As promised, here is my post on getting out of debt forever! Think about it: no more credit card payments, no car loans, student loans, etc. The only bills you pay each month are utilities. Most loans require you pay interest every month and if they don’t it’s just a matter of time before they do. Credit cards are the worst! If it doesn’t already, it should really piss you off when you see how much interest you are paying. That’s your hard-earned money and these companies are feeding off of you like wolves. Not anymore. It stops today.
Make a plan to sit down with your spouse to go over your monthly budget. List all of your bills plus expenses from gas to dance lessons to groceries. Really take a hard look at where your money is going.
Now, focus on the bills you wouldn’t be paying if they were completely paid off.
Start small. Take your smallest loan and begin making more than just the minimum payment each month. Maybe you can afford an extra $100 a month to pay that loan off sooner. You may be thinking that it’s best to pay off the loan with the highest interest rate, but it’s emotional decisions that got you into this debt and it’s emotional decisions that will get you out. We need instant gratification so we are going to pay off the smallest loan first so we breathe a sigh of relief a little sooner.
Once the first loan is paid off you will become addicted to paying down more. It’s a euphoric feeling! Take the money you were once paying your first loan toward and roll it into your next loan. Maybe that’s your car payment or maybe it’s a credit card.
Example: You have a student loan of $7,000. Your monthly payment is $130. Start paying $230 every month. A loan that was once going to take you 4 1/2 years to pay off is now paid off in 2 1/2 years. Not bad. Take that $230 and roll into the next debt. Maybe that’s your car payment. You owe $12,000 on your car. Your minimum payment is $350 so that bumps your new payment up to $580. The car that was supposed to be paid off in 2 1/2 years is now paid off in 1 1/2 years.
It still takes some time, but you see how something as simple as an extra $100 can have a huge impact in the long-term? It really starts to snowball once you pay off your first two loans. We paid all of ours loans (car, student and 1/4 of our house) off within 4 years. Once all of your loans are paid off, then you can start saving. It’s best to have between 3-6 months worth of salary saved in case of an emergency.
Retirement should be a huge priority after the savings are in place. We’re not getting any younger and Social Security will be a joke by the time we are ready to cash in. If your company offers a 401k you should definitely contribute. At a minimum, contribute whatever your company matches so you reap the free benefits.
Let’s say one of you works outside the home and the other is raising the kids. A very noble profession! (I am in that boat too!) The person who stays at home can contribute to a ROTH IRA. Here’s how it works. You take your after tax income (take home pay) and put it into this account. Once you reach retirement age, you can withdraw this money, TAX FREE! The rate of return is pretty decent too. Much better than a savings account.
Another option is a life insurance policy with an annuity option. This policy has two benefits: 1)If the policy owner kicks the bucket, their spouse is not going to live at the soup kitchen. Not really anything to joke about because it’s pretty horrifying if there’s nothing in place. 2) When they are ready to retire, the policy owner can withdraw the money from the account that they were contributing to to go out and buy a fun car or book an exotic vacation. Again, the rate of growth is very good, especially when the policy reaches it’s maturity date (retirement age and beyond).
My husband and I have all three options listed above. Our plan is to retire as millionaires. We definitely had (and still have to) make some sacrifices along the way, but we also celebrate our successes like with a nice bottle of wine and steak from Costco. The point is, there will have to be some sacrifice in order to get there, but these goals are attainable for everyone. You have to be disciplined and focused on what you want.
Money is not a comfortable topic for most people so if you feel pressured to go out to expensive restaurants with family or on shopping sprees with friends, then take a break. Tell them it’s not in the budget. If they really care about you and your financial well-being they will understand. Same holds true with your kids. Take a break from expensive toys or lots of activities. Pair things back a bit and remind them about the budget. One great thing that I love to do is suggest that the kids buy that toy in the store themselves. Pretty much every time I say this they immediately change their mind. After all, it’s their hard-earned money and now the toy just doesn’t seem worth it. 😉
Of course you could be rolling your eyes and thinking, geez, Lisa I want to live a little. I’m not going to sit around and miss out on all the fun. To those people I say, you are obviously welcome to your opinions. In the end though, are you able to get a good night’s sleep without worrying about money? If so, more power to you. If not, then consider some of the ideas given. It’s meant to help you, not make you feel like garbage. Good luck and let me know if you have any questions or comments. I’d love to hear them!
I love this line above.
Credit: Dave Ramsey: Financial Freedom – I loved his ideas for paying down debt. He is not a big fan of life insurance, but that’s where we don’t agree. I’m sure you’re not loving every idea of mine either (no!). 😉 Just make it your own and get saving, people!!