- I am not an overnight success.
- I am not a get rich quick guru.
The debt free path was a marathon.
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If I am successful using the envelope system then I should be able to complete baby step 3 sometime between April 1st and May 31st 2015. I'm pretty sure I will be my worst enemy when it comes to saving. I have never been a big saver. I excel at long term saving. In fact I could easily save $6,000 into retirement in four months. It's the cash in front of me that will taunt me.
November 26th 2014 I became able to use the statement "DEBT FREE". Not many people get to this place in their lives. Debt free is significant enough that I am compelled to write about the experience that began early in 2012.
The debt free path was a marathon.
In the previous twenty-three and a half long months my car loan had moved from $15,756.33 to $8,000. I had been paying $331 per month. Over that time my expenses went down slightly when I moved in with my girlfriend. March 2014, I refinanced the auto loan into a three year note at US Bank. My monthly payment increased to $349 per month at a 2.25% APR. On March 25th 2014 we took a focused look at our debt.
Between the two of us we had debt totaling $25,520.35 and were deeply in love with each other. Love wasn't going to forgive our loans. We had work to do but we had no plan. I mentioned that we were in love. Because we moved in together I was able to save up $4,000+ in cash to buy an engagement ring. On April 1st 2014 she said YES! It was a proud moment when I put a paid-for diamond ring on her finger. At this point, we had a plan.
January 12th 2012 I thought it was a good idea to buy a 2010 Toyota Corolla that I couldn't afford. The decision went as follows.
I deserve a newer vehicle and my girlfriend (current wife) will appreciate the comfort of the new car. My car debt started as a $18,456.33 loan. The APR was 2.9%. Total interest over the next five years would total $1,416.87. Within a few days I decided to cancel the extended service warranty. When I canceled the service warranty I was sent a check for the $2,700 upscale I had foolishly bought. I applied the $2,700 to my loan and was pleased to see it was now $15,756.33. Seems to be a lot more manageable, right? Wrong. All my money was going to the car payment and rent. I was getting by, but not making much progress. I was far from being debt free. I still hadn't even made my first car payment.
There are two big names in personal finance that you may have heard of. The first is Suze Orman. The second is Dave Ramsey. I find Suze Orman's weekend broadcast very entertaining. Her advice is pretty solid but I didn't see her providing a plan for me to follow. I continue to follow her broadcast and agree with her commentary for the most part. Dave Ramsey who is repeatedly a New York Times best selling author outlines the Baby Steps and the debt snowball. Dave Ramsey outlines a detailed plan that everyone can apply to their lives. I latched onto the baby steps almost immediately upon finding them. When asked "how do you eat an elephant" you reply "one bite at a time". The baby steps are easy. Just take them one step at a time.
Baby step 1
Now that a plan was in place we could begin to execute the plan. Dave says baby step 1 is $1,000 to start an Emergency Fund. It's pretty self explanatory. However I will provide an image excerpt to drive this point home. I kept the image below on the refrigerator as a daily reminder of the goal.
Don't under estimate the power you will feel when you have saved $1,000. It's no small feat. Dave says to set your goal at only $500 if you annual income is below $24k per year. Since I was earning about $32k per year I socked away $1,000 and it felt good. For the first few months it was tempting to spend. With a little decline I am proud to say that I never touched my starter emergency fund.
Baby step 2
You can do it. Baby step 2 is no joke. In baby step 2 Dave says to "Pay off all debt using the Debt Snowball". My wife and I had loans with different amounts. Her student loans were large than my car payment. We should have paid off my car and then attacked her student loan payment. We chose to pay our own debts. One reason we did that was because her student loans were scheduled to get a $5k government forgiveness. While we did make a decision to execute Dave's debt snowball slightly differently I will point out that we are still focusing all our energy on paying off debt. When you reach baby step 2 do nothing but pay off debt. Don't skip a step. We didn't skip a step and we completed baby step 2 on November 26th 2014!
Baby step 2 is extremely difficult. It tested my sanity at times. Any extra money must be thrown at the debt. I suggest you create a motivational graph of debt like I did. I needed something that would help me see my progress. Physically filling in the graph with a highlighter was pretty rewarding. Be creative. Some people have criticized Dave Ramsey's radio broadcast as being repetitive. Dave is repetitive but so were my debt payments. Dave's consistent message broadcast thru the Dave Ramsey Show podcast helped me stay focused as I worked away on baby step 2. You can do it, work hard, stay consistent!
Baby step 3
Today I am working on baby step 3. Dave says baby step 3 is "3 to 6 months of expenses in savings". My savings goal is $3,000 saved away in an emergency fund. The temptation to start investing in retirement again is very strong. Today I just got my first debt free paycheck. The amount of money has not changed. The money that is in the check looks different. It looks like it's all mine. One difficulty I am seeing today is that my desire to spend has gone thru the roof. To keep me from going on a shopping spree I bought an envelope system from Dave. You can look into getting one yourself by viewing the envelope system here.
Update: June 8th 2015
As I said at the top. I hope to reach baby step 3 between April and May. In fact it was right before April 29th that the emergency fund reached the goal of $3,000. Just in time for a car accident.
The great news is that we didn't need to use the emergency fund. The bad news is that it was not liquid due to a transfer and waiting on the checks to arrive for the money market account.
I enjoy money and bacon.
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