Besides my wedding day and the birth of my babies, one of the days that has absolutely changed my life is the day we decided to become debt free. It was truly a life changing decision. We sold the house we had built in a more expensive town, and moved into a smaller, more affordable home close to a small community lake. We paid both of our cars off and decided never to get a car loan again. And, we operate solely on the income we bring in. (Meaning no credit cards.) Is it easy? Not really. But it’s so exciting not owing money to anyone!! If we can do it, so can you. I’ve outlined a few key points to get you started on your debt free journey.
My friend Jenny introduced me to Dave Ramsey. She let me borrow her Total Money Makeover CD’s to listen to in the car on my long drives to the office. This alone was enough to make an impact and set me in the right direction. Dave is all about paying off debt, and living only with the income you bring in. He is so encouraging and feels like he’s with you the entire way.
We also listen to his free podcast DAILY. This 100% helps to keep you on track. Paying off debt is not easy or fun. It’s so hard to stay focused especially when you see friends and family taking vacations, buying new cars, and living it up. The podcast will keep you excited about YOUR journey.
Seven Baby Steps
Dave recommends the following 7 baby steps to getting out of debt. You can read details about all 7 steps in his total money makeover book, but I’m going to touch on the first 2 here.
The first step is to save a $1000 emergency fund as quick as you can. Now, some people feel they need a little more and that’s okay! Whatever you choose to have as your emergency stash, save it quick. Pick up extra shifts, roll your pennies, have a yard sale; whatever you have to do to get here. If at any point in your journey you need to use the emergency fund, then you go back to step one and start over. This will happen. Don’t get discouraged. It’s life and things always come up.
Step number two is a little harder than number one. Well, let’s be honest, it’s the hardest step in this entire process!! Pay off your debt using the snowball method. Now, before you can really get into paying off your debt, you need to get a budget together. If you’re married, you both should be on the same page. Otherwise, this will never work. Sit down with your spouse and list all of your monthly expense. Every single little thing, including that $5 subscription you love. Next, see where you can make cuts. If it’s not a necessity get rid of it. It’s only temporary. Once you get through this step, you will be able to enjoy those little luxuries again. Set a strict budget for how much you will allow yourself to spend on groceries, kids activities, haircuts, etc. If you know you can’t go without eating out, then make a little budget for this too. It’s ok to allow small extra things, as long as you stick to your budgeted amount for that week.
After you do this, figure out how you will maintain your budget. I like to use cash for weekly expenses like eating out, clothing, gifts, groceries, etc. I love using this cash system wallet, because it helps separate each section of spending.
If you like spreadsheets, make one to track all of your money going out and coming in. Some people really enjoy this!! I do not, so I recommend downloading the every dollar app. It’s free and will track EVERYTHING! Again, if you’re married, have a shared login so you can both track in the same app. It helps to hold each other accountable. I’ll be honest, it’s not fun when my husband says “did you really need that fancy coffee?”…Um yes I did!! Haha! It sucks, but we truly help each other stick to this plan. We have big financial goals and we want to get there together! It will make your marriage even stronger than it was.
After you have finished organizing your budget, list out your debt from smallest to largest. (IRS expenses should be first because you don’t want to mess with government crap.) Don’t look at interest rates. I know some people disagree with this, but those people are probably still in debt. This is a lifestyle change. You need to list smallest to largest debts so that you can have small wins. Grab the first debt…for us it was a $600 credit card. Pay all of your monthly expenses, and throw anything else at the debt. Then move onto the next one, and the next one. Continue until you are done. The first couple of small wins are soooooo exciting! The larger debts like your car and house are not as fun because they take longer, but once you start seeing numbers drop, it’s the best feeling in the world. As you get going you will find money. You really will. Cash gifts, selling items, extra shifts, even picking up a second job will get you where you need to be quicker.
If you’re interested in making a huge financial change and living a more peaceful carefree life, then take these next two weeks to get your crap in order! Pray about it. Have the difficult conversations with your spouse. Discuss with your kids so they know why they can’t buy a toy every time you’re at the store. Tell your friends and family about it so you gain extra support. (Or in some cases, you may get criticized and that will make you fight even harder!!!) I’ll be back in two weeks for more tips on becoming debt free. :)