Over the last few years, we’ve made better decisions. We sold the monster home and began to buy into the concepts of minimalism, simplicity, and frugality. We got better, but not quite good enough. While we were making progress, the debt was lingering and it was starting to feel like a crushing weight in our lives. We knew that we should be able to live comfortably on our incomes and we knew the debt was preventing this.
Sometime in December, I found Mr. Money Mustache gave myself a good, solid facepunch. I realized how ridiculous we had been with our money and that we needed to blow up our debt. NOW. After devouring all the articles on that blog in a matter of a few days, I was ready to do battle. We are going to be debt-free in 2014.
Here’s how :
1. I made a list of our debts, their interest rates, current monthly payments.
2. I added up our total debt amount and divided by 12 to give a rough estimate of the amount of money necessary for debt repayment each month in order to have the debt gone within one year.
3. I completely re-jigged our current budget using this tool by the awesome Gail Vaz-Oxlade. And by re-jigged, I mean I slashed and burned that baby. Grocery budget was cut in half. Other categories by 2/3 or more. I showed no mercy. I was inspired by reading how little Mr. Money Mustache and his family live on and live well.
4. I automated EVERYTHING. We set up several no-fee accounts in addition to our existing chequing account: Vacation, Spending, Emergency/Contingency Fund, and two TFSAs. Every pay day pre-determined amounts go to each account. We only have our spending account linked up to our debit card. We are avoiding using our credit card right now entirely.
5. I signed up for Mint.com to track our spending and manage our budget. It categorizes everything from all accounts and means we don’t have to use cash-only like other budgets, which we aren’t fond of. It’s a great way to get quick overview of our finances.
6. Pre-set amounts also automatically transfer onto each debt. We are taking the approach of paying off one debt at a time, so we are putting most of our debt repayment budget onto the credit card for now, and smaller payments onto the other debts. Once the credit card is paid off that money will go onto the next debt on the list, my student loan.
We’ve been following this plan since January and its going quite well ,although not without its challenges. We’ll be sneaking in just under the wire in February because we overspent in the first half of the month. These first few months are bound to be filled with some growing pains, but I’m confident we’ll learn better spending patterns as we go along.
I’ll keep posting more debt repayment updates over the next several months. As it stands, we’ll be debt-free by the end of the summer. I can’t tell you how happy that will make me/us. Having our financial house in order is important for building resiliency, which is something I’ve been thinking a lot about lately. More on that later.