We were 22 and 23. We were newly married, recently graduated University, were living on our own, and were staring at a mountain of school debt, in fact it was a whopping $40,000. Growing up my parents taught me the importance of saving. In high school my mom would take a chunk of my savings from part time jobs to put into an investment account so that by the time I started University, I had a good amount of cash that would eventually help me graduate debt free. So while I graduated debt free I married into school debt which now also belonged to me. As someone who never carried a credit card balance, debt was a new concept to me that for months caused me financial anxiety and stress. I wanted this debt GONE ASAP! But it seemed impossible. For the first few months of our marriage we were living off of 1 income, had to buy a new car, and had what seemed like endless bills to pay. This is when I started to displace myself from our finances completely and it wasn’t healthy. I had no idea what money was going in or out so how was I supposed to make wise financial decisions? My husband was constantly trying to keep up with my spending which wasn’t fair to him. And the worst part of all…we weren’t getting any of our debt paid off. So that’s when we devised a plan. We knew that we wanted the debt gone within a year and a half of developing our strategy. And do you know what, our plan WORKED, in fact we paid off our debt 2 months early! And here is how we did it.
- First and foremost we had to get on the same page. I could no longer be absent from our finances. I had to take an active role and we agreed that we would stick to our plan and work together to get the debt paid off.
- Secondly, we defined our goal and made a budget. We identified a realistic goal based on our income and expenses of when we could pay off the debt. We took into consideration our must haves like rent, groceries, and car expenses, and compared those to our nice-to-haves like entertainment, shopping, and travel. We calculated what we had been spending over the months for each of our categories and then identified what expenses were non-negotiable (like rent) and which expenses could be altered (like entertainment). We then created our budget that would allow us to put aside a significant chunk away each month that would go towards debt payments. The real secret to how we planned our budget was that we identified our NEEDS verses our WANTS. We needed to pay rent, we needed a car to get to work but did we really need the $70/month cell phone plan, or did we need to drive brand new cars? No. So if we were going to get the debt paid off we needed to cut back on the nice-to-haves and strictly adhere to our new budget.
- The first things we cut back were eating out and entertainment. No more buying lunches at work, instead we made a lunch each and every day! This alone saved us at least $50/week (or $2600 a year!). We also got into the habit of going out for lunch during our Saturday afternoon grocery trips…so guess what, we cut this out too saving us another $20/week (or $1040 a year). We still went out to dinner once in a while but instead of having weekly “date nights”, we changed it to monthly. For entertainment, we only went to the movies when we had enough scene points, found free things to do in our area like discovering new hiking trails or simply enjoyed a movie night at home.
- When it came to groceries we ended up getting a Costco membership so that our groceries would last us longer (I love buying bulk!). I shopped based on what I had sitting in my fridge or freezer and made meals that were more cost effective like soup with homemade bread. I also want to point out that I am a bit of a health freak and did not compromise on purchasing healthy, good food for junk. So instead of buying strawberries in January that would cost $7, I bought seasonal fruit like clementine’s that were a fraction of the cost. I would also purchase groceries that would last a lot longer and not spoil quickly like apples and carrots. We still ate really well, but were more financially wise as to what meals we made and what groceries were purchased. The one opportunity we totally missed out on was taking advantage of coupon apps such as Flipp. My mom uses these apps and saves hundreds of dollars of month.
- When it came to shopping we had a monthly clothes budget and only bought clothes when they were on sale and when they fit our budget. I also discovered stores with the BEST deals like RW&Co which offers an additional 60% off sale items. And when it came to Christmas and other gifts I would buy them months in advance of the event if I saw something on sale. To this day, I still buy gifts using this method because why would I turn down a good deal?
- Shopping around can go a long way. We learned to shop around for services to find the best deals available. We cut back our cell phone plans, said no to cable (Netflix only), and shopped around for an internet company that offered great service for very reasonable price (such as TekSavvy).
- When we both started working, we both needed a car. Luckily our first car was given to my husband while he was in school so we only needed to buy 1 vehicle. But instead of buying a brand new, top of the line car, we bought a used –pre-certified, reliable car that was great on gas. We had ZERO car payments which was certainly one of the biggest contributors to us paying off our debt as fast as we did. Did my husband want to drive his 2001 Gold Honda Odyssey with 320,000 km, while is co-workers drove their new Mercedes and BMWs? Not really, but between the two of us we saved $1000 a month on car payments which went directly towards paying our debt off. I can’t tell you how many of my friends are stressed about paying bills or have thousands of dollars in student loans yet drive brand new fancy cars. This is NOT financially responsible.
- Tax refunds, work bonuses, birthday money and all other cash we received went straight towards paying off our debt. We did not see this as extra money in our budget that we could spend on unnecessary items but rather it was an opportunity for extra payments towards our debt.
- Lastly and probably the biggest decision we made was to move closer to work. Both our offices were located in a VERY expensive city. We lived in a condo that was 40 minutes away to save on rent. About 6 months into paying off our debt, my accountant husband did the calculations for how much we would be paying for rent in the city where our offices were located and compared it with how much we would be saving in car expenses. Long story short, it resulted in quite a significance in savings. We ended up saving $1000 alone in car insurance throughout the year, never mind the savings in gas and car maintenance. I won’t go into the calculations that convinced us to make the move as we have that as one of our future blog posts (so stay tuned)!
So long story short if you are stressed about the debt in your life I challenge you to try reducing your debt by using these three simple steps.
- Make a goal and if applicable, make sure you and your partner are on the same page.
- Make a realistic budget. Make a list of your non-negotiable expenses as well as your negotiable and nice-to-have expenses. When you have your list of your nice-to-haves, identify areas where you can cut back. Maybe it’s your cell phone plan, or cable bill? Or perhaps you can cut back on eating out and entertainment. Whatever it is, I challenge you to find three areas in your budget where you can cut back. And don’t live above your means!
- Apply and STICK to your budget. Yes, this does work (it worked for us!) and yes, it does take discipline. But there is no better feeling than being debt free!
The Accountant’s Wife