For most of my adult life, I dug holes. Not the dusty soul-crushing ones like Stanley Yelnats, but the financial variety. I took on debt as a rebellion for my unhappy relationships… as a “yes” man that did not want to miss out… even as a vehicle to fund my career switch. I kept digging.
It spanned years… thirteen to be exact. Jumping from one financial extreme to the next with no end in sight. A roller coaster of a ride that might have been acceptable for my younger self, but at 35… not so much. At the end of 2017 and after a date with my girlfriend celebrating my last final exam in graduate school, I mulled over my finances… $27k in debt… no retirement savings… starting my career over… stressed… self doubt.
I needed to get my shit together. With graduate school winding down, how could I possibly share my life with someone else while riddled with the debt and stress? I came to the end of my “poor college student” excuse. I needed a lasting level of financial health that would lead to an increased enjoyment of my relationships, life, travels, and so much more. My happiness was at stake, so I threw down the worn shovel and determined that 2018 was my year to get my shit together.
In January of 2018, I first set out to attack my debt. Each month I paid off a little, but the interest charges tacked on more or an unplanned expense set me back. I needed a pause button. I needed time and a chance to pay it off and budget better. After some searching online, I finally settled on balance transfer credit cards. The potential temptation to use those cards to accumulate more debt lingered, but I forged ahead.
NerdWallet compiled an online list of credit cards that focused on 0% APR for 12 months, 0% balance transfer fees, and $0 of annual fees. I chose three and transferred my balances over to them, saving $200 a month. A small but vital victory to say, “I can!”
With the transfers complete, I put together a “Get Out of Debt” plan: (1) get a budget together, (2) pay the minimum on each credit card to minimize fees, (3) pay off my student loan quickly, and (4) then focus on paying off the credit cards.
First up… a budget. Normally, budgets consumed me. I counted every penny and obsessed over every purchase and could not keep up with it for very long. Not this one. I opted for a fluid budget, becoming my own Chief Financial Officer (CFO). By increasing my profits, anticipating any major expenses, and understanding my spending habits, my days of tracking every penny ended.
I built my first budget of 2018 on ideal spending habits. At the end of the month, I pulled my actual spending habits, analyzed how I spent my money, and created the next month’s ideal budget. It became a fluid document. I understood there would be tradeoffs… and even challenges to that budget but I was prepped and ready.
Not even two months in, a promotion tested my budget resolve. In 2017, the year prior, I purchased a used 2004 Honda Civic (named Harry by my girlfriend) to bridge the gap until I had enough funds for a new car. Once the promotion finalized, I thought about trading up and chatted about the idea with my girlfriend on a celebratory lunch date. The conversation basically went…
Me: Hey babe. What do you think about me getting a new car?
GF: I don’t know. Does your car still work?
GF: Then why do you need a new car?
Me: Ummm… yeah, I guess not.
Just the simple question of “Does your car still work?” resonates with me to this day. I chose to stick with Harry. No car payment, low insurance costs, and minimal maintenance and repairs. Harry definitely won’t impress anyone, but he still works during the 4% of my day that I actually use him. Rather than using the money I received from the promotion for a new car, I accelerated my debt payoff, and even traveled a little.
Finally I had a budget that helped me control the spending, but flexible enough to enjoy different events and life experiences like a trip to Ireland and a weekend at Austin City Limits (ACL).
Not only did my budget and the car conversation influence my transportation costs, but it spread to my other consumerist tendencies. Society pushes this idea of owning the best stuff. The newest iPhone. The trendiest clothes. The nicest house. Now when I think about purchasing something new, I take the old object and ask “Does ‘x’ still work? Then why do I need a new ‘x’?”
Without the persuasive consumerism nagging me, I stopped budgeting for things and focused on experiences, transitioning away from the Dave Ramsey-like categories to a simpler model. If I wanted to buy new things like clothes, then I would have to take away from my entertainment or travel categories. So I began to think, “would I rather take a trip with friends to Denver, or buy these trendy clothes?” This tradeoff approach saved me more money over the first half of 2018, and had me contemplating life after debt.
I discussed my initial thoughts on life after debt with my brother in June of 2018 and he recommended I read the book “The Simple Path to Wealth” by JL Collins. I thought, “might as well give it a try.” I purchased the Audible version and pressed play. And kept listening until I finished it two days later.
I latched onto financial independence (FI). I have never before pinpointed a goal for life after debt. It’s probably why I fell back in debt after getting out time and time again.
Financial independence was now my goal. Such a simple idea… to work and save until I had enough money that I no longer needed to work and save. Then I could live a life of freedom, choosing to keep working or retire or travel or all of the above. My mindset for life after debt shifted. Rather than just a “Get Out of Debt” plan, I expanded it to a Financial Independence plan that catered to my job, streams of revenue, and current expenses.
- Step 1: Deposit enough in my 401K to receive my company’s maximum match.
- Step 2: Save $1k for small emergencies with the car or house.
- Step 3: Pay off debt with a 5% interest rate or higher.
- Step 4: Open a Roth IRA and contribute the maximum amount ($5.5k in 2018, $6k in 2019).
- Step 5: Save $5k for any potential health emergencies or larger house fixes.
- Step 6: Max out my health savings account contribution ($3.45k in 2018, $3.5k in 2019).
- Step 7: Double my 401K savings.
- Step 8: Open a brokerage account and save equal to the Roth IRA ($5.5k in 2018, $6k in 2019).
- Step 9: Max out the 401K ($18.5k in 2018, $19k in 2019).
- Step 10: Pour the rest of the money into the brokerage account.
The initial goal was to stick to the FI plan, but instead of paying off all of my debt with 5% interest rates or higher, I diverted some funds to Step 8 and begin purchasing stocks.
I learned later that I should not have, but I love investing in the stock market. During my senior year of high school, I took Mr. Kieke’s economics class where we enjoyed a month long stock market competition. Ever since that first taste, I dreamed of owning businesses and having my money work for me passively.
When I funded stock investing in 2018, I was not yet prepared to deal with the stock market drop in October, November, and December of 2018 with my debt still enduring. This market drop helped me refocus on my debt. Not skip ahead to Step 8. I had to complete each step in my FI plan before moving to the next. My FI plan might change in the future (currently researching potential investments in property for rental income for instance), but with 2018 in the books, I was back on track and happy.
“You don’t have to see the whole staircase, just take the first step.” An apt quote for my year. Glad I took that first step to address my finances. Over the course of 2018, I paid off a total of $20k in debt. Working it down from $27k to $7k. I also saved $4k for retirement in my 401K.
Two months into 2019, I paid off my final credit card, getting back to zero… dollars that is. Life after debt kicks ass and 2018 was a banner year! I got my shit together after better understanding my history, heightening my focus on my goals, building a solid plan, and seeing that plan through to the end, even with the small detours. No more digging. No more extremes. No more stress.
And now I truly begin my path to financial independence. Starting joyfully at zero! As I learn more about FI, retirement, taxes, ways to save money, and so much more, I will write about them here (at least once every two weeks) and place another tool in The FI Happiness Toolbox. Hope you will join me in creating a toolbox for all to use!