As I reflect back to January 2016, I started that year pretty determined to pay off the balance of our non-mortgage debts. I even created a hashtag, #crushingdebt2016. So, you know I was serious!
And we were on a roll in January 2016. We had quite a bit of momentum coming out of 2015 and I never doubted our own abilities.
Unfortunately, we did not hit that goal and in part, have made some major changes to our Debt Freedom Plan.
Our Debt Freedom Plan Started in 2013:
The year 2012 was quite exciting for me and my husband. At the time we were renting an office space in a strip mall, but when we discovered a foreclosure in our town that seemed like a great idea on paper, we jumped at the chance. And to be honest, we don’t regret it one bit, but things changed rather quickly in 2013 and we found ourselves with a lot of debt, not enough cash flow, and very little set aside for emergencies. Our bills and responsibilities didn’t waiver however, even though our income dipped.
“Unfortunately, life doesn’t stop when shortfalls happen.”
To get through that time, we crafted our Debt Freedom Plan, based on Dave Ramsey’s Baby Steps, but tailored to meet our own needs and self-employed lifestyle. It turns out this was the best decision for our family. My husband and I were on the same page. It wasn’t that we had friction over money in our marriage, but as the business & Family Office Manager, I had taken on the stress of that cash flow crisis and tried to work it all out by myself. This new strategy had us looking in the same direction with regards to our financial future and my husband was on board.
Fast Forward to 2016:
Since 2013, we have made incredible strides towards paying off our non-mortgage loans. We are using Dave Ramsey’s snowball method and I’m proud to say that since 2013, we’ve paid off 4 business loans totaling almost $75,000.
However, we have one non-mortgage loan left, the behemoth student loan that I was hoping to pay off in 2016.
We made a lot of changes since 2013. We dramatically reduced our spending by cutting our cable TV and landline, shopping thrifty, eating out less often, and lowering our grocery bill. We also worked diligently to nurture our small business (our bread and butter) while my husband picked up a part-time job as a swim coach, one of his passions. And I continued to build this website. Our extra funds went towards our cash flow.
But we did take a controversial and dramatic step in 2013 to temporarily stop contributing to our retirement. At that time, I couldn’t cash flow the office budget, home budget, our loans, and retirement savings. I wouldn’t recommend this strategy to anyone, but it is one reason we were able to pay off a lot of loans during this time.
In reality 2016 went fairly well, but we had some unexpected business expenses. The good news is that we’ve been able to cash flow these expenses, but the bad news is there wasn’t much additional leftover to apply towards our loan.
Oh, and I turned 47 and my husband turned 55 in 2016. That’s called midlife and we just took a 3 year break from retirement contributions……sigh…
This final non-mortgage loan is my husband’s student loan from chiropractic school. He went back to school at the age of 34 to pursue a new career and has not regretted it, but his student loan was about the size of a small home mortgage when he graduated in 2000.
The loan has a 2.75% interest rate and he set the payment for automatic withdrawal, so we forgot about it…big mistake. It is amortized over 30 years, so the minimum payment is really low, so not much gets applied to the principal.
Where our mortgage enters the equation:
We bought our modest home in September 2001, before home prices soared and inevitably, tanked. At the time, we thought this 1800 sq. foot fixer upper would just be a “starter” home, but here we are almost 16 years later still in our starter home. We have gone back and forth about moving up into a larger home, but at this point, it might not make sense.
Over the years, we took advantage of low interest rates and refinanced and transferred the loan several times. It is now a home equity loan with a very low 2.75% interest. We used quite a bit of our home’s equity in 2012 to put towards the down payment on the commercial property and this added to our debt load.
So here is our scenario:
- The student loan is 2.75% interest. The minimum payment is less than half of the mortgage payment, and the balance is about double the mortgage.
- The mortgage is 2.75% interest. The minimum payment is 2.5 times the student loan minimum payment and because of this the principle is disappearing at a much faster rate than the student loan.
- Retirement. It has been weighing on us that we completely stopped contributing in 2013.
Marriage & Money:
In the fall, my husband and I had a heart to heart regarding our current situation. On one hand, we’ve paid off $75k in business debt in 3 years, on top of cash flowing life.
But on the other hand, we’re 47 & 55….I’m surprised I can even type that…
So in November 2016, we made a decision to pivot.
- We are committing to staying in our “starter home.” It might be small, but its size has probably set us up very well financially.
- We are going to pay off the home equity loan first, since the minimum payment is 2.5 times the amount of the student loan. We will apply half of our debt snowball amount to the home equity loan and it should be paid off by October 2017.
- After the home equity loan is paid off, the new debt snowball amount AND the mortgage payment will then be applied to the student loan. The student loan should be paid off by the end of 2018.
- During this time, we will use the other half of our snowball amount to restart retirement contributions.
So what does this mean?
Dave Ramsey might not totally agree with our approach, and we’re ok with that. There’s a high probability that I’ll ever meet the man…lol… We are very comfortable with this new plan, in fact, we have a sense of relief. Our goal is still debt freedom.
Our Revised Debt Freedom Plan:
This revision began in November 2016 and starts where we’re at currently. You can take a look at our original Debt Freedom Plan here.
- Start contributing to our retirement again. We will not be anywhere close to maxing out our contributions, but we will be putting at least something towards retirement savings, allowing us to sleep a little better at night.
- Pay off our home equity loan, using the snowball method by October 2017. We bought our home in 2001.
- Pay off the student loan, using the debt snowball method. Projected pay off date December 2018.
- Build up our Emergency Funds to 3-6 months of expenses. We’ll use the debt snowball payment to expedite this process.
- Increase our retirement contributions to at least 15% of gross income.
- Start college funds for both girls. We are really behind in this, but I can’t stress about it yet.
- Pay off our mortgage on our office building.
- Celebrate with an epic family trip. Destination TBD!
If you compare the two plans, you’ll notice that I removed a family trip to Disney. We intended to take a trip after the student loan was paid off, but we have now moved that step down a notch and I don’t know if we will wait that long. We still plan on taking a trip to Disney, but haven’t decided when exactly it will be, but we’re hoping within in the next year or so.
Make your own Freedom Plan
There are days when I’m frustrated that things aren’t going as quickly as I would like. I understand now why Dave Ramsey calls his program, “Baby Steps”. I have posted our new plan on the refrigerator, along with a debt payoff tracker to keep us motivated and remind myself that every single financial decision, no matter how big or small, really affects our ultimate goal of financial freedom.
What are your financial goals for 2017 and beyond? Let us know in the comments and if you don’t know or haven’t thought about it yet, spend some time THIS week developing your goals.