Our Journey to Debt Freedom Part 2

If you missed part 1 you can read it here.

We were sick and tired of being sick and tired. We were done with college, deep in debt, and not earning nearly as much income as we thought we would be. We felt like we were barely keeping our heads above water and living paycheck to paycheck like most Americans. 

We first heard about Dave Ramsey from a coworker of mine at the law firm I worked at in 2008. She let me borrow a copy of the book, "The Total Money Makeover" and it all started making sense. I had Nate read the book too. We eventually got our own copy of the book so we could make notes, re-read, and photo copy budget sheets to stay on track. This introduction was a good taste of what we needed to do but it took us several months to truly get fired up.

Nate graduated in December 2008. Just as the economy was tanking. He looked for an engineering job in Colorado for 6 months when we finally decided to take a job offer in Maryland in early 2009. Once in Maryland we were earning a professional salary instead of being broke college students and it was time to get to work. I started a full-time nanny job about 5 months after we moved and we were a two income earner family for the first time ever. 

Dave Ramsey said you need to tell your money what to do. We started making a written budget but struggled with sticking with it. Every time we fell off the horse, we just got back on again. It was slow and steady progress. We tried the cash envelopes several times during our time in Maryland 2009-2011 but could never quite get it to work as it should. We started hammering away at our credit card debt, paying big chunks at a time. It felt good to not have that huge burden hanging over our heads. In 2011 Nate received a great job offer back in Colorado with a raise, in a city we thought could be our forever home. By the time we moved back to Colorado in June 2011 we had paid off $28,000 in credit card debt and $20,000 in car loans, $48,000 in loans in less than 3 years since we first heard about Dave Ramsey. All while not earning more than $80,000 combined income for our family of 5. Eliminating all debt except our student loans was an amazing relief and there truly is peace without that burden on your shoulders.

I'd like to say we just kept at it and knocked out those $80,000 student loans right away but that's not our story. I had wanted a 4th child for many years and we had both agreed we would wait until Nate could advance his career and our finances were stable enough I could stay home full time until the baby was in kindergarten or 1st grade. Originally we thought we'd pay off all our student loans first. During a week long Yellowstone camping trip in July 2011 Nate said he didn't want to wait anymore, he was only getting older, and let's go for it. Needless to say, I got pregnant our first month trying and 9 months later we were blessed with our final addition to our family. I did stay home with Orion at first. While Nate received a raise we were without my income. We got lazy about budgeting and saving, busy focused on getting ready for the new baby and didn't make significant progress during late 2011 and early 2012.

I went back to work full time in June 2013 and we started paying extra towards our debt. Essentially my entire income should have been going to student loans but it didn't work like that. We never were good about sticking to a written budget during this period and had a lot of two steps forward, one step back. We had a really good household income and were frustrated that we weren't making headway like we'd like to. We decided to take Dave Ramsey's Financial Peace University at our church fall of 2014. That was one of the best decisions we've ever made. The structure, discipline, and accountability of the class were keys to our success. We learned new things from the book and video but mostly from the facilitators and other classmates. We were determined to finish paying off the rest of our student loans ASAP. Some months we made thousand of dollars in extra payments, some months it was only $1200 or $1500 but we kept chugging along. We made goal boards for our bedroom and kept those goals within sight each day so we knew what we were working towards.

Another thing that we took away from Financial Peace University was truly using the cash envelope system as designed. Cash hurts to pay with. You are handing away some of your hard earned money instead of mindlessly swiping your credit card. The thing with cash is when it is gone, it's gone. This was a huge wake up call to me. Especially in our spending money category. Nate and I started out with $40 per week each for coffee, treats, lunch out, or we could save it for something for ourselves. We soon realized our budget didn't have that much extra so we cut back to $20. Thinking through our purchases and stopping when money was out was an important thing to learn. We also used cash for groceries, restaurants, and entertainment. It was fun to stretch the budget and have money left over.

June 2016 was another milestone for our family. Another big cross country move and another promotion for Nate. Our house in Colorado had gone up significantly in value and we were able to buy a new house with $85,000 or 25% down and keep our payment the same as well as take the rest of our equity and pay off the remaining balance on our student loans. It was an amazing feeling! We truly feel like it has been a marathon and a hard one at that but we have changed our family tree!

Instead of living paycheck to paycheck, giving into instant gratification, we now can plan, save, and spend money on the things we want to enjoy. We are putting money away in retirement and want to start investing. We have a fully funded emergency fund and 20 year mortgage with a very low rate. Someday soon our mortgage will be paid off too and we will not owe anyone any money. Our way of thinking about money has changed. We won't finance anything again. If we need a new car and we don't have cash for what we want then we'll lower our standards. If we want to take a nice vacation, we'll save for it. It takes planning, effort, and discipline but most importantly I hope we are teaching our kids these lessons now so they can start their adult lives without the heartache and stress of digging out of significant debt. Just because everyone in America is doing it, it isn't right. You can save up for your purchases, you can get ahead, you can win with money, and you then can bless others with your money too.

Visiting Ramsey Headquarters August 2016 on the way back from visiting family. We get to do our debt free scream live on air during the radio show 11/8 3-4pm CST!

Our Journey to Debt Freedom: Part 1

Debt Free!

Our path to debt freedom was a long and windy one but we finally made it June 28, 2016! We are completely debt free except our mortgage! How'd we get here?

Part 1: Stupid Mistakes

Nate and I both grew up with similar backgrounds. We weren't poor, we always had food on the table, and a roof over our heads but we weren't wealthy growing up either. Our parents didn't travel a lot. I got a few new clothes when school started and at birthdays and Christmas but our parents couldn't afford expensive or fancy things. Both Nate and I got married young and had kids young. Both of us knew if we wanted to go to college we'd be paying for it ourselves. I don't remember being specifically taught about money as a kid. 

As a young adult and as a single mother I bought into American way of instant gratification. I can put it on the credit card and pay for it later. I can finance the new car because I need something reliable. I can rack up thousands of dollars in student loans because I am going to go to law school and make good money and it will be easy to pay off the loans. How else I am going to get a better job or get ahead or ever be able not to struggle financially if I don't go to college?

Instant gratification is a terrible American cultural lie. You do not need what you want, when you want it! You can save for it, work hard, work a 2nd job, buy 2nd hand, or wait. It won't kill you, I promise. A lot of the credit card debt I racked up was as a single mom on monthly budget shortfalls from having too high of living expenses for the income I was bringing in. I didn't live a lavish lifestyle but I could have made better choices. Reduce grocery cost, buy a used car, find a cheaper apartment. The thing was at the time I didn't want to. I justified all these as necessary things at the time. I had to live in a safe neighborhood as a single mom. I had to have a reliable car that didn't break down. Both are true but there is a middle ground.

After owning 2 used cars that were horrible and broke down non-stop I decided to lease a new Honda Accord. Piling money into used cars wasn't something I could afford but I also couldn't afford a lease. Leasing a car is a horrible financial decision as you take on all the immediate depreciation of a new car but technically don't own the car in the end. I ended up buying out my lease with a used car loan and drove that car 8 years until I was pregnant with my 4th child and we couldn't all fit in a 5 seat vehicle. It was a great car and I got good trade in value when I traded it for my van but I don't even want to know how much I paid in interest and how much lost value I took on by leasing it.

Student loans, the golden ticket to success in America! No way! Nate and I both bought into the lie that the only way to get ahead was through a college degree. While I enjoyed my time in college and I am proud that I graduated with my Bachelors degree there are ways to do it without going into debt. Even 9 years after graduating from college I don't make that much more than I did at the bank without a college degree. Nate has an engineering degree and has seen huge jumps in his salary because of his degree. He almost doubled his salary out of college and over the past 8 years has almost doubled it again. Having a degree for him has paid off but he could have gotten a degree slower without going into debt. That is what I wish I did, continued to go to college part-time and cash flow my degree. If I get one point across do not take out student loans! I repeat do not take out student loans. They will haunt you forever. There may not seem like there is another way but there are other ways, scholarships, work study, full time work and part-time college. 

When we started attacking our debt we had $128,000 in debt! Staggering amount for two young adults with minimal income and 3 kids. Our debt broke down into $28,000 (half Nate's, half Michelle's) in credit cards, $20,000 ($10,000 left on two car loans both bought new), $80,000 student loans ($35,000 Michelle, $40,000 Nate). It was utterly overwhelming! 

In Part 2: I'll fill you in on what we decided to do about it.

No Spend Month - April 2016: Week 2

If you missed the first post outlining the rules for our no spend challenge, read it here.

Week 2 Finding Our Groove

Week 2, April 11-April 17 went pretty well. We got used to saying no to Starbucks, and fast food, and dinners out. We are saving money and I hope a month of no discretionary spending becomes a habit for how we spend our money.

Our only cheat this week was a field trip fee for our daughter of $20. We were not notified of the trip in advance and it was due 4/20.

Eating Out

This has gotten easier. I don't even want to take the easy way out and pick something up. I know I need to plan ahead or head home for food. My friend did buy me a $2.00 Americano this week. No other food outside of grocery store food.

Entertainment 

This was easier this week too. We took another trip to the library for new books. It was a busy week with MOPS, Bunko, pre-race party, half marathon, and VBS meeting at work. I invited my running friends to our house for a pre-race party rather than going out. I met with a close friend to catch up this week but since she knew we were doing a no spend month she invited me to her house. We invited my son's best buddy over to play instead of going out to lunch together.

Grocery Shopping 

After going over budget last week we managed to stay $10.10 under budget for groceries this week including hosting a pre-race party at our house where we provided hot dogs, buns, and juice for 40 people. 

Clothing and Shoes

No temptations in this area. I even removed myself from most of the online LuLaRoe clothing groups on Facebook so I wouldn't have the temptation while I can't buy anything.

No Household Items 

This week we did good in this area. We did receive word that hubby received the promotion he applied for and we are going to be relocating to Fargo, ND. We met with a Realtor and now have a 3 page list of things to get the house ready which will involve some expense but hopefully not too much.

No Cosmetics or Luxury Toiletries 

No cheats in this area.

No car maintenance 

So far we have not come across any needed car maintenance. My windshield cracked last week but the repair can wait.

Medical Expenses 

We did find out that our insurance did not pay the final balance of Brennan's braces so we now owe $150. I am going to try to wait and pay the balance due May 1st.

Summary

Week 2 continues to be a lesson in self control and delayed gratification. As the month goes on it gets easier and easier.

Spent from no spend categories: $20.00 for field trip for daughter.

No Spend Month-April 2016: Week 1

If you missed the first post outlining the rules for our no spend challenge, read it here.

Week 1, Adjusting to the Change. 

Week 1 has been a bit of an adjustment. There were many times this week where I had to tell other people no I couldn't do something and even harder I had to tell the kids no several times to things they were used to doing or really wanted to do. Week 1 actually lasted 10 days, April 1st-April 10th.

The biggest adjustment has been no fast food, no Starbucks, no quick treats. No spending on entertainment or date nights or rewards for the kids.

Nate has stuck to the plan perfectly. In fact the only purchase he has made all month was one tank of gasoline for his Jeep. 

I have made 2 cheats already this month. I owed a co-worker $15 for a birthday gift in March that I forgot to give her. I forgot to purchase the two bible study books I needed for this month. I was able to get one book from the public library but the other I had to purchase on Amazon for $9.99

Eating Out

We haven't strayed but we have used a couple gift cards we had received: The Egg and I, McDonald's, Timberline Cafe. These have been nice treats mixed it with no dent to our budget. We did have to say no to a treat for Brennan after his band concert. We usually stop for an ice cream or something similar after kids have a special performance or school event. This was hard as the kids expect this treat.

Entertainment 

We've taken multiple trips to the public library, checking out many books and movies. We've also taken multiple trips to different parks across town. We've walked to the lake in our neighborhood several times and played at the park in the neighborhood. We've also done things at the house we don't always do like put together a puzzle or watch a new show on Netflix. We've also had fun school events like the egg drop, IB showcase, and a band concert. I also hosted book club and had my first bible study class. Work has also kept me busy the past week with a Parent's Night Out event we hosted Friday night. Yesterday we had my nephew's birthday party. I also am finishing up my training for my 3rd half marathon. Not much time to be bored! I did have to say no to purchasing Rockies tickets as a fundraiser, which was a bummer!

Grocery Shopping 

This was a bit harder this week knowing there was no other food we could consume. I went over budget by $42. I made multiple trips to the grocery store last week. I plan to remedy this next week by making one planned trip.

Clothing and Shoes

This part hasn't been hard for me yet. I tend to do a couple larger shopping trips for clothes in the year rather than buy things each month. I did take Wynter shopping at Nordstrom Rack where I found a pair of shoes I may be returning for next month.

No Household Items 

This has been a bit trickier. Our master bathroom toilet started running and really needed a repair. We lucked out though and Nate came across a partly used toilet repair kit in the garage that had the pieces he needed. 

No Cosmetics or Luxury Toiletries 

This has not been hard. I pre-planned in this area. Twice per year I order Mary Kay. I was almost totally out in the month of March so I placed a big order 3/31. I should be set in this area.

No car maintenance 

So far we have not come across any needed car maintenance.

Medical Expenses 

So far this month we have had doctor visit co-pays and prescription drug co-pays but we still have money in our 2016 flexible spending account so I have not had to take any money from our budget. Medical bills for 2015 that must be paid out of pocket I am waiting to pay until May.

Summary

Most importantly week 1 has been a lesson in self control and delayed gratification, both things I know I need to work on financially. I think as the month goes on it will get easier not harder as I will get into the routine of saying no to spending money.

Spent from no spend categories: $24.99

Spent over budget in allowed category (groceries): $42

No Spend Month-April 2016: Getting Ready!

What is a no spend month? How do you get ready? A no spend month or no challenge is a personal challenge where you or you and your spouse agree to no discretionary spending for an entire month. Yikes, that sounds hard doesn't it. You or you and your spouse agree on the rules and the most important point is sticking to it. 

Nate and I have been on a financial journey for many years. I've talked about our financial journey on the blog a few times: paying cash for a new car,  new years goal posts, and funding our vacation by selling things around the house. We were first introduced to Dave Ramsey's the Total Money Makeover in 2008 and took Financial Peace University  in person at our church fall of 2014. Paying off debt and living a life of true financial freedom is our ultimate goal. The no spend month will be a good challenge for Nate and I to stop discretionary spending, gain more self control, and truly look at how much money each month we are spending on things we truly don't need.

Brown Family No Spend Month Rules:

No Discretionary Spending

1) No eating out, no fast food, no restaurants, no coffee, treats, or snacks not prepared at home.

2) No entertainment that costs money: no bowling, no museum trips, no trips to the movie theater, no Redbox rentals, etc.

3) No clothing or shoe purchases

4) No household purchases, no decor, no repair items, no equipment

5) No cosmetics or other luxury type toiletry items

We Will Continue:

1) All regular bills: mortgage, HOA, insurance, utilities, gasoline, childcare, student loan payments, tithes, and charitable giving.

2) Groceries, cleaning supplies, and regular toiletries like soap and toothpaste will be replenished out of our regular grocery budget which we have set at $150 per week.

3) Gasoline for the cars will be replenished as needed.

How We Prepared:

1) Complete all car maintenance either prior to start of no spend month in March or wait until May.

2) Pay medical bills prior to start in March or wait until May for any newly received medical bills that cannot be paid out of our flexible spending account.

3) Review calendar to anticipate potential events that would derail our no spend month. We did not see any kids field trips, church events, or birthday parties during the month of April that we anticipate spending money on.

4) Reschedule things that cost money to the month of May. For example I have a haircut scheduled in April. I will reschedule that for the 1st week of May.

5) Complete purchases for things we know we need by 3/31. For example I am completely out of my skin care regimen so I am ordering that today. Hubby wants to purchase hunting licenses which are due by mid April so he will purchase them by 3/31.

That's it! We're committed and excited for this challenge. I will be posting updates on our journey every Monday beginning 4/11/16. Follow along to see how we do!

Paid Cash For Our New Car!

It is probably something I don't talk about enough on my blog: money! If you've read over my goals the past two years it is probably no secret that we do things different than most Americans. We've loosely been following Dave Ramsey's The Total Money Makeover plan since 2008. I say loosely because we've fallen off the wagon a few times and made some modifications for our specific circumstances but we've adhered the basic principles.

Some of the basic principles are: debt is bad, once you can pay off your debt you will reduce your stress dramatically, increase your quality of life dramatically, and begin to quickly build wealth. In America we are raised in a society of instant gratification. If you can't afford it, charge it! Everyone has two car loans, a mortgage they can't afford, and some credit card debt, as long as you can make the payments it's no big deal, right? Wrong!

Dave Ramsey's plan is laid out clearly and simply. The first step is to build a "baby emergency fund" of $1000 so you can stop putting emergency purchases on the credit card. Then you start hacking away at your debt in a very deliberate manner. You list all your debts, smallest to largest, regardless of interest rate and you start throwing all your extra money at the smallest. I would've paid towards the highest interest debt but seeing one thing after another paid off encourages you to keep going. At first you think you have no extra money but once you make a budget you realize you probably do and you probably can make some cuts to the budget. If you absolutely have no extra money Dave Ramsey suggests getting a 2nd job in the short term, selling items you can live without, or even selling cars with big car payments to free up money in the budget. If there's a will, there's a way!

Another thing he hammers home is delayed gratification. You do not buy a new car or go on vacation until you can pay for it with cash. How many people do you know without a car payment? Not many, I bet! I will tell you from personal experience this has freed up the most money in our budget and helped us the most in making progress in paying off our debts. Prior to starting the Total Money Makeover hubby and I each had $300 per month car payments, yikes! If you need or want a new car you don't buy it until you have the cash to pay for it. Even if you can afford it he never suggests buying a brand new car because they lose so much value in the first two years. If you can afford it he suggests buying a 2 year old car with low miles. This way it is very reliable but has already depreciated significantly while you weren't the owner. Saving cash to pay for a car in our credit based society sounds crazy but it is easily attainable once you pay off your other debts. For example if you previously had $600 in car payments and $400 in credit card payments. Once those are paid off you have $1000 extra each month. If you want to buy a $12,000 car you would only have to save for 12 months and you'd never have a car payment.

Since we started the plan we have paid off both our car loans, all our credit debt (we had A LOT), and have a 4 month living expenses emergency fund (though as a single income household our goal is 6 months living expenses). Due to financial freedom we now have without all that debt, we were able to purchase our first house this year. Our new home is much nicer and much bigger than our rental home but the mortgage is the same. Hubby and I both still have large balances on our student loans and our next goal will be to pay those off entirely. Since we owe so much it will likely be at least 3 years before we meet that goal but it will be so great to be debt free besides our mortgage. After that we start chipping away at our mortgage. Long before retirement our mortgage will be paid off and we'll enter retirement completely debt free. We are also able to be a single income family and I am able to stay home now while our children are little, which I am very thankful for.

We made a big step in our Total Money Makeover journey this past week. We purchased our first new (used) car entirely with cash. What an amazing feeling! In the process of negotiating the deal the dealer could not get the car within our budget at first and suggested we finance the difference. We held firm and told him we don't finance cars and don't take on new debt. The dealer flat out told us that paying cash for a car is un-American. Hubby and I silently chuckled to ourselves and knew we were on the right track. Dave Ramsey says in his book when people start telling you you're crazy for doing things this way you know you're on the right track! Another family with 5 kids was purchasing a different minivan and peeked their heads in at the end and said good job paying cash for our car. Apparently they overheard and the dealer said they also paid cash for their van, another Dave Ramsey follower I bet.

We now have a van that seats 7 and plenty of room for our soon-to-be family of 6. We got what we wanted and still don't have a car payment. It truly is an amazing feeling and I couldn't be happier!

Front view of our 2005 Toyota Sienna

Side view of our new car

My Kids Speak A New Language

The language of money that is. It is amazing to me as older kids how little else motivates them but how a small amount of money motivates them greatly.

This of course has both positives and negatives. The positives are I can "hire out" the chores I don't want to do like lawn mowing and vacuuming and cleaning out my car. Sure they kids don't do as good of a job as I do but for a couple dollars it is worth it to me. The negative is I could go broke hiring out chores, depending upon their desire for money any given week. Also, hubby and I firmly believe that there is a certain amount of chores necessary just due to being a member of this household.

The things my kids want to spend their hard earned money on also cracks me up. Mostly it is junk, candy, gum, soda, stuff I don't usually buy them. Occasionally they will save for a toy they want but usually the money is spent as soon as they earn it. I do force them to save too. Right now we are saving for our Orlando trip. When we went to Disneyland in March of 2009, the kids were able to save $1000 in 15 months, pretty impressive! I also encourage them to give to those less fortunate than themselves, our Compassion children, charities that interest them, or even our church. Despite all this most of their money gets wasted but they've worked hard for it and they're happy so I try not to put too many restrictions on how it is spent.

I know they are getting older and their tastes will just keep getting more and more expensive. Hopefully I can keep this up so when they want a cell phone, designer jeans, and the latest electronic, I can simply say, "sorry, you'll have to save your money for that". We'll see how that works for me!