If you are interested in becoming debt free in your life there a few steps you need to follow to get to that point. The first is creating a budget that will allow you to spend less money than you make. We recommend that you save at least $5,000 in a regular savings account so that you can cover little things that can pop up like having to repair a furnace at your home. This just happened to us Friday night. We came home after work to find our house freezing and with ice and cold temps starting we had to call the repair man and have him come out after hours. We are so thankful that we did not have to worry about how we were going to pay for that repair because we planned ahead for emergencies. If you do not have a small savings stash every time something comes up you have to cover it by going further into debt. Most people do this with credit cards, which is the worst debt you can pile up. Most credit cards charge somewhere around 20% interest.
After getting a small savings account set, now is the time to start setting goals towards paying off your debts. We started by listing out all of our debts. When we started we had a mortgage loan of $141,000 and an auto loan of $21,000. We then looked for a mortgage calculator where you could enter how adding additional payments would affect the timeline and interest that would be paid over the life of the loan. We used the calculator to see what payment we would have to make to pay off the mortgage in ten years. To pay the loan in ten years it required us to about double our payment every month not including the property taxes. We had set our first goal to have our mortgage paid off in at least ten years so we made it a priority to make that double payment every month. Along the way we applied every additional dime that was left from the budget at the end of the month towards the mortgage. In the end we were able to pay the entire mortgage off in just under seven years.
If you are in a situation where you have credit card debt, that should always be your number 1 priority, because of the insanely high interest rates they typically carry. You need to make your goals somewhat difficult to achieve but they have to be attainable. Breaking your overall goals into smaller shorter sub goals sometimes will help to keep you motivated. For example, if you have $10,000 in credit card debt and want to pay it off in 2 years. Make your first goal shorter, like at the end of six months my goal is to reduce my credit card balance by $1,500 to $8,500. We feel like breaking goals down into smaller sub goals help keep you motivated. In our situation, we set smaller sub goals, like we wanted at six months for our mortgage balance to be at a certain balance. This helped us stay motivated and on track to reach our goal.
To be successful with personal finance or money, you have to run your home similar to a business with shorter and longer term financial goals (YOU HAVE TO HAVE A PLAN!). Without setting goals it is very hard to know were you stand and to stay on course. When you do make your goals they need to be written down and made a priority on your monthly budget. Now that we have achieved our goal of being debt free we are on to our next goals. We have written out some short term goals for this year, which we will share later. We have also created a more long term plan for the next 5, 10, and 15 years.
