Law school (and my undergraduate degree in English, to be honest) set us back a pace financially. Throw a baby into the mix before second year, and we were essentially living way beyond our means. When I went to law school, our family had to survive on one income – and it didn’t go as far as we’d like. We unfortunately dipped into Tyler’s line of credit far too often, and when I found out what the balance was, I swear my heart stopped temporarily: it was basically equal to a second student loan. And not the portion of my student loan attributable to law school – my entire 7 years of post-secondary education.
Since then, I’ve been admittedly preoccupied with debt. As someone with a tendency toward anxiety anyway (shocker, right?), I spent too many nights tossing and turning, thinking about how much we owed. How did we – a professional engineer and a lawyer to be – get here?
Well, aside from the fact that post-secondary education is a bit of a questionable investment (but I’ll save that for later), and that money-making opportunities in our tiny province are relatively mythical, we messed up. We treated our line of credit as an inexhaustible source of income.
To be fair, I didn’t get a full student loan during law school. I applied for as little as I could, and received far less – mostly because we were a two income household. Essentially, for the last two years, my student loan covered about 80% of my tuition and nothing else. So we had to pay the remaining balance from the line of credit, as well as books and ordinary living expenses.
I wish now that we had been more frugal while we were away at law school. We had to rent our home to move away for school (at a bit of a loss to us), and so we were paying a ton of rent. We dug ourselves into a financial hole that is pretty deep and dark and scary.
And now, we’re in our early 30’s and drowning in debt. We finance two cars, have a mortgage, a line of credit, my student loan (Tyler was able to pay his off with a settlement he received), and a few thousand dollars in credit card debt. Neither one of us is even thinking about saving for retirement, and we’re only putting away a tiny portion in an educational savings account for Ellie.
But, I’ve recently decided that we’re not going to live like this anymore. I often have people tell me that we shouldn’t be complaining about money (and we shouldn’t be, but it does happen). What they don’t realize is how much debt we have (think in the realm of 6 figures, not including our mortgage).
My goal is to be consumer debt free (meaning, minus our mortgage), just before I turn 36. (That’s less than 4 years, in case you’re wondering).
I’m mildly interested in Dave Ramsey’s ‘Baby Steps’ – to an extent. I love the idea of ‘snowballing’ your debts, but that’s where my love affair ends. I have sort of developed my own strategy, loosely based on his principles.
Here’s what we’re doing to help chip away at the debt that keeps me awake at night:
- Secure a side hustle (or two. No, I cannot sell Arbonne or Lipsense or Tupperware. I just can’t do it. Props to those of you who can, but MLM’s are just not for me. I have ZERO interest in sales. I barely even like people. So, we thought long and hard, and decided to rent out our unused basement as an Airbnb unit. The basement required a bit of an investment up front, but we did it as cheaply as possible. The basement is entirely separate from our house, so I don’t even have to interact with our guests often! It’s a dream come true. This has been a great source of income over the summer months, but I expect it will quiet down in the winter. We may decide to rent it out in the winter months – who knows. It does take up some time and we’re constantly doing laundry, but it works for us. My point being: find a side hustle that works for you. Neither of us can really find time for a second out of the home job, so this works well for us.
- Make – and stick to – a barebones but REALISTIC budget. I’m constantly creating budgets. I don’t know why, it’s just something I need to do. I’m a bit neurotic about it. My one drawback is not leaving enough ‘room’ for error or emergencies, which causes us to run too short week to week. I need to get better at preventing us from using our credit cards at the end of the pay period. (Short of cancelling them, because honestly it’s 2017 and people need credit cards). Also, here’s a tip: if you’re working with a variable income (such as our Airbnb income), average it out as best you can. AND budget using NET INCOME, for the love of all things holy. Yes, our gross incomes look better on paper, but they’re nowhere near what we actually take home per month (helloooooo, $1000 biweeky paycheck deductions).
- Add debt repayment as a line on your budget. For example, we allocate a certain amount in our bi-weekly budget for debt repayment. Not too much, because that runs the risk of you reaching for your credit cards, and not too little – because, progress. I’m still trying to find that ‘happy place’, which brings me to my next point.
- Track your spending for 2 months (minimum). Don’t make any adjustments to your spending during this period – or in other words, spend very realistically. Track EVERY LITTLE THING. Then, average it out to come up with an appropriate amount to add to your budget for that category of expense. We are terrible at this, but it HAS to happen to give you a clear idea of what your spending habits are and to help you set a realistic budget.
- Challenge yourself to add extra to your debt repayment amount each month. Track how much you’re paying on debt each pay period (yes, regular car and mortgage payments count!) and challenge yourself to beat that amount next time around. Make a visual representing how much you’ve paid and how much you’ve left to go.
Using these methods, my goal is to pay off approximately $1000 in debt each pay period (that’s above and beyond our regular car and mortgage payments), which means we’ll be poised to be consumer debt free by 35! (And maybe even before then!)
What are you doing to pave the way to financial freedom?