I know you have been waiting on this one forever!!! It has taking me awhile to get back into the swing of things after our vacation to the land of the Sun (more on the vacation later). Before jumping to Debt Free Part 2 you can check out Part 1 to refresh your memory or start over!
Now back to business..It is mid 2011, and I’m telling the husband that we should try to focused on paying off my student loans and he is telling me that I should open a Roth IRA…. it did not make sense to me to be saving for retirement while I was paying so much in interest on the student loans. It just did not!
But, I could not convince him that paying off the loans was REALLY the best thing we could do for our retirement. He was just not grasping the idea. Keep in mind that I can run numbers – especially when it comes to our personal finances – in my head fairly quickly, the husband, on the other hand, is like “São Tomé” [Saint Tome] – he only believes in what he can see! And on top of it, he loooooves to save money!
Until one day late in 2011 a friend of mine [sweet Andro] introduced me to David Ramsey. Yep, you probably have heard of him. He was coming to Houston for a one day Get Debt Free type of seminar. We bought our Groupon tickets and I decided it could not hurt me to go hear what David had to say!
Yep, that was the best money I ever spent. David showed in a very simply form how to get out of debt. He calls his method “The Seven Baby Steps”. There are:
1. Set up a $1,000 cash Emergency fund
2. Pay off all debt using the snow ball method
3. Put 3-6 months of expenses in savings
4. Invest 15% of household income into Roth IRA and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give
I will keep this post mainly to step 1 and 2! We will get to the other steps in later posts
David said “you money people” [like me hint, hint], put the numbers on a paper and present it to the “not so money people” [the husband hint hint] and shut up, let them come to you with questions. BINGO!!! Couldn’t the husband have said that to me before??? He probably did it, but being stubborn as I’m, I guess I had to hear it from someone else. LOL
That is all it took. I showed the husband (with numbers on a paper) that if we stopped ALL savings for ONLY one year and ONE year only we could be debt free. And since I was feeling very empowered by Mr. Ramsey I added 8K worth of the remaining of my car loan on top of the 17K from student loans. He agreed with the condition of not more than a year. The deal was sealed!
Step 1: We already had a emergency cash set aside, so we moved along to step 2.
Step 2: Stop ALL savings. For vacation, housing fund [we do have this savings with very little money going in for on going house fixes - you know old houses always have something breaking down]; 401K, Roth IRA, college savings.
We also revised all monthly budget – yep we have one – on excel that I have built over the years, nothing super fancy but it details every monthly household expenses so we know ECXATLY where our money goes EVERY month. (if anyone is interested I would be happy to share my template!)
This seems to be crazy, but it is very important to know WHERE you money goes and more so when you are trying to pay off debt. That way you know what you can spend on month after month.
Crazy as I’m, I revised the budget every two weeks – it took me on average 30-45 minutes – to make sure we were on track and how much money we had to spend on top of the regular household expenses and paying off the debt. It was nice to have that figure every two weeks, since we were in a very tight budget, it was nice to have a bit of money here and there to do a few extra things so we did not feel that was ‘only work and no play’.
In fact, my diligence over the budget paid off really well (side note: not taking all the credit for myself here, but I did this part, but I could not do all without the husband being on board and also without his paycheck LOL). We were able to do several family trips WITHOUT straining from the budget, NOT ONCE BABY! Yaaayyyyy for us
The car loan went first – the snow ball effect – pay off the small debt first (I know it seems a little crazy financially when you look at the interest rate), but once you pay off the small one first it gives you that boost to keep going. The money that was used to pay the car loan was then applied to the student loans payments. 11 months later – under one year, promise kept to the husband – WE WERE DONE, DONE, DONE, DONE. DEBT FREE!!!!
Still have the mortgage, but hey I consider ourselves debt free as it is! Cheers!
Now back to reset all of our monthly savings
How about you??? Are you on top of your finances??? On the road to be debt free as well?? Who is in charge of paying the bill in your house???
Happy debt free!