4 TIPS WE FOLLOW
- Become Debt Free
It has been a few years since becoming debt free. We had yet to have children and wanted to get rid of the student loan I brought to the marriage. We combined our incomes and managed to pay off over $46,000 within a year. Originally, I thought my student loan would be with us for another 10 years, but Cody came home after listening to a Dave Ramsey podcast and asked about getting on his 7 step plan to financial freedom. I thought his request was a bit crazy but I was willing to try. What did we have to lose? First step: Save $1,000 for a starter emergency fund. Check, we started with a bit more so we depleted our savings to a little over $1k and began step 2 – using the debt snowball. We took the remaining cash on hand and paid off our debts, smallest to largest. This took 11 months of following our budget and maintaining our first goal of becoming debt free. Over $46,000 later, we had paid off my graduate student loans, our cars and our motorcycles!
- Save % of Combined Income
We had made it to step 3, saving 3-6 months of expenses for a fully funded emergency fund. Ours had a little extra cushion with at least 9 months of expenses. 6 months wasn’t enough for me. We have heard combining our income would ease major life transitions. We had already combined our banking at the start of the debt freedom process, but saving out of this combined income made it easier for us to make future decisions about our money. We didn’t have to worry about the ratios and who pays what with regard to groceries and events. It all comes from one place.
Combining our income keeps us accountable to each other as well as our financial goals. There is no room to hide decisions when finances are combined. For us, this is a huge benefit! It forces us to talk about our budgeting goals on a monthly basis. We are able to express our common and individual wants and needs. Having a financial imbalance may cause some stress with couples, but having a joint bank account corrects that issue as all money is funneled to one place. This creates a feeling of equality and gives us a level playing field to use money how we both please.
- Invest
Investing at least 15% of our total income is the next step we follow. Currently, we invest roughly 17% in retirement. Cody and I each have a 401(k), Roth IRA. We also have UTMAs and 529 custodial accounts for our children. The accumulated interest has created a snowball effect opposite from us paying off debt. Compound interest works in our favor! Our original investments + income earned on them grow together.
So instead of just saving in a traditional bank account, our Charlee should have roughly $100,000 by the time she’s 18! I calculate that by investing $175 per month at an annual return of 10% with a starting balance of $5000. Another way to look at it is showing invested contributions at roughly 30% of the total with 64% of the growth. It is absolutely wild to think she will have that much in her name before graduating high school. Talk about net worth?! She and Luka will have a higher net worth by the time they are each 18 than we do in our 30s.
Investing for ourselves works the same way yet, we are currently paying off our home. We recently refinanced our mortgage and are on track to have it paid within 6 years. This is another form of investing. Investing in ourselves toward complete home ownership. Every mortgage debt payment brings our net worth higher each month as we are not just paying the principal & interest expense, but paying an extra $500 to the principal as well. A fully paid off home by the time I am 36?! Yes, please.
- Automate Recurring Expenses
If you follow my instagram @raisingdebtfree, you know I am constantly talking about automating the payments of fixed expenses. A fixed expense is an item that is paid with the same amount on a recurring basis. An example of a fixed expense is rent or your car note. Knowing each payment amount allows you to connect your bank account to the billing institution to automatically take your payment. When these payments are automated you forget about it. As long as the fixed expenses are budgeted, the automation helps to take out the human error of missing something. I say this because if these aren’t budgeted we run the risk of overdraft fees ranging between $20 and $35!
We also save time and effort to give energy to things that matter. For us, we favor doing activities that create family memories. Worrying whether we paid the electric bill is not something we do. Automation gives us peace of mind in order to truly enjoy our family time. However, a con that may come up is impulsive spending. There may be times when we feel the need to spend money on items we do not need. Having a card stored on our phone or computer allows us to spend with a click of a button. We must actively be cognizant of where our money goes even with the ease of automation.