In just a few days, my beloved and I will celebrate our 9 year wedding anniversary. In 9 years we have been through a lot of adventures. We’ve lived in an apartment, an RV, and 4 different houses. We’ve bought and sold cars and campers. We’ve said goodbye to grandparents and beloved pets. We’ve created a big, (mostly) happy family. And I think we’ve learned every single way that exists to lose money in big ways…
It wasn’t until about 18 months ago that we finally made it to a place where we no longer felt like we were barely making it. We finally had some extra cash we could put toward something other than surviving. We had read books about financial freedom years before and agreed with everything we read in Dave Ramsey’s Total Money Makeover, but we just still felt stuck.
Then a couple things happened… one of those things was that I read a blog post by one of my dear friends, Camille Serra Bates. I have known Camille for a long, long time and have watched her go through some really hard things. It was her blog post about getting out of debt as a newly single mother that gave us the kick we needed to make some big changes.
Her advice was simple and sound and smart without being preachy. We’d wanted to be out of debt for a long time, but hadn’t made a whole lot of progress… until we read Cam’s words. Here’s what she said:
I despise debt. It makes me crazy. Crazy anxious and nervous. It feels overwhelming, and makes me fear the worst.
What if I lose my job…
What if I lose my house…
What if I can’t feed my kids…
What if I can’t take care of my kids…
What if I have to live in my car…
What if I have to live in my car, and then I lose my car….
What if it’s winter when all this happens…
What if I freeze to death in a back alley behind a Chinese restaurant?
Rational? Maybe not, but it could happen. IT really COULD.
After my divorce in May 2013, my debt was at an all-time high.
June 2013: -$27,706. Seriously stomach nausea, and insomnia. AND I was technically a homeless, single, mother of three. I was not okay. Here’s was my debt breakdown:
Credit cards and student loans: $18,168 – Most of which was credit cards.
Car loan: $4,038
Balance due to my divorce attorney: $3,600
Charges for necessary items: $1,900 (mattresses for me and my kids)
As of Today: September 20, 2014 my TOTAL debt is -$2,500 (aside from my mortgage.)
Yes, I have eliminated $25,206 of debt in 15 months.
When I posted this about a month ago on Facebook so many people asked me to write about how I did it. So here you go. I am not an expert, but these principles worked for me, and I hope thy can be helpful to someone else.
Everyone’s situation is unique. Income, outside circumstances, ability to change… these all vary. However, I think these principals could work for anyone.
1. Reduce living expenses. This is the number one most important change I made.
I will acknowledge this was easy for me because I was in a transitional period. I didn’t have to proactively make hard decisions to change because the change part was already in motion. I just had to make the right choice to alter my lifestyle.
I should mention that prior to the divorce I was paying 79.4% of all of my families living expenses and still paying extra against my debt. It wasn’t necessary for me to change my lifestyle. I could have elected to maintain the same standard of living– and take a long time repaying my debt.
Buy a house. Unless I wanted to continue the transient lifestyle, I needed a place for me and my kids to live. I did not want to rent. In my opinion, renting is just as bad as debt because you are paying someones return on investment and getting very little in return. When there isn’t an option except to rent, then rent CHEAP and save your hard earned money to buy a house. Off my soap box… I looked for a smaller, efficient home, to save on mortgage and also utilities.
Prior home: 2030 sqft
New home: 1850 sqft.
My new home is super energy efficient.
Prior home: average monthly gas and power bills: $270.00
New home: $90.00
Cash Flow: +$180.00
The mortgage obligation. I don’t want to publicize the actual numbers, but here’s the monthly cash flow: +$250.00
Eliminated services I no longer needed with a smaller house and yard.
Home Phone: +$40.00
Pest Control: +$40.00
Lawn and tree services: +$47.00
Cash Flow: $127.00
Add to this the my budgeted allocation for debt reduction: +$600.00
Cash flow: $1157/ month.
2. Meticulously track the debt. I downloaded a Debt Reduction Calculator from this website: http://www.vertex42.com/Calculators/debt-reduction-calculator.html
Credit goes to Vertex42.
I entered all my debt and interest rates. This made it so easy to focus on the debts with the highest interest rates. More importantly, the constant knowledge of EXACTLY how much debt I had– and the total cost of that debt in interest, made it really easy to make wise financial choices.
The spreadsheet lets you choose paying off the lowest balances first (instant gratification) or highest interest rate first. Now really? Most of us get into these situations based on instant gratification, so just toss that.
3. SAVINGS! Contributing to a savings account was critical. I like to consider a savings account “budgeting for incidentals,” With a savings account established, I never had to add to my debt for unexpected expenses.
I started out moving $200.00 a month into savings till I had about $1,500 reserved. That’s not much, but it was enough to keep me in the black.
4. Expected and unexpected “extra” income. Extra cash flow such as tax returns, escrow account adjustments, insurance losses, selling personal property… and of course then the divorce settlement check finally through.
It’s so easy to take what feels like “free money” and go PLAY. Vacation, shopping, new furniture, boob job, tummy tuck…. All the typical things a newly divorced woman wouldn’t mind spending money on. Instead apply huge payments against the debt.
This is one of the hardest disciplines for me. I feel like I have been so good about everything else, I deserve a reward. I worked hard for this extra money, I deserve a reward. This money wasn’t planned into my budget so it won’t effect my goals, I deserve a reward….
What I deserve is to get rid of the debt burden.
What I deserve is a financially sound future.
What I deserve is my money working for me.
What I deserve is peace of mind.
I think I would rather have these things than a new couch.
5. Don’t cut yourself off. I still wanted to have fun. I still wanted to eat out on occasion. I wanted to take my kids on vacation. I wanted to be able to go shopping. At first, these purchases where a little tight, but once I got debt reduction under way I started to build a little room into the budget for frivolity. Everyone should be a little frivolous, so long as they are not going into debt to do so.
Here’s some personal perspective from my past behaviors:
As long as I was paying cash for the frivolous then it was okay. I was completely blind to the fact that I was running out of money at the end of the month and having to charge gas for my car.
I’m not saying it was easy, but once my goal to be debt free became more important to me than having the latest and greatest the mental battle ended.
I’m so close I can almost touch it.
Good, right?! I couldn’t believe how much she had accomplished in so little time and in such a turbulent time in life. I kept thinking, “we can do this!”
Shortly after we read Cam’s words, we re-read some of Dave Ramsey’s words and a few of them stuck out to us… those words were, “ask any 80-year-old if 5 years is a big sacrifice to change your financial future…” We took that as a challenge and decided we were done living in debt with nothing to show for any of the work we did. We decided to spend the next 5 years turning our finances around.
We are 18 months into our 5-year plan. In the last 10 months alone we’ve paid off over $30,000 in debt, and this month we will pay off a little piece of land we bought that we intend to build on (also with cash). Things changed for us in big ways the second we decided to start telling every single dollar what to do each month.
I won’t say it’s been easy. One of the first things we did was decide to move out of a big, pretty house we were renting and into a small old one, so we could save money. We are comfortable enough here, but it has been a sacrifice to make this change. We are also choosing to say no to a lot of things… no to new clothes, no to vacations, no to extras at the grocery store, no to eating out, no to going out for date night, no to extravagant gifts, no to extra spending money. Saying no isn’t always easy, but we can do it joyfully because we know we want to be able to say yes for the rest of our lives.
I know that life isn’t all about money, but it’s part of our lives on this earth and learning to use it in healthy ways feels so so so good. We still have a long way to go, but have found profound peace just having stepped onto a path that’s going somewhere we feel good about.
If you’re in the same place, I hope you’ll take my dear Camille’s words to heart. They are filled with wisdom and sound principles. If you need an exact, step-by-step plan to follow, give Dave Ramsey’s program a try. We have learned a lot about every aspect of finances from him.
As always I wish you nothing but good, good things. With my whole heart I hope you’ll find peace in every part of your life… even peace in your finances.
PS Camille is one of our teachers in Brave Girl University. She is an incredible teacher and has 2 classes – one about making an acrylic album that is absolutely fascinating and a beginner’s class about making leather cuffs… she is super talented with leather. You can click here to see her classes!