How the debt snowball and living debt free allowed me to save $1,600 in one month.
Are you working hard to save money and get out of debt? Well, I am too! Don’t over complicate it! Here is the one thing I cut to save $1600 in one month with the help of the debt snowball.
This year I am intent on saving $20,000 of my own earnings. I have broken it down into big monthly steps to save at least $1,600 each month. Our family is trying to make a habit of saving a huge chunk of money every month so that later we can LIVE LIKE NO ONE ELSE!
Last month I let you know about all of the habits I changed in January to save $1,600. However, this month I want to tell you about the 1 thing that I cut from my budget that you can cut too! Many of you think $1,600 is an unrealistic number to save, but you might be surprised if you take an honest look at your finances.
LOOK AT YOUR FINANCES THROUGH A BUDGET
Every month my husband and I live on a budget. We plan, in advance, what we are going to do with our money over the month. Of course, some expenses are always fixed, but with our budget we can determine just how much to save in advance over the course of the month.
If you have been following along with me, you know that I believe that a budget can set you free. Rather than viewing a budget as a restriction or some sort of diet, we view a budget as us being in control of our own dreams. If you want to learn more about how I used a budget to set me and my family free, read here.
Deciding in advance that we are going to save at least $1,600 is how we are planning to meet baby step 3 in one year!
BABY STEPS TO SAVINGS
If you are not familiar with Dave Ramsey or the baby steps, I highly recommend The Total Money Makeover.
The book completely changed how I manage my finances. It breaks real money management down into bite-sized pieces.
Dave Ramsey teaches to divide your road to wealth into 7 steps. The first three are: 1. Save $1,000, 2. Pay off all debt except your home, and 3. Save 3-6 months of your expenses in an emergency fund. After completing these steps, he teaches to save 15% into retirement, save for your children’s college, and pay off your mortgage. Finally, he teaches that you should be fabulously generous!
THE ONE EXPENSE WE CUT TO SAVE $1,600 THIS MONTH
As we went through our 1st and 2nd baby step, we were paying our fixed expenses, childcare, and the mountain of other bills that come along with a house and 3 kids. However, we were also paying for our unwelcome roommate: student loans.
Further, we had managed to build up some debt in home repair, medical bills, and car payments. Using the debt snowball, we steam rolled this debt in a reasonable amount of time when we got serious about it.
Over the course of about 2 years, (read more about our debt free journey here) we were debt free!
What a wonderful feeling. No payments owed to anyone except for our living expenses and mortgage. Kicking the student loans out of our house was an eviction party celebrated at Disney World!
Now that we are free from the crushing debt that sat on our shoulders, that money we used for debt can be rolled into our savings account toward this challenge!
We used to put $1,600 or more into our debts each month, but now, we can put it into our SAVINGS ACCOUNT!
WHAT IS THE DEBT SNOWBALL?
If you saw my big $1,600 number and then peaked down at your credit card statement, your Sally Mae invoice, or your debt payment, you might have been relieved to see that you don’t owe that much each month. But, let’s stop thinking about minimum payments and start thinking about savings.
If I had only paid my minimum payments, I would have been paying for at least 7 more years after I made my last payment. That’s not only 7 years of principal but 7 years of interest payments –free money that the bank/lender/credit card company just takes from me.
Instead, my husband and I decided to use Dave Ramsey’s Debt Snowball.
Dave’s theory is this: list every single debt you have from smallest to largest. Pay minimum payments on every single one of your debts except for the little guy. Take all of the extra cash you can spareand put it on the littlest debt. Remember you aren’t eating out, buying new clothes, or going to the movies at this point!
When you pay off the smallest debt, take the amount you were paying on that little guy and add it to the second smallest payment.
PAYING OFF DEBT REQUIRES CHANGING YOUR LIFESTYLE
Over time, you continue to gain momentum to pay off those debts because you make larger and larger payments. You might find yourself sparing $10.00 here, skipping Starbucks there, or even eating beans and rice instead of pizza night!
We caught fire when we started our debt snowball. We became laser focused on getting out of debt even while my husband was in school, and we had a new baby!
Now, we are trying to continue living well below our means so that we can reach our next goals. We are still watching our spending, planning our expenses out in advance, and hoping to live generous lives.
FREEDOM FROM PAYMENTS = FREEDOM TO DREAM
Over a short amount of time, our family amputated all of our debts and learned to live on a whole lot less. Now, with just a little bit of sacrifice, we are setting ourselves up for a lifetime of financial security and generosity.
Without any payments except our mortgage, we can take the money that we were putting into debt and can put it into our future.
Stop making payments to your past and focus on your dreams. Freeing up that money, may mean a little bit of sacrifice now. But, from experience, I can tell you that the freedom from stress is worth soooo much more! We know that reaching our next savings milestone will be one step closer to living those dreams!