Getting Out of Debt – How We Developed Plan to Become Debt Free and Master Our Finances

Late last year, Kathy, my wife, and I had the privilege of paying off our mortgage early. This made us totally debt free for the first time in 20+ years of marriage. No house payment, no car payments, and no credit cards. We now both feel we are working for ourselves and not the bank. We save and pay cash for everything. We are now living a financially uncomplicated life. In a recent celebratory get-away weekend I set down and penned what I thought were the most important principles that helped us along the way.

Be of the same mindset. Before you start thinking about getting out of debt, sit down with your partner and have a heart to heart conversation about what you are trying to achieve. Understand that there will have to be sacrifices by all parties involved. More likely than not, this is going to be a marathon, not a sprint. No one will win if you are both pulling in different directions.

Kathy and I discussed the idea of becoming totally debt free for months before actually we pinky swore to each other that we were going to do it. We reduced our 401(k) contributions to the minimum required to meet the employer match. We stopped contributing to the kids’ college accounts. At this point if we had done anything other than stick to our plan, we would have considered the sacrifice a failure, so no new 60″ flat screen tvs or exotic vacations were in the near future.

Develop and live by a budget. Budget isn’t, and shouldn’t be, a four letter word. Think of a budget as a cross between a road map and a contract. Your budget should give you insight your monthly income and expenses. It should document where your money is going to be spent. While one person may be tasked with building the budget, both people should have equal input with regards to the content. Once the budget is set, consider it a contract you both agreed to live by. Start small, budget month by month. Keep in mind large expenses that will be due beyond your budgeting window if you are going to need to be saving for them. Your budget should also help prioritize your needs and wants. You need to pay the electric bill and eat, you may want to buy the latest iPhone and eat in restaurants.

I’m the geek in the family. I balance the checkbook and pay the bills. I developed a spreadsheet for each month. I put our approximate take-home amounts and monthly bills in. After an initial pass we both set down and discussed the details and plugged in any one-time bills. Once we agreed that we had things covered, we knew our budget for the month and how much extra we could pay down on our debt. Whenever we made adjustments mid-month, we both made sure the other one knew what and why we needed to adjust. This kept us communicating and on the same page.

Develop and work a plan. Some plans tell you to pay off the smallest debt first as it’s a quick psychological win, some plans tell you to pay off the largest debt first as a money saving method. I don’t know that one plan is better than the other. It’s more important that you develop a plan and stick to it. Understand that you may need to adjust your plan along the way. Cars break down, accidents occur, and life happens. Adjust your plan as needed but don’t lose sight of your goal.

We developed a plan to work for us. We are Dave Ramsey fans and we started with the smallest bills working up to the larger ones. After the first 2 – 3 months we were in a cycle of planning our monthly budget and working our plan. Being able to watch our progress gave us the motivation to continue.

Track your progress and know where you are. Go simple and use a pencil and pad of paper, or go high tech and fill out the spreadsheet to keep track of your assets and liabilities. Don’t worry about how bad it may look to start with, putting it all in one place helps you know where you stand. It’s the easiest way to be honest with yourself about your situation. Being able to visualize your progress helps you stay on track and provides measurable results.

When we decided to become totally debt free, I put together a spreadsheet with all of our account balances. Assets as positive values, liabilities as negative values, the difference being our net worth. I had a little trouble doing this for the first time, I never thought of us as having a net worth. After repeating the process a couple times, I learned to use it as a progress indicator. The trick wasn’t to always expect the net worth to increase (thanks to the ever fluctuating stock market), but to watch the liabilities decrease.


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