2011: a sense that we needed to change
In 2011, it was clear that our circumstances had changed for the better. After a destabilizing decade of career upheaval and financial distress, DH had started a business, and two years in, it was succeeding! What a profound and welcome relief! We could go back to normal. Better days were ahead!
But something didn’t feel right. “Normal” felt hazardous – like being in a building without a foundation – always bracing for the tip-over and crash. We didn’t ever again want to experience the financial vulnerability we so recently had lived through, and there was a chaos to our money management that we knew could lead to it.
Something other than our circumstances needed to change. We needed to change our money-management. From June of 2011-June of 2012, we paid off $16,000 in debt. Not bad. Probably our best to that point. (We weren’t tracking our debt repayment then. It was later that we looked at our numbers for that year.)
In May of 2012, we listened to (and then read) Dave Ramsey’s The Total Money Makeover. The next month, we started our journey out of debt with dramatically increased doses of clarity, focus, and hope. From June of 2012-June of 2013, we paid off $50,000 in debt – with the same income and expenses as we’d had the previous year,
What if …
In 3 months from now – in September of 2018 – we will pay off our house and be completely debt-free. The $257,400 of consumer debt, business debt, and mortgage debt that we carried 6 years ago will be gone!
If we had just continued with our correct but vague understanding that we needed to change the way we handled money, where would we be now? Of course, it’s impossible to say, but I’m going to give it a try.
In the year after June 2012, we paid off 312% more debt than we had the year before. If I apply that percentage to the years that followed, this is what I get:
- From June 2012 – December of 2017 we brought our debt down to a $60,000 mortgage after paying off $197,000 – including all of our consumer and business debts and most our mortgage debt. We also saved up a full emergency fund (to see us through 3-6 months of income loss).
- $197,000 is 312% of $63,000.
- So I would estimate that if we hadn’t read Ramsey’s book, we would have brought our debt down by $63,000 to $194,000 by December of 2017.
I can only guess that it would have been made up of approximately $15,000 in consumer debt (because we wouldn’t still be driving our ’99 Dodge Caravan) + $65,000 in business debt + a $115,000 mortgage. We would certainly not have saved up an emergency fund.
Before the end of 2017, I received the first part of an inheritance that allowed us to put down the maximum annual lump sum against our mortgage. This brought our total debt down to $42,000.
I believe we would have done the same if we hadn’t been following Ramsey’s plan for debt freedom. In our alternate reality, this would have brought our mortgage down to about $97,000 and our estimated total debt down to $177,000.
Since the beginning of 2018, we’ve used the inheritance to max out on our mortgage payments – meaning that we’ve doubled up every month. This, combined with our 2nd lump sum means a debt-free date of September 2018. We will invest almost all of the rest of the inheritance, so that for our outlook, we’ll have the freedom to retire by July of 2019.
I believe that in our alternate reality scenario, we would also have maxed out on mortgage payments, and that by September of 2018, it would have been down to around $63,000 (interest taken into account).
Would we have paid off the business debt, and our remaining consumer debt? I can’t be sure, but I doubt it. Here, my guesses are less certain. I’m basing them on the way we used to think. Ramsey’s plan involves focused intensity: knock off one debt at a time; then save up the emergency fund; followed by a split focus on investments and ramping up mortgage payments. Our own efforts to change our finances were less focused – more scattered.
I believe we would have paid off the consumer debt but not the business debt. We would have invested, and we would have spent. “Use a bit of your inheritance travel and have some fun,” a colleague said to me. “Your mom would want that.” We would have followed that advice in our alternate scenario. A family vacation. Some home improvements. But we’re not doing that (and I’m pretty sure my mom would be relieved).
Alternate reality: September 2018
Instead of being debt-free and within a year of financial freedom, this is where I think things would be in September of 2018 if we hadn’t started following Ramsey’s debt-reduction plan:
- debts by September 2018: $120,000 (business debt & mortgage)
- investments from inheritance – about 50% of what we actually are investing.
- outlook: debt-freedom / freedom to retire still several years away.
The “ether” effect
After our first 6 months of debt-reduction, I was truly baffled by our progress. It made no sense to me that we’d been able to pay off as much as we had. “I can’t wrap my head around it. I don’t get how it all adds up. But it does,” I wrote at the time. DH – also incredulous – said: “It’s a thing that happens … When you go at something with passion and purpose, it becomes greater than the sum of its parts.”
In the same way, I find myself baffled by my estimated numbers – which are reasonable, and possibly too generous to our alternate selves. It is reasonable to estimate that we would have spent $200,000 more than we actually did over the last 6 years if we hadn’t read The Total Money Makeover (considering higher debt numbers, less in savings, and less in investments).
What would we have done with all of that money?
After our first 6 months of debt-reduction, when we had put all extra income against debt, I tried to figure out what we had done with the same extra income from the year before. “Did it all float into the ether?”‘ I asked DH at the time. It had.
Of what would that ether have consisted over the last 6 years? Again, I can only guess:
- a new vehicle (~$25,000)
- 10 trips (~$25,000)
- more expensive grocery bills (~$10,000)
- extra home improvements (~$25,000)
- regular house-cleaning service (~$10,000)
- higher discretionary spending on clothing, restaurants, entertainment (~$10,000)
- more gifts and money for our children (~$15,000)
- outsourcing repairs and other jobs that we (DH) DIY’d ($20,000)
That doesn’t add up to enough, but it’s a sampling of the many ways our money would have “floated into the ether” if we hadn’t become intentional and focused. Bottom line: Ramsey’s plan has made a staggering, life-changing difference. DH and I are so grateful for that pivotal moment in time when we chose to change direction and go a better way.
Do you have a “What if …” scenario? Are you ever baffled by the changes that focus and intention bring about? Your comments are welcome.