We're Debt Free!
Katie and I have finally done it. We had a massive push this last month to get ourselves out of debt completely, and we did it!
21 months ago at the end of January of 2012 I told Katie that she shouldn’t spend any more money because we were low on funds again. It was always a miserable feeling when I had to do that. I’d beat myself up thinking: why couldn’t I just provide enough money for our family?
How did we get here?
We’d moved to California the previous summer for a great new job and we were making more than double the income. Despite the jump in income we were still struggling to have money left at the end of the month. Of course the cost of living is higher in California, but outside of rent it’s not too bad.
We made a great income. We had never been extravagant spenders. We ate almost all our meals at home—cooked from scratch by Katie. We owned our car outright. We didn’t use credit cards. We even tried on so many occasions to make a budget. These factors already put us in a more optimistic situation than most, but still we had our fair share of money troubles.
We had made a series of unfortunate (but common) decisions with our money, here’s a few of them:
- We accumulated a bunch of student loans
- We took out a mortgage for 96.5% of the cost of our home in Colorado all the while relying on student loans to finish school
- We borrowed money from my parents to help us fix up that house in Colorado which was in worse shape than we thought
- We moved out of our house in Colorado too early and had to pay back our first-time homebuyers tax credit
- We financed a furnace for that (as you may have guessed by now) dreaded home in Colorado
- We tried turning our home in Colorado into an "income property" by renting it out
Katie and I sat down to figure out what we could do to remedy the situation, we came up with an experiment we wanted to try. For one month we’d only spend money on the necessities—no eating out, no treats, no new clothes. It was a tough month, but the learnings were remarkable. It turns out we didn’t need to spend all the money we made, and that we could make some serious headway if we put our minds to it. We were able to squeak out $4,000 of leftover cash by the end of the month.
What a breakthrough. We finally saw some of our financial potential, if we could do that once, we could do it again. How would our life be different if we didn’t feel stretched and stressed with our money at the end of every month? Would we be kinder to each other? Would we be more generous with others? Would we dream bigger? Would we do more? Would we be able to pay for our children’s education?
We realized our potential was thrilling.
What we did about it
Years before someone I knew had mentioned Dave Ramsey to me. So when I saw his podcast in the featured list one morning I started listening to it. It turned out this guy had a ton of useful advice and a simple plan to achieve freedom from debt. After listening to his podcast I purchased his book The Total Money Makeover and devoured it. So we made a plan, it wasn’t extravagant, it wasn’t complex, and it wasn’t easy.
The plan could be summed up by saying we chose to spend our money with intention, but I’ll give you more detail than that.
- We stopped spending money on stuff we didn’t need
- We took every dollar we could scrimp and threw it at our debts
- We focused on paying down one loan at a time
- We chose to focus on the smallest loan first
- Once one loan was paid down, we’d take the money we were using to pay it off, and put it toward the next smallest loan
- We scrimped about $3,000 per month by creating a plan each month that specified where every single dollar would go
- If we didn’t plan a purchase, we didn’t make a purchase
- We told lots of people what we were doing, to keep us honest, to find support, and in hopes some might join us in the journey
- We took it one day at a time and tried our best to be consistent
We were nowhere near perfect in executing the plan, but we generally made massive strides each month. We also had that darn house in Colorado which accounted for about $121,000 of our debt, and we didn’t think it made much sense to hold onto that much debt in exchange for a couple hundred dollars in supposed "profit" after our mortgage expenses when renting it out. It was a long hard process, that cost of thousands of dollars, but we eventually sold our house, and it felt incredible to be done with it!
What we’re doing now
Now we’re focused on saving a 6-month emergency fund for tough times—that way we’ll never have to turn to debt for help again. Next up we’ll start on retirement, our daughters’ educations, and a down payment. Hopefully round two goes better.
We still make a plan for every dollar every month. This helps us spend our money with intention. Planning helps us have meaningful conversations about money. We no longer have surprises in our finances. Now when we dream big, we know we can nail it!
What I wish we had along the way
Along the way we’ve learned a lot about personal finance. We’ve learned that it’s hard, and that the tools for managing money and making plans kinda suck. We’ve learned that despite the difficulty of personal finance and it’s tools, it’s still possible to win. We’re doing it.
I’m hoping to take these lessons and share them. I want to help others drop the debt they have, spend their money with more intention, and have dreams and achieve them. I want others to have the kind of help I had along the way, and so much more.
If you’re interested in joining me, you should sign up for my infrequent, thoughtful newsletter below. I’ll share on personal finance, and my journey to create better tools for managing and planning money.