Our Debt-Free Journey: One Year In

Last fall, I shared my debt free plans with you. I explained why I was getting out of debt and how I was doing it. We are now at the one-year mark and still going strong. I can now fully attest that this plan is working and it is helping us achieve our original goals.

How much progress have we made?

We’ve paid off 20% of our non-mortgage debt. My 5-year calculations appear to be quite accurate (the addition of Kai addd a year to my original 4-year plan). In the past year, we threw around 1/3 of our income at debt. And this is while we still lived life and cash-flowed a new baby.

We paid off 3 store cards, 3 student loans, 2 credit cards, and my car. We have 2 credit cards left to pay off and we will be consumer debt free. Only student loans (and our mortgage) will remain.

We brought our monthly minimum payment obligations down by $800. EIGHT HUNDRED DOLLARS.

And, most importantly, we accumulated NO new debt.

How is life different now?

Well, for starters, we can cash flow every day life. And it doesn’t make us cry. Last summer,  we realized we were living life a little bit in the red each month. We wanted to have another baby but we knew we couldn’t afford daycare at the rate we were going (maybe because of that $800+ in minimum payments?). Fast-forward to today. We have that baby we wanted and when he starts daycare next month, we can write that (not insignificant) check without breaking a sweat. And we still have (a little) extra to throw at debt.

We budget. Every single dollar that comes our way gets assigned a task.

We use cash for things like groceries and eating out, so we know exactly what we are spending and we know how much is left to spend. When that money runs out, it’s out.

We get very limited “fun” money but we still enjoy life. When we spend it, it’s more likely to be on an experience than stuff.

We drive paid-for cars. We don’t have cable.  We clean our own house. We don’t go to the gym. We travel less.

We use sinking funds. Man, this was a game changer. We throw about $800 each month into an account that will eventually pay for things like car repairs, home maitenance, haircuts, clothes, pest control, cleaning supplies. These are things that we don’t need to buy every month but that will eventually require money. There is a few thousand dollars just sitting there in that account waiting to be spent. Ben likes it because he feels less guilty spending the money when it’s already earmarked. I like it because it gives us a hard limit when considering a purchase and prevents us from overspending. When I see a $50 dress but I only have $40 left in my clothing fund, I know it’s time to move on (or save up).

Simply put, we live well below our means now.

What’s next?

We are hoping to pay off the last two cards by early 2016. At that point, we will beef up our savings and retirement contributions a bit before heading right back into the ring and tackling Ben’s student loans.

When we can afford it, we will add in some luxuries, like a gym membership, a housecleaner, and a real vacation. For now, we will keep living this simpler lifestyle. Our money has a more important job for the time being.