Let me tell you something: paying off my student loans was a huge weight off of Maria’s and my shoulders. It was our overriding financial goal for almost our entire relationship. We weren’t saving any money and we kept our discretionary expenses in our monthly budget to a minimum; everything just went towards the debt. We were ecstatic when we could finally declare ourselves to be debt-free.
Well, now that we have the debt paid off, we wanted to share our new financial goals with you and how our monthly budget has changed to meet those goals. Just because we paid off the debt doesn’t mean we’re done budgeting; we just have new priorities.
Back to the Baby Steps
Like we’ve mentioned before, Maria and I plan our budgets monthly. At the end of July, we realized that we would be paying off the loans for good in August. It was a wonderful feeling, but then we realized that we would need to change our budget. Our first step: pulling out Dave Ramsey’s Baby Steps to see where we were and where we needed to go.
Baby Step 3: 3-6 Months of Expenses
This Baby Step is an expanded version of the $1,000 emergency fund in Baby Step 1, but for much more major emergencies like a job loss or a medical setback. Maria already had 3-6 months of her own expenses saved before I came along. We kept her emergency fund in place while we worked to pay off my student loans.
Obviously, our expenses as a couple were higher than Maria’s expenses as a single woman, so our next financial goal was to fully fund our savings to support both of us in an emergency. We decided to take all the money we received from our wedding and put that money into our savings for 3-6 months of expenses. Once that was all said and done, we had exactly 6 months of expenses set aside. So that was Baby Step 3 completed in no time!
Baby Steps 4, 5 and 6: Simultaneous Steps
If you watch Financial Peace University, you’ll learn that several of the Baby Steps are goals you work on simultaneously.
The Baby Steps that work in unison are:
- Baby Step 4: Invest 15% of all Household Income for retirement savings
- Baby Step 5: College Funding for Children
- Baby Step 6: Pay off the Home Early
When you think about it, those steps are things that can take a long time, so of course you’ll be doing them all at the same time. For Baby Step 4, you save 15% of your income for retirement until you retire. So, obviously that is a long term project; it takes a lifetime. Same with saving up for your children’s college education or paying off the house; they are projects that take a long time.
Here’s a look at how Maria and I are currently tackling those simultaneous baby steps in our household.
Baby Step 4: Invest 15% of Household Income
It’s easy to calculate how much you need to save: just take your income and multiply it by 15%. As part of our normal budgeting process, the second thing we do (after setting our monthly church donation) is making sure we set aside at least 15% of our monthly income for retirement. I say at least because we have the savings automatically deducted and sometimes the deduction is more than 15% of our monthly income.
The hard part of saving for retirement is actually investing it in the financial market. Maria and I use a financial planner to invest that money for us since we are not very financially sophisticated. I think it’s the easiest and best way to go about investing your retirement money, so I strongly recommend that you consult a financial planner. If you decide you want to go your own way, you should look into whether your employer has a 401(k) plan and/or look into setting up a Roth IRA. Both have different advantages and drawbacks, so you should think about them carefully before deciding which (or both) to go with.
Baby Step 5: College Savings
This one is pretty straightforward for us: we don’t have kids, so we aren’t saving for college yet. Once we do have kids, that is when we will start saving. So this one is on hold for us for now. But if you have kids and need to save, you should look into a 529 Plan or an Education Savings Account to get started.
Baby Step 6: Pay Off the House
You probably already knew this, but we don’t own a house right now. Instead, Maria and I are renting a condo while we save up for a down payment on our first house together. Some of the design choices in our condo (like brown carpet and brass light fixtures) are not items we would have selected ourselves, but saving is the name of the game and this is a sacrifice we make so we can eventually afford the home of our dreams.
Even though we don’t own a house yet, we are already devising a plan to pay it off. The more money we save now, the less we have to pay on the house when we buy it. A few weeks ago, Maria and I had a conversation about our goals for the next five and ten years and we set paying off our house as a ten year goal.
As for how we save for our house, we treat it like my student loans, minus the retirement savings. Every dollar we have leftover after setting our monthly expenses and setting aside money for our sinking funds, we put into our home downpayment sinking fund. We set a goal for the amount we want to save and, once we’ve reached that goal, we’ll buy our house!
Maria and I have a long way to go on our financial goals, but we keep plugging away at them, every day, every month, every year. In Financial Peace University, Dave Ramsey talks about gazelle-like intensity to meet your financial goals. We intend to keep our gazelle-like intensity going so that we meet every single one of our goals.
With Christmas shopping going on and New Years resolutions right around the corner, there is no time like the present for you and yours to start on your own financial goals. You might want to begin by purchasing the Financial Peace University Home Study Kit so you and your spouse can get to work the right way on your own financial goals. You can also prepare a monthly budget with your spouse right now. We have a downloadable budget template you can use to get started. And if you are working on your own debt-free journey, we have a fantastic customizable “On Our Way to Debt Free” chart to help track your progress. Just enter your email below to have the chart sent right to your inbox.
Let us know how your financial journey is going. We love hearing from all of you about your journeys out of debt and into financial peace, so please tell us about it!
Our Debt Free Story
We shared all of the details from our story of going debt free on the blog in a series of updates and proudly did a Debt Free Scream on the Dave Ramsey show on February 15, 2016.
You can read more about our journey out of debt by clicking any of the images below.
Great post! My husband and I are just starting the plan. We’re on BS2. We will most likely be there for at least a few years but are excited to eventually be debt free! Would you mind sharing what some of your sinking funds were while you were on BS2? We have a car fund, home repair fund, vet bill fund, and garbage/water bill fund since those only get billed a couple times a year. We put money into these funds each week. I know it’s important but feel like it’s taking away from what we could put down on our debt.
Very inspired by your story. Great job!
Rob Gavin says
We had funds similar to those, but we had a few more as well. Maria’s teaching certificate, car insurance (since we pay that in six month increments), our life and disability insurance premiums, and so on. I actually think Maria will be writing a post about our sinking funds in the near future since we get a lot of questions about our sinking funds. It does seem to take away from what you can pay down, but these sinking funds are generally expenses you will have anyway, so it makes so much more sense to spread them out and reduce their impact.
Thanks for sharing and I hope your journey goes well! It can seem really slow at times, but keep at it!
Are sinking funds the same as emergency funds? Also, do you guys plan for replacement of big-ticket items (refrigerator, water heater, etc.)?
Rob Gavin says
Sinking funds are different from your emergency fund. A sinking fund helps you spread out an occasional, known expense over time so that it doesn’t hit you all at once. Like, we only get a water and sewer bill once every few months, so in the couple months that we don’t get one, we set aside $20 in a sinking fund toward the bill that we know is coming. An emergency fund is meant for expenses that you don’t expect, like a car accident or home repair.
Right now, no, we aren’t saving to replace any big ticket items because we are renting and don’t own any of those. Once we buy a house and get those items, we will probably consider that, especially if we know that we want to replace any particular items.
Alyssa Chapman says
As I mentioned before, my husband and I are working on this right now… Paying off debt phase. We are putting thousands each month into paying off debt, and I created a spreadsheet that once the smallest debt is paid off – how the shift in dollars effects the next debt item. The way the schedule looks right now, assuming nothing major happens – we will be 100% out of all debt (except my student loans – as I am still in school) and our house by December 2017. Seems so far away… and some days I lose my steam to press on, you know? It feels like the progress is just not fast enough for me to feel the momentum since even our smallest debt was pretty large, equally as large as another debt, you know? Agh!
Sounds like you guys have a plan now that you’re out of the scary debt woods. I hope we can get there sooner than later…
Rob Gavin says
That’s great that you’re working on it Alyssa! That’s really not that far away. You may be a bit ahead of us, since we’re planning on going back into debt when we get a mortgage. Haha! It is a long-haul kind of thing, but that’s why we need to keep focused and remember how far you’ve come.
The revamped site looks great, BTW. Good work! I follow you on my Feedly so I can keep up.
Maria, can you do a tutorial for making an editable PowerPoint like the budget one you did?
Douglas Antrim says
Congratulations on the debt free. remember you will be sorry you don’t have a car payment.
Congratulations! You are doing really well! Investing doesn’t have to be scary. Keep it simple, watch the fees, and you’ll do well. One area where I really stray from Dave’s philosophies is on his investment choices.
I take a Vanguard/Boglehead approach. Low fees (as in, absolutely under 1%, and preferably under .2%) are soooo key for asset growth and wealth preservation. Can’t stress this one enough. Avoid front-load, back-load fees. Just. No.
Index funds are where I’m at. Take a look at what the Bogleheads have to say — simple, makes sense to buy the entire market and get out of that return-race that often fails.
Can you please explain how “Vanguard/Boglehead approach” for investing is different than Dave’s?
Rob Gavin says
Kacie, honestly, I can’t because I don’t know what the Vanguard/Boglehead approach is. Dave does have some specific recommendations on the types of investments he thinks are a good idea, but I’ll let him speak for himself: https://www.daveramsey.com/blog/daves-investing-philosophy. I’ve not heard of the Vanguard/Boglehead approach before. Can you tell me any more about it?
Douglas Antrim says
Congratulations on becoming debt free. Dave Ramsey has a program that works and it works really well as you know. Any way nice job.
Huge fan of Dave Ramsey! Great advice for anyone who’s looking to save and have financial freedom.