How We Got Debt-Free in Just One Year
Are you ready to live your life debt-free?
In this post, I am going to introduce you to the framework that got our family debt-free in just one year!
As of 2012, our family has been DEBT-FREE (except for our mortgage). It is the most liberating and fantastic feeling. Wondering how we did it and how you can too? Keep reading!
It all started with Dave Ramsey. I know, he might not be your cup of tea. But bear with me…
You may have heard me rave about Dave Ramsey before. I credit our financial security 95% to him (the other 5% goes to my own frugal instincts). My parents took his Financial Peace University course through their church and handed the materials down to me. Since then I have consumed every piece of Dave Ramsey literature I can get my hands on. I know he’s not for everyone, but I think his method is very straightforward, easy to follow, and just plain common sense.
Here are the techniques that got us living debt-free:
- Monthly Budgeting
- Spend (physical) cash in certain areas (groceries, restaurants, entertainment, etc.)
- Debt snowball
- Emergency fund
- Mutual funds for investments
Setting Our Monthly Budget
Getting debt-free all starts with your budget.
Before the 1st of the month (preferably) I set our monthly budget on paper. I try to stick to these guidelines for how much to allocate in each area:
- Charitable Gifts 10-15%
- Savings 5-10%
- Housing 25-35%
- Utilities 5-10%
- Transportation 10-15%
- Food 5-15%
- Clothing 2-7%
- Medical/Health 5-10%
- Personal 5-10%
- Recreation 5-10%
- Debt 5-10%
The following categories we spend with cash:
- Groceries
- Restaurants
- Entertainment
- Fun Money
And because a plain ol’ envelope just wouldn’t work for me, I use this template to record each month’s cash expenses.
Dave recommends having an envelope for gas so that it can help you eliminate unnecessary errands and trips in the car, but with my husband commuting 110 miles daily to and from work (ugh, it pains me to think of it) it just doesn’t make sense for us to worry about him carrying around cash for gas.
I don’t want to go into too much detail about the situation, but after buying a brand new house only 10 miles from his previous workplace and then a layoff 2 months later these are the cards we were dealt. We eagerly await the completion of a new rail line so he can take the train to work, hurry up June!
Update: we cut over $300 out of our gas expenses with my husband taking public transportation to work! If it’s an option for your family, I strongly recommend looking into it.
Sticking to the Budget
Over the course of the month I keep an eye on our bank account to make sure we stay “in the black”. I save money by couponing, thrifting, cooking at home, and the fact that we have a toddler so we just plain don’t get out much 😉
We’re currently on “Baby Step #3“: 3-6 months of expenses saved up. We always come SO CLOSE to moving to the next step, and then major car repairs and a broken furnace happen in one week. That’s what the emergency fund is for, I suppose 🙂
*UPDATE 9/18/16: We’ve made it past Baby Step #4 and on to #5! I’m not sure if we’re investing exactly 15%, but we’re in the process of saving for retirement AND Bean’s college. Plus, I’m making bi-weekly payments on our mortgage to get our house paid off faster. So technically I suppose we’re on Baby Step #6.
I urge, beg, plead that you take Financial Peace University if it’s available in your area. If it’s not, at least check out Total Money Makeover. I did both, and the book actually has a lot of the same information that the course does. He also has a handy Total Money Makeover Workbook.
I love this! We are also on a Dave Ramsey track – and love the PLAN of getting all squared away budget-wise. You should make this a budget series – and it can overlap with ILP. You’d have one reader! Actually, I was thinking about doing a few budget posts this month. Who says we both can’t do it? Haha.
now THAT is a great idea! just might have to add that to my editorial calendar 😉
My husband and I literally were just talking about buying Dave Ramsey’s book on our way to work this morning. We are ready for debt freedom! I know he talks about having “fun money” – does he give you a limit or do you limit yourself on your groceries, fun money, etc…based on your income? CONGRATS by the way on getting debt free!
YAY! He doesn’t give a specific guideline or limit for fun money (or at least I wasn’t paying attention and didn’t catch one) we just leave that for whatever else may be left over. Some months it’s just $25 when we’re trying to save up for something, some months it’s more. And thank you!
I absolutely love FPU!! I took the course several years ago and after I got out of school it has helped so much with paying back my student loans. I recommend it to everyone!
I do too! My friends sometimes make fun of me when I whip out my homemade envelope with cash in it when we go out, but then I just ask how much debt they have and they shut their mouths 😉
I absolutely love FPU!! I took the course several years ago and after I got out of school it has helped so much with paying back my student loans. I recommend it to everyone!
I love Dave Ramsey! I took his class in college with my parents and then took it again with my husband after we where married and we have taught the class once as well. He has changed our lives and at 25 and 28 we will be debt free in 3 months! Its such an amazing feeling! PS we are also working on the 3-6 months and it seems like as soon as we get close something happens to our cars as well! Glad we aren’t alone!
Way to go Amanda! I swear baby step #3 is the HARDEST. 2 steps forward, 4 steps back is how it seems to be going for us :/ I just keep saying that once everything breaks, then we won’t have to keep paying to replace it lol
I love Dave Ramsey! I took his class in college with my parents and then took it again with my husband after we where married and we have taught the class once as well. He has changed our lives and at 25 and 28 we will be debt free in 3 months! Its such an amazing feeling! PS we are also working on the 3-6 months and it seems like as soon as we get close something happens to our cars as well! Glad we aren't alone!
I absolutely love Dave Ramsey! My husband and I are on the plan too. We are currently working our way through baby step #2. Considering the only thing we have to pay off is student loans, we aren’t very far from finishing. But, I am super excited to get these things paid off and be finished with them! We do need work on spending more physical cash rather than using the debit card, but we are getting there. Great post!
Physical cash does make SUCH a difference. I won’t lie, sometimes I forget the envelope at home and we put it on the card. I try to adjust and put the cash back in the bank but sometimes I don’t. So I guess I don’t follow his rules to a T, just mostly.
I absolutely love Dave Ramsey! My husband and I are on the plan too. We are currently working our way through baby step #2. Considering the only thing we have to pay off is student loans, we aren't very far from finishing. But, I am super excited to get these things paid off and be finished with them! We do need work on spending more physical cash rather than using the debit card, but we are getting there. Great post!
now THAT is a great idea! just might have to add that to my editorial calendar 😉
YAY! He doesn't give a specific guideline or limit for fun money (or at least I wasn't paying attention and didn't catch one) we just leave that for whatever else may be left over. Some months it's just $25 when we're trying to save up for something, some months it's more. And thank you!
I do too! My friends sometimes make fun of me when I whip out my homemade envelope with cash in it when we go out, but then I just ask how much debt they have and they shut their mouths 😉
Way to go Amanda! I swear baby step #3 is the HARDEST. 2 steps forward, 4 steps back is how it seems to be going for us :/ I just keep saying that once everything breaks, then we won't have to keep paying to replace it lol
Physical cash does make SUCH a difference. I won't lie, sometimes I forget the envelope at home and we put it on the card. I try to adjust and put the cash back in the bank but sometimes I don't. So I guess I don't follow his rules to a T, just mostly.
Holy cow, that's annoying. Hopefully they fix that.
i love dave ramsey!! We are working on our snowball debt right now.
Way to go! He is such a powerful speaker. I love listening to his Podcasts.
I will have to check those out. I love podcasts right now.
Super slow going here but we paid off about 30k last year ( with sadly a lot more to go) We love Dave’s plan. It makes sense for our family too!