Tuesday, February 24, 2015

Lessons in Financial Peace

I recently shared our financial status on Facebook and realized quickly what it meant to share those details with the world. I realized it could be embarrassing to share with family, friends, people I went to high school with, people I've worked with, even our mortgage adviser that we had gotten ourselves into trouble. Instead, I decided that I would open up even more in the hopes of helping another family succeed. I have shared about our decision to live like no one else a couple times on my blog. I'll admit that at first I worried it would just be a "phase" we would go through and once our enthusiasm was gone, the plan would fizzle. I am happy to say now, 4 years and 10 months later, that we are still going strong and reached a major milestone. WE'RE DEBT FREE!!!!! (except for the house). To fully appreciate that, let me give you some numbers and tell you our story... 

I will start by introducing myself: I'm Katie and I am the "nerd". That means I like to make the spreadsheets and since I'm such a good nerd, I even did an extra spreadsheet to track our debt. So, here is our financial dirty laundry in black and white. In April of 2010 we had $90,577.07 in debt (not including our house). According to the payment plans we were on, we would not finish paying all those debts until March 2028, and that assumes we would not have added any other debt in those years which obviously was not our habit. By paying off these loans in just under 5 years, we saved an estimated $20,500 in interest. I also calculated that we paid an estimated total of $103,500 in principle and interest on those loans in just under 5 years. This means we paid over $20,000 a year to our loans on my husband's income while I've been hard at work as a mostly-stay-at home Mom. Life has also happened in these years, our car needing several thousand dollars in repairs, our house flooding and having hail damage, minor medical expenses, schools and activities to pay for our girls, building a business for me to work a little on the side, and even a couple of small trips. We have managed all of this on a plan. These numbers are big, they actually boggle my mind, but the lessons we learned in these years are more valuable than any of those numbers. Here is our whole story:

It happened six months after our second child was born. We were trying to balance everything going on with a new house and new child. We tried to have as frugal a Christmas as possible while still making it nice. At the beginning of  the next year we got a notice from our bank. We had overdrawn our account by $200. I was shocked. This meant that we had blown through the several thousand dollar "buffer" we had in our account from a tax return in less than a year, and an additional $200 we didn't have. I knew we had to do something different, I sat down at the computer and pulled up old budget spreadsheets and remember thinking “budgeting just doesnt work for us!

We got a phone call that month that would change everything. My sister-in-law had told me 2 years earlier about a program she and her husband were taking through his work called Financial Peace University with Dave Ramsey. She had gushed to me over the phone about all the things Dave says and how great it is. I remember her explanation that you add up what you will spend for the month and then put everything extra toward debt.  I also remember mentally rolling my eyes and thinking Well good for you, we dont have any extra so how is that going to work? Well, this sister-in-law called again at the right time. I dont know how it came up or what I said, but she told us that if everything continued as planned that they would be out of debt that coming summer. Wait, WHAT? I knew she had tens of thousands in student loans like I did, and I knew it had only been a couple of years. Alright, she got my attention. She offered to send us the CDs and workbooks, and we thought it was worth a shot.

I loaded those tracks onto an MP3 player I had, and went outside to weed our lawn. This being a several day process (gotta love a fixer-upper), I managed to listen to almost the entire 15 hour program while weeding. Once I got through the first section, I went into my husbands home office and instructed him to start listening RIGHT NOW. I remember little of what was actually said in those 15 hours, Ill admit, but what I do remember is how it made me feel. I remember at one point Dave earnestly stating You work TOO HARD to…” live paycheck to paycheck, feel like you are just treading water. I dont remember the exact words, but that was how I felt, so much so that there were tears streaming down my cheeks. Im sure I looked like a crazy lady weeding her yard wearing ear buds and crying rivers, ha ha! After just the first few hours listening to this program feelings began to grow in me, brand new feelings Id never experienced in regards to our financial situation: motivation and hope. I committed myself to try, to do the work on paper and see what would happen. I really had no idea.

I have that first FPU spreadsheet I made that month, copying (just for us) the worksheets in the workbook into a spreadsheet. I started filling out the forms Quickie Budget. That was pretty simple. I looked at our bank account and was able to estimate what our monthly necessities like food, shelter, transportation, and utilities cost us. That was relatively painless and seemed reasonable. For the first time I had a tool to take into account annual expenses like car registration and contact lenses. The nerd in me was singing. I put in our regular income, $3700, which was my husbands monthly income and it still looked okay, still a few hundred more a month then our expenses. And then. The bottom line.  For the first time, other than just my student loans, I added up our debt. I took a deep breath when I saw that total: $90,577.07 Wow, what a weight. I filled in the Monthly Cash Flow Plan with all the necessities and the annual expenses. Then I totaled the monthly payments for those debts: $1436.86. I was speechless. There wasn't any money left, there wasn't even enough to cover all of that. Big. Ugly. Cry.

I thought quickly. Fortunately, it was tax return time. We were able to put $1000 into savings for baby step 1 right away, and then we paid off a couple of the debts we’d been planning to take care of with that money anyway. I took the remainder of our return and divided it by 12 to add to our monthly income. I crunched all those numbers and we could just get by. I remember when I sat down that I was thinking “okay, so a movie would be like $20 a month and maybe $30 for a restaurant once a month”. I was sobered. With what little wiggle room we had, I could just squeak out $10 a month for entertainment. I realized quickly that I had not been realistic about spending money, ever. I couldn't imagine living this way for a whole year. Worse, what if it didn't get better that year? I think this is what made me commit to the next step: get OUT of debt. I realized that if we could just get rid of a couple hundred dollars in debt payments a month, we would at least break even without counting on the tax return. That became my goal, even though I wasn't sure if we could even stick to the budget yet.

Well, long story short found in tidbits on my blog here and here, we followed the plan, followed the rules, and watched it start working. We were blessed by support from our friends, especially our best friends who took the class the following month. We did our financial workbook every month, and after a year I was amazed. In March, almost a year exactly to the day we started we had paid off every debt except our student loans. $18,532.69 to be precise. I cried again, this time out of pure joy. We had lowered our monthly debt payments not by $200 a month but by $475. It was a just a small chunk of the total but it was better, and most importantly we were making it work. We could live on a budget AND enjoy our life, more in many ways than we had before. Sure, we had sold a lot of our fun stuff, and sure we couldn't do everything we done in life before, but we could still live and have fun. That was a wonderful lesson for us to learn in that process. That first year was also the success we needed to continue the long journey ahead.

We had paid off the $18,000 but we still had $71,694.61 in student loans. We also had not been budgeting realistically for the long term, we needed to budget at least a small amount for some trivial things, you know, like clothes that were literally wearing out ($20 a month goes a long way at a thrift store, FYI). There were a few other expenses we really felt were necessary including some work on our house and starting our oldest in preschool. I was happy with our ability to do all of this, but I also think I started to realize just what a long process this would be. It was exciting to watch $2000 debts disappear from our workbook, but I knew that those student loans wouldn't disappear so quickly. It took about 15 months to pay off the first student loan, the “little” one my husband had which was just $8100 when we started.  There was still $54,000 left of my loans and thoughts like at this rate it will take…” started to deflate my enthusiasm and threaten my resolve. This is a feeling I would grow to know well, extreme pride and happiness in our accomplishments, but impatience and even doubt about reaching the next goal.

I've always taken the phrase “let go and let God” with a bit of skepticism. I’m not good of letting go of control over even the smallest things in life, and I know that sometimes God needs me to DO the work. Another year of the journey went by and the balance was down to $39,500. At this point I was feeling drained and guilty. We had worked and were giving up so much, but that weight of mine still felt like it was holding us down. I was sitting in Bible study one Tuesday morning in October, dwelling on these thoughts and feelings rather than the lesson that day when all of a sudden I heard a stern voice “Stop watching the balances”. I got goosebumps and looked around to see if anyone noticed my discomposure. I kept this moment to myself at the time, but little shivers of excitement ran through me as I wondered what God was planning. I went home and told my husband about this experience. I can only imagine how it would have sounded “so I heard a voice today tell me to stop watching the balances”. It didn't have quite the impact on him as it had me, but he and my best friend both encouraged me saying “Well, I guess you’d better listen”. So I did.

I stopped tracking the exact balance of those loans and just kept putting in every bit we could squeeze from our budget and extra income. Six months later I couldn't believe it, we paid off one of those huge loans. I cried a few tears at God’s goodness and faithfulness. One loan left, just over $20,000, and I knew we would get there. There were chinks of lights around a space that had been so dark. I began to experience a feeling I had not realized was even needed, lightness. It was only at this point that I realized just how much guilt I had carried for so many years, guilt over ignoring decisions about college when I should have dealt with them, guilt over carrying so much financial burden into our marriage, guilt over staying home with my children. I was able to forgive myself and finally feel peace and pride in myself again.

That was just ten months ago, and again I was faithful to God’s instruction and did not track the balance until this month. I started to add up the money from this and that and started to realize we were probably getting close. I had to print tax documents for the loan so I logged into our account and there was the balance, $10,800. It was, of course, at this time that the car would start “acting funny”. Those selfish feelings of mine welled up again and I got so grouchy. I snapped at my husband, started looking at “newused” cars, and threw my version of a pity party. Thankfully, by now our financial habits are pretty well cemented and instead of snap decisions over the car we did the smart thing and had it repaired.

That brings us to today, February 23rd, 2015. I woke up this morning and it was almost like Christmas! I checked our account and that last paycheck we were waiting for had been deposited. I immediately ran to the computer and logged in to our loan account, selected “loan payoff” and click the buttons. It was done, we are debt free. I expected a torrent of emotions, but it doesn't feel quite real. My husband and I shared a couple of smiles and a little hug, and I messaged my best friend with the news. A few solitary tears of happiness rolled down my cheeks.  I’m sure all those emotions are still coming.

I truly think the time we saved and the changes in our behavior with money are the most valuable in this whole story. I am very proud of our accomplishments with this. I am proud of my diligence in doing the worksheets (almost) every month, for living on a cash envelope plan, and especially for finding in all of this that the joys of life are usually the ones that dont cost a thing. I am more in love with my husband than ever. He has provided for us consistently and without complaint, shared these financial goals, supported my dreams, and never held one bit of that burden against me. We also have not fought about money since we started, that makes almost 5 years of financial peace in our marriage. We've discussed finances (a lot) and had a few small disagreements, but we dont fight. At the beginning I would often say that we dont have any money so there is nothing to fight about! I can definitely say our marriage is exponentially better because of this journey, and I cannot wait to now build our future together. 

We also are deeply grateful. We have had the support of family and friends that counts for more than any of the dollar totals. Our best friends have been our companions, the ones who truly get it when we've said its not in the budget. We've done countless meals together, at each others homes instead of restaurants, and enjoying each others company just as much if not more. They have been shoulders to lean or cry on and companions to share a laugh with. Our family has never undermined our goals and have supported us in countless ways, from gifts to weekend trips, to free childcare. These people in our lives are true blessings, and I am so glad to be more grateful for them than ever before. We truly could not have done it without them.

Our future is one bright open door right now. Yes, the monthly worksheets and budget discussions with my husband will continue. Now, we get to give and save. Giving to others as God has called us to give, showing in one way the grace and faithfulness that he has shown to us. Save for our security, save for our retirement, save for the future of our daughters, and save for fun. We are already booked to go to Disney World this fall, what an amazing celebration that will be (all paid for in cash, of course)! I am looking forward to watching our goals change from numbers going down, to numbers building. We did this, now I know we can do anything we set our minds to. Its a great feeling, to be FREE!

1 comment:

Naomi Cruz said...

Way to go! It must feel so liberating to pay that final debt off. I agree that with a little bit of focus and discipline, any financial matter can be solved. I'm proud of you for planning your way out of that debt and responsibly following through on your plan and budget. Thanks for sharing that, Katie! Kudos and all the best to you! :)

Naomi Cruz @ 4 Pillars