GETTING CLOSER...

My last debt-reduction update was back in April of 2016, and at that time we were making really good progress (we had paid off Jay's credit card and the Jetta, which felt like a HUGE accomplishment considering how long we've carried around debt). We started this process back in January of 2015 (2 years ago), with a loose goal of being debt-free within 3 years. That's a VERY daunting goal when you are (at the time) living paycheck-to-paycheck and have a ballpark of $40K (not including mortgage, obviously) to pay off... In the past year though, we've paid off my student loans and the Odyssey, and are just working through the rest of my credit card at this point. My end of December 2017 goal could be upstaged by a summer celebration of becoming debt-free, but we shall see... And I caveat that because we haven't been perfect (we could certainly have spent less on "things" and restaurants this past year) and things do come up unexpectedly (like roof replacements and repairs, big car repairs/maintenance, dentist bills, etc. - you know how it goes). I can't tell you how good it feels to see the end so near thought and to finally KNOW that we can and will get there!

So how did we do it? 

(Well, we're not done yet, but in case you're looking to get started NOW, I'll give you my tips, which are summarized/combined from Dave Ramsey, You Need a Budget, and the Financial Wellness class that we took at work about a year and a half ago.) 

1.    Get yourself budgeting software (and if you can, take a financial planning class - it was eye opening). Whether it's a program or a series of Excel spreadsheets that you manage on your own, just get EVERYTHING written down. (Google Docs even provides templates, if you'd rather go that route!) Know exactly what you owe, to who, and how much interest they're charging you. Then write down EVERYTHING you've spent in the past 3 months. Yes, it sucks to see where you money goes (especially if your significant other has been looking the other way up until this point), but looking at the reality really helps curb the tendency to "just go out for lunch" or take advantage of that "30% off sale" every time an email comes through. (On that note, unsubscribe to ALL the newsletters of places you shop unless you NEED them - if you don't see the sales, you won't be nearly as tempted to make unplanned purchases.) Figure out what your "Fixed" expenses are, then budget your remaining dollars for things you need (food, gasoline, clothes, kid activities, travel - give every dollar a job and do your best to stick to your plan!)


2.    Once you have all those numbers lined up, you need to prioritize. List your debts in order with the highest interest rates at the top. Pay those off first. Just pick that #1 debt and start sending them the extra that you're no longer spending on "stuff" or your Fixed expenses each month. Eventually, that debt will be cleared and you can move down to the next one. The bonus? For each debt you pay off, you get to add the funds that you WERE spending on them to the next debt in line, which can sometimes double or triple your usual monthly payments. (This is called the Snowball Method.) Guess what happens when you start paying double or triple each month? That's right, the subsequent debts (with smaller and smaller APRs) disappear faster and faster.


3.    While you're doing this, you need to set aside $1-2K for your "Baby Emergency Fund" (AKA, the BEF). This will cover you if something unexpected comes up, so that you don't use your credit card for "emergencies". For us, even setting aside $1K those first few months was difficult... the kids were still in private school and we were stretched thin each month, so we made some sacrifices, and it was worth it. Why? Because we've needed it. Multiple times! And after each little "emergency", we dutifully replace those funds as soon as we can, while still following the Snowball Method, so that we're ready when the next ball drops.


4.    Once we're debt-free, we'll work on our real Emergency Fund. This is the account where Dave Ramsey recommends saving 3-6 months worth of expenses. Yes, that's a LOT of money. (Well, to us it is, anyway.) It will take us a while to get there, but it will certainly be easier once we're not handing out huge sums of money to credit card companies each month... This account is designed to keep you afloat if one of you loses your job, a natural disaster occurs, or some other unforeseen emergency hits your family


5.    Next on Dave Ramsey's list is to set up your Roth IRA and college savings funds for your kid(s). Luckily for us, our federal jobs have multiple retirement accounts to which we contribute (and receive matching funds for) with each paycheck, so while we're not investing heavily (nor saving into personal accounts, yet), we do have some funds set aside for retirement. And we have more than 20 years still to continue contributing to those savings (which snowball themselves, which is very good news). Luckily for the kids, we set up their college savings accounts and certificates when they were each baptized as infants and have been contributing monthly to them (with set transfers, so we can't forget and it's just automatically budgeted into our biweekly paycheck cycles), as well as depositing the majority of their birthday and holiday monies into them. They are aware of these funds and know what they'll be for someday, and they are proud of their savings. (Hopefully we're sowing the seeds young for them so that they don't end up in debt in their 20s and 30s like us!)


6.    Something that goes along with all this financial planning is setting up your Living Will, Last Will and Testament, and Trust. (That was another "emergency" that drained our BEF, since we hadn't expected it to cost so much.) When you're planning for your financial future, you might as well plan for your whole future...


7.    And my last tip? Take debt reduction seriously, but not too seriously. The Financial Wellness class we attended was so very strict ("What would you rather do, spend $40 on a night at the movies or pay for your kids to go to college?!") that it really stressed me out... No movies or restaurants or new running clothes for 3 years?! Not reality. We cut WAY back, but we didn't cut anything out completely. We went to Disney the first summer and to California the second summer, and didn't add to our debt with either trip - not even a penny - because we saved smartly for them (for the first time ever). We found ways to reduce our Fixed expenses (cheaper cable, cheaper utilities due to the new roof, being more careful with water usage, refinanced mortgage, etc.). We never buy anything without doing our research (best price, best quality to last a long time, best coupon code available!) We're not perfect, but we're continually trying to improve our spending habits, and I'm already proud of how far we've come!

So on that note, if you have any specific tips for us as we finish our journey to financial wellness, please let us know!