Part 2 of Our Journey out of Debt: Let the Savings Begin!

DH and I enjoy a fabulous meal (paid with gift card given by DD1) to celebrate the completion of Part 1 and the launch of Part 2 of our journey out of debt.

  • DH = Dear Husband
  • DD1 = Dear First Daughter
  • DD2 = Dear Second Daughter

A quick recap of Part 1: “Baby steps” #1 & #2

If you’ve been following this blog for any amount of time, you know that DH and I started our journey out of debt after reading Dave Ramsey’s The Total Money Makeover. Just so you know, I don’t get paid to say that, and I don’t agree with every opinion Ramsey has; he’s far more right wing than I am. The simple truth is that his book worked its magic for us in a powerful way, and for that he has won my respect and gratitude.

Ramsey calls his 7 steps towards financial freedom “baby steps”. For us, Step #1 wasn’t really a step at all.

#1 – Save $1,000 as a mini-emergency fund.

We already had that amount of money on hand, so no problem. When it came to Step #2, however, there was nothing “baby” about it.

#2 – Pay off all debt but the house.

We had $21,000 in consumer debt, and $81,000 in business debt for a grand total of $102,000 non-mortgage debt. It took us exactly 3 years and 2 weeks to pay it off. I still have to pinch myself on that one. We paid it off!

What are the next steps?

Here are the remaining steps according to Ramsey’s plan:

#3 – Save up an emergency fund to cover 3-6 months in expenses in case of a loss of income.

#4 – Increase your investment in retirement to 15% of your gross household income.

#5 – If you have children, save up for their post-secondary education.

#6 – Pay off your mortgage early.

#7 – Build wealth and give generously.

Where do we stand?

Are we prone to a loss of income?

“It’s really hard for Canadians to save up an emergency fund,” said a friend of ours not too long ago. The number one motivation for Americans to save an emergency fund is to cover unexpected medical expenses. For Canadians, health care is largely free (if you don’t count our higher taxes). Furthermore, in my case, if sickness or injury prevented me from doing my job, I would have built-in access to long-term disability insurance.

The one thing that could put a stop to my income is union action – and as it happens, that remains an ongoing possibility. Then there’s the fact that DH’s business is entirely vulnerable. Bad health would mean zero income for him. New expense on the horizon: We are going to invest in disability insurance for him, something we’ve perhaps foolishly put off until the business debt was paid off. We used to have an “It won’t happen to us,” attitude, but not anymore. 6 years of DH’s under/unemployment brought us levels of financial stress that we never want to see again. We know that “it” can happen to us – just like “it” can happen to anyone. We’re going to save an emergency fund.

How is our retirement looking?

Before his career crisis in the early millennium, DH invested regularly for his retirement, taking advantage of his employer’s match program. But for well over a decade, he hasn’t invested a cent. We aren’t too stressed about our retirement though, because I have a great pension plan. I went to Mr. Money Mustache’s Forum a few months ago to seek advice for our retirement investments, given our situation. Many people responded, and I remember one guy saying something like, “If you’re a Canadian teacher, you’ve got it made. $50,000 per year in your retirement – is that right? Any Mustachian can easily live on that.” (A Mustachian – or “badass” – is someone who subscribes to MMM’s extreme frugality and quest for early financial independence.)

I understand that it wouldn’t be wise for us to rely completely upon my pension plan, but it does give us a fabulous foundation for retirement. DH plans to start adding to his retirement investments to the tune of 15% of his gross income once the emergency fund is in place.

What about our children’s post-secondary education?

We started to invest in RESPs (Registered Education Savings Plan) for our three daughters when they were young. It ends up being enough to cover about half of their undergraduate university expenses if they live at home. Each daughter covers the remaining expenses with income from part-time jobs and any scholarships, grants, or bursaries that she can get. DD1 graduated 2 years ago debt-frree. In the case of DD2, who is about half way through her undergraduate degree (debt-free so far), there’s a new expense on the horizon – a big one – but I’ll save that for later. For now, I’ll just say that our basic investment in our children’s education has already been taken care of for our two eldest, and it’s ongoing for our youngest who is still in high school.

And our mortgage?

I find it interesting when people say that they’re debt-free even when they have a mortgage. A mortgage is definitely a debt, but it’s one of those “good debts” – and most of us don’t feel any urgency about it. I do. Maybe it’s a stage-of-life thing. If DH and I were in our 30s, we might be more comfortable with the $128,000 we still have owing on our house, thinking “It will get paid off eventually . . . ” I hit 50 two years ago, and “eventually . . .” doesn’t do it for me anymore. I know a few superstars who paid off their mortgages in their 30s, and if I could go back in time, I like to think I’d be one of them. But since we can only go forward in time, we’re aiming for June of 2019. Not a superstar achievement, but it would still put us in the minority. 59% of Canadians retire while still in debt. We plan not to.

Building wealth and giving?

For me, the gold standard for giving is 10% of gross income, and we haven’t done that since the plunge in DH’s income over a decade ago. Even though our income is once again very healthy, we’ve been focused on debt-reduction, and our giving has been low. We have increased it since paying off the last of the business debt, but it still falls far short of the amount I feel right about. I can only hope that as we continue to build wealth we will also increase our giving.

Here we go!

So there it is: our game plan for Part 2. We only paid off all non-mortgage debt a few weeks ago, but already we’re noticing a strange abundance. When DH and I prepare our budget each month, we have to go through it two or three times, cutting here and there to get it to balance. But when we prepared July’s budget, we had to go over it again for a different reason. We were left with a surplus after our first draft. That has NEVER happened before. A hint of things to come? I don’t know. This stage is new for us, and we’ll take it as it comes. Here we go!

Do you consider your mortgage to be a debt? Do you find it difficult to balance savings with debt-repayment? Are you able to give as much as you’d like to? Your comments are welcome.

OK, this is added for Kay’s benefit. (See her comment below.)


These are called “Sliders”: Baked Baguette/Crab Meat/Buttered Lobster/Confit of Duck/Beef Strips/

Believe it or not, this plate was an appetizer. And we each ordered it! Then I had lamb and DH had fillet mignon. SO full!

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28 CommentsLeave a comment

  • Okay, first off, what are you eating up there? Please. In great detail! 😛

    #2 That was a great rundown of your situation. I’m beyond impressed with what you guys accomplished in such a short amount of time. Talk about focus and determination! I know what you mean about the 50’s thing. I hit it 4 years ago, and it totally changed the way I think about money. 20, 30, and 40 somethings who are thinking about it NOW are so smart to do so. 🙂

    #3 What are you eating up there? Wait, did I already ask that? 😉

    • Kay, I have added a photo and food description above just for you : )
      Interesting to hear that your perspective changed once you hit the big 5 – 0 too. Like you, I think that people who get it when they are younger are so smart. Now go and enjoy that photo!

  • I don’t have a mortgage but I wouldn’t personally consider it a bad debt. I’m so proud and impressed with your laser focus on your debt, and so happy you knocked down that first wall! I find it more difficult to balance stuff I want to buy with savings…not so much debt, although there is just a little bit of that there too. That’s one of my biggest hurdles! I can’t wait to see what you do next!

    • I don’t know how we’re going to do with the whole “saving vs. spending on what we want” front. Savings are for the long term, and it’s hard to withstand the temptation to buy what seems so appealing and attainable right now for the sake of something indefinite in the vague and distant future. I’ll be trying to get over that hurdle along with you! Thanks, Tonya 🙂

  • It sounds like you guys have a really solid plan. I consider mortgage debt and mine makes me nervous sometimes but with interest rates so low – our focus has been on saving and investing vs. paying it down. Once our rate goes up – we will be funnelling more at the mortgage. BUT we might actually downsize before that happens and be debt free. Oh what a dream!

    • Oh, I vote for the downsizing and debt-freedom! But I think you already know that : ) It’s true that with low interest rates, it feels very comfortable to carry a big mortgage. Those rates have nowhere to go but up though, and when they do, it’s going to be very tough for people who have overextended themselves. The other side of low interest rates is that it means any amount you put against debt goes more against the principal than towards interest payments – so it’s efficient to pay down debt when interest rates are low. All the best as you make your big decisions, May!

  • I do consider a mortgage a debt, but I do have the collateral to sell if I needed to pay it off immediately. Unlike my unsecured consumer debt. We didn’t save much during our debt repayment beyond the $1k e-fund, we even stopped retirement savings at one point to have more cash to throw at debt. Sounds like a solid plan going forward. So how does it feel? We plan on having our home paid off too before retirement.

    • It’s certainly true that some types of debt are better than others, and it’s great that your consumer debt is gone! I know that you follow Ramsey too, Brian, so I’m sure our next steps look familiar to you – though your kids are younger ours, so you still have college for 3 to consider. If you and your wife keep up the same level of effort that you’ve applied to this point, I have no doubt that you’ll have your mortgage paid off way before you need to retire. Let’s do this!

  • I am still so happy and impressed about your focus on Step 2. You guys did so good, and I’m really glad you had an awesome celebratory dinner 🙂

    As far as mortgages, they’re debt, but different IF you are not underwater and could ditch them by selling (ie, you live in a not too slow housing market.) So by all means I think people should pay them off, but it’s a little different even than other “good debts,” if, again, you have some equity and don’t hold a mortgage worth more than the house.

    Are you and your husband considering downsizing once your last daughter has graduated? Or do you think you’ll stay in your house through retirement?

    • Thank you, C. We are fortunately not “underwater”. That phenomenon is, I think, not as common in Canada as it has been in the U.S. Our financial institutions are more highly regulated, and the whole 40-year-subprime-mortgage-with-0-down fiasco didn’t have much of a chance to happen here. Our housing market cooled, but it didn’t crash. I think that our house peaked in value a few years ago and has either held steady or gone slightly down. Still, if we sold it and downsized, we would be out of debt. Good question about our future plans! The thing that keeps us here now is DH’s business. We need to have a lot of room for it, and a small house wouldn’t do the trick. Once he has retired, I think we will move, but I don’t know when that will be.

  • Honestly, as an American that’s not what I worry about with my emergency fund. Maybe it’s because I’m still relatively young, or maybe it’s because I’m an idiot. Medical expenses do rank, but topping the list of fears is loss of income and car troubles.

    That pension sounds awesome. Mine is not nearly as generous, and they’re talking about reform and not letting anyone new in – with me being one of the last to enter the program. I’ve got a long while to go till retirement, and I’m no mathematician, but I’m pretty sure that adds up to me getting screwed. Hope I’m wrong, but have a separate individual amount just in case.

    3 years is amazing and so impressive! Yay for surpluses, and that 2019 number sounds so achievable given all the mad debt paying skills you’ve demonstrated!!!

    • FF, I think you’re young – not an idiot : ) And emergencies are more likely to take the form of loss of income or car troubles for you. Having a retirement savings apart from your pension plan is very smart. I should have been doing that all along – but since I had my head in the sand regarding my current finances, you can imagine how much deeper in the sand it was regarding future finances. I really do think that 2019 will be achievable. We’ll be saving as well as paying off the mortgage, so our rate of debt repayment will be slower. On the other hand we’re paying radically less in terms of interest, so our repayments go further now that ever. Thanks for the encouragement! (And don’t worry about the typo. I fixed it : )

    • Is it your only debt, Christina? If it is, even a bit of an extra payment each month makes a difference of years in the in the long run. I’m with you in knowing that paying off the mortgage will feel so good!

  • Congrats on almost debt free life (except the mortgage)! On the giving front, I might recommend that you grow your giving muscles the same way you’ve grown your investing muscles. Perhaps right now you can start with just 2% of gross and increase by .5% per month. Then, within a year and a half you’ll hit the 10% that you want.

    Of course, you’ve got a lot of other financial goals too, so my suggestion might not work, but I hope you keep giving as a top goal for you.

    • Thank you, Hannah. Your suggestion is a good one. I like the idea of growing “giving muscles”. I think of it as being in line with growing “frugality muscles”. Good food for thought there. Thanks again : )

  • I love your statement, “I find it interesting when people say that they’re debt-free even when they have a mortgage.” So true. I get it that a mortgage seems like a family pet for most people, but like you, I’ve got a fire lit in my belly to knock that puppy out. You’ve got a solid plan; here’s to the future!

    • You’ve got that fire in your belly at a much younger age than I had it! I don’t know if I thought of our (originally big) mortgage as a pet at first, I think it was more that I couldn’t even conceive of paying off that much. It was something that would happen “some day”, and I didn’t understand the urgency that a few smart people I knew felt about it. All the best in your mortgage conquest, Janeen!

  • Our mortgage is definitely a debt. Unfortunately, it has two priorities in front of it. First, the dreaded dental bill. Then we need to focus on retirement. Ideally, I want to put away 1/4 of what I pay myself (I’m a corporation to cut down on taxes) into a SEP to make up for lost time. Then we can focus on the mortgage. So it’s pretty far down the road. At best, two years out. Maybe more. Then we get to start saving for a rental property to help boost our retirement income.

    • I think age plays a part here, Abigail. You are much younger than I am, and it makes sense that there would be priorities in front of the mortgage. I like the idea of investing in a rental property. I guess the possible hazard there would be to stretch out too thin – but I’m sure you’ll have a plan in that regard. Thanks for commenting.

  • I think of myself as debt-free even though we still have a small mortgage. It’s probably because I have the money to pay it off if I wanted to. Keeping it for 10 more years is more of a strategic thing. I agree with you though – I don’t see why anyone would want to retire while still in debt.

    • Having the money to pay off your small mortgage – that’s a great position to be in! And I understand that some people choose to keep a strategic mortgage. I am so debt-averse by this point, I think I’ll have a very hard time not cashing in all of our savings once they equal the mortgage. I’m sure you’ll pick just the right time to kill yours off. Thanks for the comment, Holly and Greg : )

  • I love how you said you already have a feeling of abundance since paying down the debt! It sounds like you have a solid plan moving forward and you’re in a good position overall. Best of luck with saving a larger emergency fund and then working toward your other goals!

    • Thank you Jennifer. The game plan changes now with significant savings being mixed in with our continued debt pay-off. It’s easier psychologically, I find, to focus on one thing alone. Having this double focus will be tricky for us I think. Thanks for the good wishes : )

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