On December 27th, 2013 my wife and I became debt free.
We paid off our last remaining debt, my student loan, and set ourselves up to completely change our lives.
This was an endeavor we had been working on since before we were married and one of the hardest things we’ve ever done. In total we paid off over $65,000 worth of debt. Credit cards, student loans, and car loans. All gone.
After 10 months of hardcore discipline, budgeting, and going without we paid it ALL off. Our income is now ours….100%….to do with as we choose. Save, invest, spend, give…whatever we want.
I have to admit, it is a wonderful feeling.
Before we decided to live our lives this way debt was just a part of life. Which is how most people view it.
Car loans. Normal.
Credit Card debt. Normal.
Student Loans. Normal.
When I look back now I realize that I lived my 20’s the same way most 20 something’s do. Normally.
Even before this change I considered myself financially literate. I watched shows like Jim Cramer and Suze Orman. I subscribed to Money magazine and read as many personal finance articles as I could find online. I knew how to save better, increase my FICO score, where to invest my money, and did my research so I knew which accounts offered the best interest rates.
Even before the financial meltdown I did this. I was making good money, had built up credit card debt since college (always telling myself I’ll make enough later to pay it off), had a good FICO score, and I thought that debt was a way of life.
This didn’t change much when I decided to leave my job at the time, Account Coordinator at a property management company, to promote my sales career. I was in inside sales and thought that outside sales/business development was the obvious next step.
When I took the next position it was with the full understanding that I was taking a substantial salary cut with the possibility of making a lot more money in commission. Unfortunately that didn’t work out as planned so when my wife and I were dating, for the first 8 months or so, I was completely BROKE.
There was no doubt I was working hard but the money just wasn’t coming like I expected. I was barely making my rent, utilities, etc and had no money for anything else. There’s no doubt in my mind that my wife didn’t marry me for money :).
I ended up moving to another company after about 10 months and started making a livable wage again. Still no change to my way of life though. I was easily able to make all my commitments for the month but spent everything else on…whatever.
The change didn’t come until we got married. We both knew we wanted children (4 to be exact) and it dawned on me that we were barely able to afford our own lives. How would we afford adding 4 mouths to feed?
Below are the steps WE took to become debt free. These are strongly based on Dave Ramsey’s Baby Steps which we have decided to devote our financial lives too. They’ve worked extremely well for us, and I believe anyone can do the same.
Build Up An Emergency Fund
Dave Ramsey recommends as your first step to build an emergency fund of $1,000. We thought this was a little low for us because of all the changes that were going on in our lives at the time.We moved to San Diego, I started a new job with a new company, my wife started a new position with her current company, and we had decided to start a family (mission accomplished).
So because of that we wanted a little extra buffer. We started out with a $3,000 emergency fun and when my wife became pregnant we decided to up that to $5,000.
The reason Dave recommends a $1,000 emergency fund is so that you can get it done quickly. It’s a win. It builds confidence and helps you get to the next step of paying down the debt.
It took us about 2 months to build up the $1000, from there, with a LOT of miss steps along the way, another 4 months to build it up to $3,000. And then about another 2 months to get it to $5,000.
The emergency fund serves to cover any unexpected expenses that are going to come up. Things happen, the car gets a flat tire, the dishwasher breaks, your utility bill is higher than expected. These things are normal and an emergency fund gives your life a buffer from these things impacting your life.
Decide On And Follow A Budget
This was something we didn’t really get down until a few months into the process. Our first budget was a lot harder to agree on then we had originally planned.
In general my wife and I are a great counter balance to each other. I force us to save so that we can have the life we want later on, she forces us to allocate the resources we have now so that we actually have a life. The key point is that we both, as a team, agree on how much we are saving, what we are saving for, and how much to spend, and how much to spend on what.
The budget is the single most important part of getting out of debt in my opinion. And don’t believe the negative connotations about budgeting.
“Oh you can’t have fun on a budget.”
“You can’t buy anything on a budget”
“You can’t go out to eat on a budget”
“You can’t go to the movies on a budget”
“You cant go out drinking with friends on a budget”
That’s a load of crap. We did all those things, often. All because instead of wondering where our money went, we told it where to go.
We used what’s called a zero based budget. That means that every dollar is accounted for before the month starts. You allocate money for rent, utilities, groceries, dining out, special events, giving, clothes, oil changes, drinking with friends, etc.
All a budget does is give you a plan for spending your money, it doesn’t mean you don’t get to spend money.
We Lived Off Half Our Income
Once we had a solid budget in place we figured out that we could live off of half our income. It was a challenge there’s no way around it. We used one income to pay the bills and live our lives while the other paycheck was used to pay down debt.
This may not be an option for everyone, I understand that. But tighten the belt where you can and decide what you can allocate to paying down your debt and increase your savings.
All Commissions Went Towards Debt
Depending on the type of sales position you are in you might have a salary that you can solely live off of. If that is the case then put 100% of your commission towards your debt. This is a great way to pay things down.
This was the one of the easier things to do since we had already planned our month based on our salary, commission was just the extra money that came in.
Again, this is not for everyone. Some sales positions have very small salaries and so the livable wage comes from commissions. If that is the case then budget off what you can and apply the rest towards debt.
We Kept What We Had
Our main TV, a 42″ LG plasma that I got in college sits in our living room. And every once in a while you can see these little red dots that line the top and bottom of the screen. This thing is ready to die. But we have yet to replace it. It still works for what we bought it for, watching TV, even if it’s not the latest model and doesn’t have ULTRA HD. So until such time as this thing completely craps out on us, it will continue to be our main TV.
But what we are doing is saving for a new TV. We know this TV will die one day. We know it will need to be replaced, so we are planning ahead. This is the opposite of buying one on credit, and making monthly payments. But instead of 0% interest for 12 months, we are making interest on the money sitting in our savings account.
We Saved For Christmas
How many times have you said after Thanksgiving, “damn Christmas is only 3-4 weeks away”? I know I have multiple times. It’s not as if Christmas sneaks up on us. It’s the same day every single year.
This year was the first time we started saving for holiday spending and it was life changing. We started in September and each month put a little aside for gifts. So when the time came to buy them we were able to get all the gifts we wanted without the stress associated with paying for them.
In the past Christmas shopping for me was done on a credit card. So not only was I stressing about the room available on my credit card, I was having to pay interest on the gifts. No more.
We Talked About Being Debt Free A Lot
To everyone we’ve met. We talked about how we wanted to be and were working towards being debt free.
By doing this we were bringing people in the fold who would hold us accountable. The ones who were cheering for us to succeed.
Keep in mind there were plenty of naysayers who thought it couldn’t be done. “Your always going to be in debt” they’d say. You maybe, not me.
So there you have it. The basic concept of how we because debt free. We didn’t start until March of 2013 (when I got back from my sales training in Ohio) but we went full gear once we started.
What are your thoughts about being debt free?
Are you already? Do you want to be? Let me know your plans and if there is any way I can help you.
~ Johnny Bravo
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