Happy 4th anniversary for our journey out of debt!
- For this anniversary, we are only dealing with our mortgage debt. No more consumer debt. No more business debt. That’s a first.
- For this anniversary, we are backed up by an almost-full emergency fund – one that will see us through 3-6 months of possible income loss. That’s a first.
- For this anniversary, we have less debt to pay off than we have already paid off. We’re well past the half way mark. That’s a first.
- For this anniversary, we are focused on savings & investments as well as debt-reduction. We’re following Dave Ramsey’s steps, and when only the mortgage is left, significant savings start. The satisfaction of paying off debt is the redemption of past errors. The satisfaction of saving is the opening of future possibilities. We’re feeling our possibilities. That’s a first.
Our best year yet?
- Year #1: $50,000 – The year of big motivation and no major expenses.
- Year #2: $28,000 – The year of multiple major expenses: a new roof + a rotted tree cut down + our dog’s surgery + DH’s accountant’s advice = over $21,000. Our biggest accomplishment for Year #2 was the fact that we didn’t take on debt in meeting any of these expenses. We paid for each outright.
- Year #3: $45,000 – The year of steady effort and no major expenses.
- Year #4: $27,000 – Our lowest year in terms of debt-reduction numbers, but I think it’s been our best year yet.
Renovations paid outright
After we paid off the last of the business debt in the summer of 2015, we went ahead with our plans to renovate. DH’s home business office had long been too small, and we re-jigged our house to better accommodate it. The combined living room and dining room space became his office. His old office became a TV room. Our family room became a dining room with a sitting area.
These changes included electrical work, new flooring, new office equipment, and new furniture. Although DH installed the hardwood and did the electrical work himself, and although we shopped carefully, it was an expensive undertaking – coming in at about $12,000. It was a practical move, but also an allowed indulgence. We’d had the same furniture and carpeting for 17 years, and they’d had heavy use at the hands and feet of three growing daughters over that time. Everything was WORN, and we were more than ready for a change. If we hadn’t been on our journey out of debt, we would have bought new furniture much earlier. Instead, we waited until we had paid off all non-mortgage debt AND saved up enough to pay for the renovations and furniture outright.
Emergency fund almost full
We finished our renovations in December, and in January, we ramped up our savings for our big emergency fund. According to Dave Ramsey, a mini-emergency fund of about $1,000 is needed before any debt-reduction begins. The mini-emergency fund keeps unexpected expenses, like car repairs, from being a ticket back into debt. Once all non-mortgage debt is paid off though, it’s time to save for the big emergency fund – “to protcet yourself against life’s bigger surprises like the loss of a job.”
DH and I calculated how much we would need if he suddenly wasn’t able to run his home business – for whatever reason. We figured out how much we’d need to cover the expenses involved in closing the business and to see us through 6 months – either to sell the house and downsize or to give him time to find other work – and we actually reached that number in May . . . but then had to dip into it . . . so it isn’t quite full yet.
Our May “emergency” resulted from DH’s extremely low business revenues for the month. DH’s income varies wildly from month to month, and May was his lowest one ever. To give some perspective, his revenues for May of 2016 amounted to only 16% of his revenues for June of 2015 (his highest month ever). The low income was easily supplemented by our savings, and although it would be nice to say, “We now have a full emergency fund,” it’s a wonderful sign of our new financial reality that we can say, “We were prepared for the unexpected, and what would have been a major stress a few years ago was barely a blip.”
Funding DD2’s living expenses
Another thing we did last summer after having paid off the business debt was to grant DD2 her long desired wish to move out and live closer to campus for her last two years of university. Our house is in the suburbs, and her school is downtown. Taking the bus to and from campus wasn’t such a big deal, but she’s also on the track team, and getting to the indoor track for training through the winter months would sometimes take as long as 2 hours. Add to that the need for part-time work, and it all just amounted to a draining lifestyle for everyone concerned.
It’s a hefty amount we give her each month to pay for her part of the rent in shared student housing and to cover her groceries, but it’s been worth it to foot the bill. And we’re maintaining firm boundaries in our financial support. We’re not enabling any poor money management in her. A couple of weeks ago, DD2 lost her job. It wasn’t her fault, and everything in me wanted to rescue her. But we held our line and were prepared to have her postpone her final year if necessary. No need to go there though! DD2 applied like mad to as many places as she could, and three days ago, she was accepted to a new position. Better location. Better pay. Better job. Better hours. Win-win-win-win! DD2 can walk to classes and cycle to work. She takes an easy bus ride to her training. She has had her best academic year to date, and last week-end she got a personal best time in one of her track events. She’ll be heading to Nationals next month.
More good news about our kids
Forgive me for bragging about my kids, but I really want to point out the inter-generational ripple effects of good financial health.
DD1 gained what I might call a “negative benefit” from our years of financial stress – which were characterized by unemployment and debt. She decided as a teenager that she would not make our mistakes. She has managed her finances carefully since that time, and she graduated without student debt three years ago. Eager to impart to her a “positive benefit” after starting our journey out of debt, I advised her to save 15% of her gross income once she started working. “What am I saving for?” she asked at the time. “I don’t need a car, and I don’t want a house.” I promised her that she would eventually want something, and that she would be very grateful for the savings. 15% of a low income adds up over three years, and this year, DD1 did indeed want something: She wanted to go to law school. This September, she will. And it looks like her first and second years will be covered by a combination of savings, scholarships, and part-time work.
DD3 had the benefit of being still quite young when we started to get our money act together. She’s heard more than she has cared to hear about the importance of delayed gratification, the ability say “no” to friends who always want to spend money, the freedom of choice that results from saving . . . When she started her first part-time job last summer, she automatically put 50% of her pay into a savings account – without being told to do so. She has some as yet uncertain goals for her savings – like living in a different city in a few years – and some very certain goals – like flying out west to visit DD1 for two weeks in July. As for a future career, she informs me on some days that she’s going to be a bar tender. On other days, she leans more towards working in the community with the developmentally delayed. She is free to choose her path as far as we’re concerned. And she’s setting herself up to have that freedom of choice. DD3 is experiencing the power of her own good management of her personal finances. And she’s still in high school.
Yes, our best year yet!
So although we paid off less in Year #4 than we did in each of the first three years of our journey out of debt, it’s been a great year! Our past of poor financial health is giving way to a strong present reality, and it’s opening up doors to our future – and into the next generation.
Your comments are welcome : )
*Image courtesy of Lenny&Meriel
Thanks for reading our report for May ’16! Please check out my weekly posts at Fruclassity.