“You cannot escape the responsibilities of tomorrow by evading it today” – Abraham Lincoln
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The more I share in this series, the more I realize I’ve been a jerk to Anna. I’ve said some things that are really hurtful.
Why did we do this to ourselves? ended the same way, which is where we shamefully continue the story.
When I get tired, my evil personality comes out. I’ve been trying so hard over the last few years to improve my quality of sleep, to keep him at bay.
Towards the end of 2019, he was particularly in a raging mood. I had just finished working twelve straight days with some of those days being twelve hours long. When I got home, we had a friend over for dinner which only continued the exhaustion. After our friend left and we got everything cleaned up, I went upstairs to read a fun book and just relaxed. Anna could tell I was in a frustrated mood though. She very sweetly asked how I was doing. At that moment, he possessed me and replied, We need to fix our financials by the end of next year, or else…
I didn’t finish that or else… Let’s just agree, it didn’t improve the situation that night.
We didn’t talk about that “or else” for months. We pretended like it didn’t happen. But to Anna, it was panic mode. Without me knowing, she started doing research and strategizing. A couple of months later (beginning of 2020), Anna came to me and asked, Do you have a moment?
She never stops amazing me. That was a pretty messed up thing for me to say. I think in that moment, I was implying that Anna needed to get an office job with a higher salary and suck it up like the rest of us. Anna looked at the situation and said, there is no way in hell I want to get an office job nor do I want to get a divorce, what else can I do?
At the time, Anna was learning about minimalism. The practice of being very intentional about the items we bring into our lives and the items we have surrounding us. Marketing does a great job of encouraging us to waste our money on things we don’t need or want. She was listening to The Minimalists Podcast. In one episode, they interviewed/mentioned Dave Ramsey, and the topic of the 7 Baby Steps of money management came up.
- Save $1000 for an emergency fund
- Pay off all debt, except for the mortgage
- Setup a 3 to 6-month emergency fund
- Invest 15% into retirement
- Save for your children’s college fund
- Payoff your mortgage
- Build wealth and give to others
Prior to Dave Ramsey, we had read several books from other people in the financial space about their solutions for money management. None of them stuck with us or were too complicated. Dave’s steps were simple and easy. It was an easy road map. We know some people have strong feelings about Dave Ramsey and his practices/beliefs. This post is simply focusing on his baby step system.
We sat down together and she introduced me to Dave Ramsey, and shared his system. I was a little bit skeptical or maybe really skeptical. Afterward, I listened to The Minimalist podcast and read Dave’s book (The Total Money Makeover). After just a couple of chapters, I was 100% on board. My thinking was, the system we had been using wasn’t working. So let’s give this a shot and see where we are in a year from now.
Side note, our local library partners with several apps that allow us to check out ebooks. Dave’s was one of those books we checked out. We just had to stop by the library to get a library card. It has allowed us to read dozens of books over the years at no cost. If you would like a physical copy, Amazon (referral link) carries them.
We already had $1,000 in our savings. We just marked it as emergency money on our spreadsheet. We actually had more, but we’ll come back to that in a moment.
Step two is where we had to learn to love ourselves. This is where we could hear the whispers of “or else…” We had gotten ourselves into this situation. We had to get ourselves out of the situation. That started with looking at where each dollar went. We looked at our budget and said, what are the necessities, and what can we let go? Even if it was just a temporary period, what could we live without? That freed up extra dollars so we could put them towards our debt. Each dollar freed up meant we would be out of debt sooner and less we’d ultimately have to work. It showed us that we weren’t treating every dollar with the respect it deserved, resulting in us trading more time for more money that we were then throwing away. In a later series of posts, we’ll dive into some of the ways we cut back on our expenses.
Following the baby steps, we should have paid off the smallest debt first. That gives us a quick win and then allows us to roll that payment into the next smallest debt. This is called the snowball method: where a tiny bit of snow starts rolling down a mountain. By the time it gets to the bottom, it has picked up a lot of snow and is massive. I’m not quite sure how the story ends when the snowball gets to the bottom, but let’s assume the people in the village are not harmed in any way and they use it to build a massive snow person.
- Credit card debt = $10,876
- Timeshare = $8,078
- Fez = $16,053
For us, that debt should have been the timeshare, but the credit card debt felt so oppressive with it being on a credit card at 22% interest. So we cheated a little bit. But there is another method called the avalanche method. That is where you pay the biggest debt/highest interest debt off first and then work your way to the smallest. Which method you choose depends on your motivations and personality. Are you a person who needs quick and fast wins or are you a person who can look out at the horizon and see the light?
The weekend of June 28, 2020, we paid off Anna’s credit card debt.
$10k worth of debt, poof.
You might be thinking huh???? Where did that money come from? Well, we kind of already had it… It goes back to the combining our finances post. That was Anna’s specific accrued debt, which came out of Anna’s savings. We already had the money in our joint account. We accepted that it was our debt and we needed to move forward as a team. We used the money from our joint savings to pay it off.
That left our timeshare and our car loan, which was about $24k of debt.
Side note, this part of the story will get its own blog post in the future. When we moved to Colorado in 2015, our financial advisor from Virginia helped us get connected with another advisor located in Colorado with the same company. That advisor did us wrong in so many ways. The reality was, we were just naïve and the person really took advantage of that. They sold/convinced us to buy whole-life insurance at $600/month for the two of us. Debt + life insurance = drowning. But they assured us that it was okay and our salaries could support it…
The single benefit that came out of the situation, they insisted on us opening up a new loan and transferring the remaining balance of the timeshare to it. Of course, they got a commission from it, but our original timeshare loan was 17% interest (oof). The new loan was less than 5%. That one change, shaved off seven years of debt, assuming we only made the minimum monthly payments. In 2020, we fired our financial advisor and ended our whole life insurance. That freed up 600 precious dollars a month.
We took the money we were putting towards Anna’s credit card plus the whole life insurance money plus the full amount of money we were putting towards the original 17% timeshare loan and started putting it into the new 5% loan. We were making payments of around $1k per month. We made our last timeshare payment on May 29th, 2021, eleven months after we paid off the credit card debit. The total length of our timeshare loan was April 2016 to May 2021. It cost us thousands of dollars in interest and hundreds of extra work hours.
That left the car loan. At the end of May 2021, we owed $10,318. By June 15th, 2021, seventeen days later, we paid it off.
The company I was working for at the time, paid out bonuses every six months. I was eligible for a 6% bonus, based on my annual salary. Except, I happened to excel at my work over the previous six months. As a result, I received an 11% bonus. We took the money we had originally been putting into the credit card debt + whole life insurance money + the timeshare loan + the car loan AND my bonus, and were able to pay off the car loan a few weeks later. The timing was amazing and we are so incredibly grateful. By June 2021, we were debt-free, with the exception of our mortgage at $247,423.57.
Baby step two, completed.
The surprising thing, still surprising today, was how fast everything happened when we became hyper-focused. This debt pile started in 2017 when my car got stolen. We made the decision to aggressively pay it off at the beginning of 2020 and by June 2021, it was all gone.
We continued taking all that money we were piling into debt and rolled it into step three, which is a three to six-month emergency fund. Our annual expenses, at the time, were around $75k, making our six-month emergency fund $37k. We estimate when I retire that our expenses will be between $50k to $60k. We’ve continued to cut/trim our expenses since 2021 and still don’t miss any of it. I would say we are happier now, even without all that extra stuff/services/random spending. We were able to reach $37k on Jan 3rd, 2022.
Since that day, we have sat down every two months and reviewed our budget. We discuss areas that can be trimmed, things that are no longer providing us value, or areas that need to be increased.
In the next post, we’ll take a pause on the financial discussions and talk about our journey with minimalism. In one weekend we donated seven 55-gallon trash bags worth of clothing and to this day, don’t miss any of it.
Talk with you next month
