Right now my wife and I are positioning ourselves to pay off our house in less than 6 months. We’ve done this while my wife has stayed home (for the last five years), and we’ve lived on less than $50,000 annual household income. Oh, and we didn’t miss out on of all the luxuries of life. In fact, in the last five years, we’ve vacationed in Australia, New Zealand, Japan, and various places in the US and Canada.
Please don’t hear me bragging. This has all been by the grace of God. However, if living without debt appeals to you, I did want to share the most important tool that helped us accomplish this feat.
What is the key to becoming debt-free? Start a Budget
While there are many contributing factors, the single most important choice we made was to start a budget.
When we graduated from college, we were like a lot of young married couples. We had a car payment and between $10,000-$15,000 in student loan debt. Fortunately, we didn’t have any credit card debt. After graduation, we ventured off into the great unknown – a world where we both had fulltime jobs. The transition from living on hundreds of dollars a month to thousands is always a hard transition for young married couples. Looking back, one of the things that really saved us a lifetime of financial stress is that we lived in a church parsonage. As such, we didn’t have the temptation to consider buying a home that we couldn’t afford.
Once we left college, we very quickly paid off the car loan. The decision to get a car loan was one that I automatically regretted and so it became public enemy number one. It has now been ten years since we’ve owed anything on a car.
The problem was the student loans. I think we had about $12,000 in student loans. We did something foolish. We just made minimum payments. It was foolish for us because we knew our plan was for me to go back to school full-time. We had also committed to making arrangements so my wife could stay home when we had kids. During those two years when we both worked fulltime we did save, but just not intentionally.
Then it happened.
I was back in grad school full-time and my wife took a job at a private school. Her salary was cut by 35%. Fortunately, that was a choice we could afford to make because she loved every moment she taught at the school. But, the way we afforded it was by cutting our lifestyle.
This was make it or break it time for our financial future. We knew the decisions we would make during these three years (while I finished my graduate work) would be crucial. Even though we were both working towards our masters degrees, we were going to cash flow everything. No borrowing. No loans. Cash only.
We knew one important component was increasing our income, so while my wife worked full time and went to school part time, I went to school fulltime and worked part time. At one point, I had four jobs (basketball coach, substitute teacher, secretary, and preacher). Still, there was something missing.
I believe it was October 2003 when Dave Ramsey did his Total Money Makeover presentation in Memphis. Somehow we managed to get $10 tickets so we went. Once we got home, it was clear what the missing ingredient was – a budget.
We decided to start a budget.
[pullquote]We needed to start a budget so we could work as hard at home to control our expenses as we were working outside the home to continue our cash flow. [/pullquote]
Within a week we were on a budget.
Now, seven years later, I would say that starting a budget was one of the most important financial decisions we ever made. The only other decisions that had an equally important impact on our finances today included the decision that we wouldn’t borrow money for anything except to buy a house, and the decision to start investing. I guess the decision to start a budget would be one of our top three most important financial decisions.
By the way, we still keep a budget today.
Several months ago I decided to start to write a series of books on personal finance topics. I called the series Bite Size Personal Finance Series. There is an ancient proverb that asks, how do you eat an elephant? The answer, of course, is one bite at a time. In this series, I want to teach people how to get control of their finances one bite at a time.
Many months ago, I wondered what I should write the first book about, and the answer was immediately clear. I’ll start where we started. Surely, what was so important to us as a family would also help others.
So, I wrote a budgeting book. Not another dry budgeting book that makes you feel guilty for previous mistakes, but one that helps to come alongside you and provides some relevant resources to help you make a budget that lasts more than a week.
The books is now completed. It is called The Secret to a Successful Budget: Practical Advice for Making a Budget That Lasts.
Until the 31st of August, the book is 30% off.
Click here if you want more information about the book and learn how to start a budget.