How our Debt Freedom Plan Prepared Us for the Pandemic

We have hit uncertain times and this pandemic has felt like a wall that is unscalable. For many households, their finances and budgets are in limbo. Businesses have shut down, manufacturers have paused production, and many people have been laid off or furloughed. Life, as we knew it came to a halt for so many of us in mid-March, and life going forward will forever be known as pre-pandemic or post-pandemic. Everything changed.

My family’s finances have also been affected. While this financial storm is very different, this isn’t the first one my husband and I have weathered. We’ve had several instances over the years that have shaped how we viewed and managed our money.

How Our Debt Freedom Plan Prepared Us for the Pandemic

Our first storm: 2007

The year 2007 held such promise for us when it started, but by the end of the year, we were brought to our knees.

As self-employed small business owners, we have lived through some tough months, but in 2007, it was a tough year. For a variety of reasons, our business slowed down in 2007. Our monthly revenue needed to cover both our business and household expenses, but there were months in 2007 it barely covered our business expenses with nothing left for our household.

I remember one morning my husband and I were sitting at the kitchen table contemplating if we should sell one of our cars. It was a scary time for us.

And I was pregnant with our youngest daughter, so what should have been a joyous year was quite a stressful one.

What got us through financially? Our emergency fund.

I am totally paraphrasing the year, but had it not been for the money in our emergency savings, we would most likely have used credit cards to survive. We reduced our spending where we could, but the money to pay any shortfall each month came from our emergency fund. It was a lifesaver, a sanity saver, and a marriage saver.

By the end of 2007, our business gained back its momentum, but not before we practically wiped out our emergency fund with barely enough to get us through one more month.

We spent the next few years building our savings back up to the level we had prior to 2007.

It was during this time that I created my first Family Balance Sheet. As the Family Office Manager, I handle the day-to-day finances for our family and I needed a way to communicate our finances to my husband. I still use my spreadsheet to this day!

Storm #2: 2013

August 2013 was a month that I’d like to wipe from my memory.

Leading up to it, we thought we were golden. We’d survived the dip in 2007, carried no credit card debt, and we were contributing to our retirement. Our small business was going well, so we said so long to renting office space and purchased a commercial property in the summer of 2012. Yep, life was good.

But in August 2013, our business softened, renovations to our new building were more costly than planned, and we were now the owners of two mortgages: our home and our business. Also to top it off, I had a huge property tax due that month for our office building that was going to be difficult to pay for in light of the circumstances. The numbers that looked great on paper in the summer of 2012 were, in reality, turning out to be very challenging in 2013.

We had a lot of new debt from the building purchase and not enough cash flow, so once again we turned to our emergency fund to help sustain us through the months of light revenue.

This new business debt weighed on me. It kept me up at night. I was an avid reader of Dave Ramsey’s books for years and we even took his home study course, but we still ended up in this position. How could we turn this around?

Over the years, if business got tough, my husband and I would strategize, crunch numbers, brainstorm, and essentially come up with a plan. So we got to work! He came up with a business strategy and I came up with a financial strategy.

I decided to use Dave Ramsey’s 7 Baby Steps as a guide and I wrote our first Debt Freedom Plan. As self-employed small business owners, we felt we needed to adapt Dave’s strict 7 baby steps to our lifestyle so we included our business and added many more steps.

By the end of 2013, the business was heading on the right track and we had a plan in place to tackle our debt load.

Our First Debt Freedom Plan:

From saving for much-needed repairs and our emergency fund to paying off non-mortgage debts and planning for our future, we developed a 12 step Debt Freedom Plan.

The first few steps didn’t take us very long, but we spent six years completing our step of paying off our non-mortgage debt–which was the elephant in the room.

Our non-mortgage debt was in the six figures when we started this plan and included 4 business loans and a student loan. We followed Dave Ramsey’s debt snowball method and paid the smallest loan off first while making the minimum payments on the other 4 loans. When the smallest loan was paid off, we applied that loan’s minimum payment towards the next smallest loan. When that loan was paid off, we put that full monthly amount towards the third loan and this continued until September 2019 when we made our last non-mortgage loan payment. The monthly payment for each loan slowly increased as we paid off loans AND we added any additional cash we could find. We methodically worked through our plan and in September 2019 we were treated with the ultimate reward for our hard work–freedom from our non-mortgage debts!

A sense of relief overwhelmed us when we paid off that last loan. I think I cried for 2 solid days. It was such a long process and at times, we wanted to give up. We celebrated the achievement with a trip over Thanksgiving. For years, we avoided such extravagant vacations, so this one was particularly special.

With this big goal checked off our list, we changed and updated our Debt Freedom Plan by adjusting some steps and started to work through our goals of increasing our emergency fund, contributing to our retirement, and saving for our daughters’ college education.

The years leading up to the debt payoff weren’t always easy, but we are so glad we stuck with it.

January & February 2020 – Life is good!

We were feeling pretty good about the new year. We caught the travel bug with our trip over Thanksgiving break and now that our non-mortgage debts were behind us we booked a big summer trip to Europe to visit friends who moved there.

We also started shopping around for a new-to-us vehicle. Our 12.5-year-old Honda Odyssey needed four new tires, but before we bought them, we started looking for a vehicle from 2016 or 2017.

We didn’t have enough cash though and would need to take out a partial loan. We actually toyed with this idea, and I even concocted a strategy to pay it off within a year.

I let the fancy new technology that my 2007 van lacks to suck me in. However, my gut was telling me not to take out the loan. We just spent all these years paying off so much debt why would I even entertain taking out a loan, even if I thought we could pay it off quickly. Thankfully, my pragmatic side took over and we decided to replace our tires and take the next year or so to save up enough money to buy a vehicle with cash.

Boy am I glad we don’t have that loan right now!

March 2020 arrived.

On Friday, March 13th, the PA Governor shut down schools and closed non-essential businesses. The Pandemic hit our state and country.

Our business is considered essential, so we have remained open, but at a reduced schedule and following CDC guidelines. We feel fortunate that we can be open for our patients and our employees, but due to restrictions and people not wanting to leave their homes, our business has seen about a 50% drop.

It’s scary to think about where we would be if we hadn’t worked our plan and made the sacrifices prior to March 2020. We said no to a car, paid off the six figures of non-mortgage debts, and made a deliberate list of steps that we tackled one by one.

It wasn’t always fun or easy and we had a fair amount of envy and FOMO. We planned our meals, cut back on eating out, shopped the thrift stores, eliminated cable, earned extra money through side hustles, stopped contributing to our retirement, and made the decision that paying off our non-mortgage debt was more important than anything else.

We had no idea during these last several years what was to come. We thought life would be golden. But the golden years have been interrupted by the coronavirus.

Back to the drawing board, so to speak, we reworked our budget and have cut out all non-essential spending to help us get through this current uncertain time.

We’re having a real live no-spend month(s) instead of the whimsical no-spend challenge where we try to save for a summer vacation.

Our Debt Freedom Plan was our plan for the future we envision. But, unknowingly, it also has set us up for getting through the challenging times.

Today, we don’t have to worry about our non-mortgage debt payments and we have an emergency fund. Given the present circumstances, I wish we had more saved, but we have enough to get us through several months of reduced income. We have revised our budget and we will get through this storm.

One thing we’ve learned since March 2020 is that Our Debt Freedom Plan really should have been called our Financial Preparation Plan.