I have recently been super inspired to get out of debt because I came to the realization that I don't want to have to work until I drop dead. I want to have savings, investments, a paid off house one day (says the girl who lives in an RV). So here is a super honest blog about my finances!
First off, what are my debts? Luckily I have no credit card or student loan debt. But...I was dumb and funded the purchase of my beautiful truck with a loan. I bought him brand spanking new, which means instant depreciation. I kind of rationalized it to myself saying "I've been driving my old 1996 Camry for 7 years. I need something reliable since I'll be traveling all over. I want something under warranty. I don't want a used 2500 commercial truck that's been beaten to death. The interest rate is only 1.7%. I'll make some of the money back when I sell it once I'm done traveling. This will help me build by credit score". and other really dumb things that you say when you convince yourself you need to buy something, and that you need to buy it NOW! Additionally, I don't own my RV outright. My mom loaned me the money and am paying her back in monthly installments.
It's now been about a year since I took out the car loan and bought my RV and I've managed to pay off $18,500 up to this point just by kind of being lackadaisical, not really making a budget, just paying off the minimums plus a little extra whenever I felt like I had some money to spare at the end of the month.
Since my car loan is only 1.7% interest my other is also a small rate of interest some people might question why I'm paying it off at all. The "traditional" wisdom states that if you take the money you would be making towards extra payments and put it in a good growth mutual fund paying 6-10% interest, you will be much more wealthy with more cash flow if you actually hold onto those debts as long as possible. Well, to that I say that there is this general knot in the pit of my stomach thinking about this looming debt, this dark cloud. Income is the most powerful wealth building tool, and right now I'm not able to have a say in where a large chunk of mine goes. I want that control back. If I didn't have to pay that debt, I could instead put it toward building wealth!
I just recently started listening to Dave Ramsey, debt guru extraordinaire, and my eyes have been opened. His passion swept me away and I wanted to join all the people calling into his radio show screaming "WE'RE DEBT FREE!". I thought I had been moving steadily along because I could pay my bills easily and I had extra left over each month for spending and saving. But really I was poking along like a turtle when instead I could have attacked the debt with the kind of intensity and focus a gazelle uses to escape his hunter...known as "Gazelle Intensity" in the lingo of those who drink the Dave Ramsey Kool-Aid. Dave Ramsey has his own baby steps that I'm only loosely following. My main steps are as follows:
Step 1: Create a budget! I had been tracking my expenses as they occurred through an excel spreadsheet for about 6 months, but had not actually taken the step of being proactive and budgeting for an upcoming month. This month I downloaded the EveryDollar App, and it already has changed my whole perspective on budgeting and fiance. Seeing every single dollar laid out with a mission and a purpose and seeing how much I have left over that can go toward debt repayment really has me fired up! Not only that, but it kind of gives me permission to spend and give money. Before I did this budget, I had a vague idea that I could use some (undetermined) amount of money each month for new shoes, or a guitar lesson, or give a dollar to the grocery store cashiers who ask for it for their causes. But now, I have a PLAN. I know exactly how much to spend on each item, and the thing I am most excited about is my new budget category for giving to worthy causes (I found an extra $100 a month that I can be giving!). I am thinking about doing some blog posts about the organizations I will give to, so stay tuned for that!
Step 2: Attack that debt!!! Net worth is defined as total assets minus debt. Ladies and gentlemen...that puts me firmly into the red. Because I have developed a kick ass budget, I calculate that I should be able to pay off about $34,000 per year (double what I paid off this year!), which means my dumb car loan will be toast by early 2018, a full 3 years ahead of schedule! During this time I will still be funding my IRAs and 401k, my emergency fund, etc. Dave Ramsey does not recommend funding these things while in debt , but I am going to continue doing it anyway because I want that compound interest in investments working for me.
Step 3: Once you are debt free, move that free money each month to additional savings and investments and build wealth. I'll let you know how this step goes once I get to it :)