At first I was hesitant about posting this part of our lives for the public to see (& possibly judge us), but as I have been inspired by others, I hope to shed some light to at least one person. The debt free community on instagram has been an amazing motivator. It is filled with hundreds of brave people putting their struggles out there and has been amazing to watch how similar we all are. Similar, but not the same. So be careful and not to compare yourself to other peoples journey. Remember, we don't all have the same financial situations, always go with the plan that works best for you and yours! Plus! Putting it out there for the universe to see keeps us accountable (right, right?) This is also a way for me to keep track and have something to look back on and see how far we've gone. Also I had several people respond to my instagram message asking about what and how were tackling this debt free journey of ours. These are gonna be a series of blogs, so stay tuned, feel free to follow along! :)
_____________________________________
Since my motivation for all this was partly because of Dave Ramsey's book "Total Money Makeover" that I finally got to reading last summer, I decided I'd followed his methods, (while also making it our own): the Baby Steps. What are they?
Baby Step 1: Emergency Fund. I personally had $1500 in cash saved up already, and John had $1500 in his personal savings and we used that as our emergency fund, this is completely separate from our money market savings account. So if you have more than $1000 saved up to use for an emergency fund, you can skip straight to step 2! The first thing I did was draw out a possible budget plan that wasn't complicating to follow, as all other plans Ive tried in the past failed, and thats the last thing I wanted.
Just a heads up Step 2 will not work if you don't have a written budget plan. I know the word budget gets mistaken a lot. I used to think that having a budget was a restriction, when in fact its the total opposite. You see, you cant begin to addres your debt until you know how to make your money work for you. Having a budget plan just means YOU assign where your money goes, and not wonder where it went. After the budget plan was in place, I tackled the cash envelope system. This was new to me, as I was never fond of carrying cash around, but it was made a huge difference! Im sure one day, I'll figure out another method where I don't have to carry so much cash.
The key is having a written plan, along with some sacrifices. The right ones. What sacrifices are you willing to make to have financial freedom? Once you have a plan, plaster that shit all over your house as a reminder of that debt you owe. I have mine on my planner, hanging on a clipboard in my office, on my phone. We figured out what we can eliminate to have more money to work with. We switched cellphone providers, which also allowed us to cancel cable. We had cable because it was the only way (at that time) to get an unlimited plan on our cellphone service. So just by doing this, we saved over $100/mo. It wasn't after the first month that I was able to get a feel for which categories we needed to heavily cut back on. Eating out was at the top of that list. Impulse buying, ya know "instant gratification." Then groceries. I started to make weekly meal menus to make grocery shopping easier and not buying things we didn't need, and to prevent us from saying "i dont know what to cook/eat!" I've also sold so many things that were no longer useful to us, from baby items, household goods, furnitures, etc...on offer up and other selling social media apps, and have added that to our emergency funds. So by now, we have an EF of around $4k. I also like to shop around for second hand things, especially kids stuff. I found the kids bikes for Christmas for $10. Tristan's was a $10 12 inch Lightning McQueen bike (one of his favorite disney characters) in very good condition and I just cleaned it up. Amelia's 6volt battery powered trike was FREE. Thats right, free. Someone was giving it away. It was nice and clean and looked like it was barely used when I picked it up, and it was only used in the house. It was perfect. Where Im trying to get at this is, were trying to get the kids used to the idea that sometimes buying used is okay. Plus, at this age, they have no idea it was used. It was new to them, so they were excited nonetheless.
There is one thing we did not eliminate from our lifestyle and that is vacations/travel, and anything experience related. For example, the Disney World trip we gifted Tristan for his 3rd birthday. We funded that without using credit cards. Our total budget for that trip was $2500, we went under and went home with $300 in cash left over. We had a $1100 cash only budget for the 5 days we were there. The kids were only allowed to get up to 2 things each day, excluding food. Why? Because we were there to enjoy the parks, not to shop, as tempting as it was. I may do a separate blog post on how I did this. I also cant emphasize enough how much the cash envelope system has played a huge part on keeping us on track! Having a card to swipe can get tempting and easy, however, spending cash is harder to do because you physically see how much money you have left, and when you're down to that last $20 bill, you start to think about how you want to spend that last $20!
Baby Step 2: Pay off Debt!! Our starting debt is: $51, 795. We started this journey back in September of 2018 and is currently still on this step. We set a goal to pay it off by September 2021 (originally 2022, but we're gonna gazelle intensify this! lol). I used DR's debt snowball method at first. Click here for a better explanation. Basically you list ALL of your consumer debt (everything except your mortgage) from least to highest. Your goal is to pay off the least amount first, then roll over the amount you owed from there to the next debt once its paid off, then so on like a snowball, while also making minimum payments on all other debts.) Within the first month we paid off two credit cards and I was finally committed to paying my student loans (I was on an Income Driven Repayment plan that had $0.00 monthly and there were months were I couldn't.. ok, wouldn't pay it - silly me!)
- Milstar Card
- Best Buy
- Student Loan 1 (smaller amount)
- John's CC
- My CC
- Kia Sorento
- Student Loan 2 (larger amount)
You'll also hear of the Avalanche method, which can be found here, basically a stacking method which allows you to repay your debts in the shortest amount of time in which you pay less interest. So you pay off your highest interest debt first. I'll blog about this on another post as this is what we ended up using after the second month because John felt this method worked for our situation better.
Avalanche Method (this is how the list would look - listing from highest interest to lowest)
Avalanche Method (this is how the list would look - listing from highest interest to lowest)
- Best Buy Card
- John's CC
- My CC
- Milstar Card
- Kia Sorento
- Student loan 1
- Student loan 2
Since starting, we have paid off about 35% of our debt, but I'll tell you how on another blog post! The first month we started this was hard. I felt like Murphy knew our plan and said "im coming for ya!" Things that could go wrong, did. My $350 speeding ticket came in (it was reckless driving 83mph, whoops! definitely driving only up to 79mph, haha jk! sort of ;p) AND an $800 vet visit because Pax wasn't his usual self for a few days. I almost wanted to use my credit card to pay for the vet visit, but thats what the emergency funds are for right? You have it, use it. I cant emphasize enough the importance of having an emergency fund! It keeps you from using money you don't have! We had to later replace the $800 back in the emergency fund before continuing to make extra payments on debt. As for my ticket, I had to rework our budget that month to be able to pay it. It also didn't help that the holidays were around the corner. So to prevent myself from over spending, I avoided going out, especially to any retail stores with the exception of grocery trips to the market, this also saved us on gas.
Aside from having a plan, communication is important! John and I sit down atleast once a week, if not once every two weeks to discuss how were doing with the budget or where were at, or randomly while were sitting on the couch, in the car, at dinner. Luckily for me, he's a numbers kind of guy. I implement the plans, he does all the math and analytical stuff, and I guess thats what makes us a good team. Ha! I love that anytime he spends or wants to buy something he checks with me first to be sure it's ok. He could easily just go buy whatever he wants because after all, he is the breadwinner, but I love that he respects our journey and asks for my opinion.
Baby Step 3: 3-6 Month EF - Well we aren't quiet there yet, but we do have about 4.5 months funded. We obviously want to get to 6 months, so we're slowly getting there! Once we do, we're gonna start saving for funding other things! Btw, this is separate from the starter EF fund that we talked about in the beginning. I'll talk about how this was funded in another blog post.
Baby Step 4: Invest!!! John put about 10% of his earnings into his TSP (its the military's version of a 401k). He has also recently gotten into investing and stocks. I know how started an account with Robinhood, and other mumbo jumbos I dont quite understand! Thats his jam though, I know nothing of it. He also wants to start getting into rental properties (which this has been in his life plan since we first got married, and has been waiting for a good opportunity for it) We've also started looking into high yield savings account as well as certificates, since our Money Market APY isn't that high.
Baby Step 6: Pay Off House!!! - Ironically, we are selling our first home because we are relocating. Why not make it into a rental property? It'll be the last resort, as of now, we are set on selling it and hopefully using whatever we get to pay off the last of our debt. Once our debts are paid off, we'll be starting our "mortgage savings fund" for our forever home. We hope to pay the smallest monthly payment or none at all.
Baby Step 7: Give! - This we try to do when we have a lot of extras. Whether it is monetary, time, or extra stuff we have. But we hope to be able to help fund some charities in the future!
___________________________
Free Resources:
Dave Ramsey's website, click here. This is a given. I went on his website a lot to get ideas on how to budget.
Vertex's Debt Payoff Calculator, click here, is a good tool to start with to help you figure out your numbers.
NerdWallet's Debt Payoff Calculator is also a good tool! Click here. Its not an excel spreadsheet, and is completely automated in real-time. Its crazy to watch how much interest would accumulate if we continued to just pay the minimum. This is why John decided on the avalanche method vs the snowball. It saves us so much more in the long run because we pay off the highest interest rate loans!
I discovered the Everydollar app (click here) two weeks after we started from someone on Instagram, to later find out it was implemented to work with Dave Ramsey's zero-based budget plan method, which is the method I started with! "Give every dollar a job" you budget down to every dollar. Basically making your money work for you. It is following the zero-based budget, meaning your income minus your expenses should equal zero. What I love about the app is it does most of the math for you! I was originally going to do an excel spreadsheet, but lets be real, Im not that great with excel. It'll let you know if you've budget your income down to the last dollar. It'll also let you know if you're over or under. This has seriously made this whole budget planning so much easier! John has linked himself to my account so that he can keep up to date on our cash/money flow. We have the free version, and honestly it has been an amazing tool!
There is also another app that I have started using as well, called youneedabudget, (click here) which a lot of the debtfree instagramers I follow use. I'm still trying to figure out how to use it and once I do, I'll share with you guys! People like this because they've eliminated carrying cash with them, but quite frankly, I like the cash system, for now.
See there isn't one right way to doing this. You do your research and see what works/ will work for you. I basically went crazy with my research and then picked and choose which ones I liked, and implemented it to our plan.
I'm still a work in progress but it definitely feels good to finally figure out a budget that worked for us, its as easy as breathing now. I remember how confused I was the first month not being quite sure if we were going to make it work, but here we are on our 4 month, going into the 5th soon. There is still so much to learn!! So if you're feeling overwhelmed right now, its normal, I was there. But I promise you, if you're consistent and willing, it will work.
Please note that not everyones journey is the same. Find out what will work best for you and your family. Be consistent. Im writing about my journey to hopefully shed some light and motivate you. Im no financial advisor, FAR FROM IT. But take our journey, and make it your own. I have added several people on instagram in the debt free journey/debt free community and it has been such an inspiration and motivation for us because we know with hard work, consistency and drive.. financial freedom is possible. I wish you the very best on this journey of yours, and thank you for following along on ours! Stay tuned for more!
A list of the instagram handles I follow:
@debtfree.familytree
@debtkickinmom
@smartsncents
@thefinancialtwins
and of course:
@daveramsey
These were the first couple of people I followed when I started, Ive since grown that list and can't remember from the top of my head all the new ones I started following!
