I’m calling the halo effect or the rush of excitement you get when you successfully finish a task or goal. Crossing a finish line gives you energy to continue towards the next finish line. So with each box that you complete, you can pat yourself on the back and feel good about what you’ve accomplished.

What other planning techniques have you tried and found successful? And for more money saving ideas, follow Rabbit Funds on Twitter.

Also, this post was featured in the Carnival of Personal Finance #329.

Posted in Budgeting, Debt, FeaturedComments (0)

How To: Get out of debt using the Snowball Method

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How To: Get out of debt using the Snowball Method


Credit card debt is wrecking people’s lives as we speak. The lure of the “easy money” ruins a lot of families because credit card holders are too weak to refrain from buying yet another thing they really don’t need. So what can you do if you are staring in the face of debt – debt that could result in a bankruptcy claim or a divorce because money issues are so bad in your family no one can handle them?

Snow Smiley FaceThe answer is: use the snowball method

Before I go into explaining how this works, let me clear up an important fact that seems to cycle through people’s minds. Contrary to popular belief, it isn’t easiest to get out of debt by paying off your highest interest rate debt first. This is what many debt-ridden consumers tend to believe, but they are wrong (at least partially because the math proves us otherwise).

The problem with the “math supported scenario” is that people end up giving up along the way because they don’t see instant results. If you are stuck with thousands of dollars of debt and all you do is skimp money, the last thing you want is to wait for several months until you see your debt twiddle.

Instead, pay off your smallest debt first (this is what is referred to as the snowball method).

How to establish a debt snowball method

With the debt snowball method, you put everything on hold financially except the minimum payments and of course your utility bills and essential living expenses (and no, that does not include a subscription to cable TV). Scrape together everything you can.

However, before you start minimizing your financial expenditure, try and save money for an emergency fund. Speed is of the essence here since the interest clock is ticking.

Assemble all of your debts and create a spreadsheet listing them in order of size. Start with the smallest debt first and work your way toward the biggest (most likely your mortgage). This is not the time, nor the place to worry about interest rates as the idea is to start paying down your smallest debt as soon as possible, then move on to the next, and so on.

The snowball starts rolling…

Begin by paying the minimum on all of your debts except for the first one. Pay as much towards that each month as you can. The moment your first debt is paid off – which shouldn’t take too long if you are dedicated – apply that same payment amount to the next debt on your list. Once you’ve paid that off, apply that whole sum to the next one. So, $25 becomes $75, which becomes $125 and so forth.

In a short period of time, your snowball will gather pace and you will feel a massive sense of achievement. This will drive you to keep going.

Seeing results is psychologically important. It helps us to stay focused and result-driven.

…can you feel the rush of wind in your hair?

As you pay off more and more small debts your snowball will gather massive momentum. You will feel elated and actually start believing that is is possible to be debt free.

But it gets even better than that. If the exhilaration of the wind in your hair isn’t enough, how about the fact that you will start to compound your remaining payments as you pay off more of your debts. Money is funny that way!

Every single dollar you pay off your existing debt will help to compound the remaining amount. The more you pay off, the quicker your debt will shrink until there is…

… nothing left to pay, finding yourself debt free.

As long as you keep adding the amount you paid to the prior debt to the next debt, you will see results with the snowball method very quickly. It will be the start of the rest of your life and hopefully re-educate you on money management forever.

This guest post is written by Timothy, a personal finance writer for Credit Card Finder, which specialises in providing credit card comparisons and information to help consumers get into a better financial situation. For more information on ways to reduce your debt, visit the Credit Card Finder website or subscribe to their RSS feed for additional practical articles.

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