Seeing as the end of the year is just a few days away, I wanted to take a moment to think back on the past year (few years actually) to reflect on our major accomplishment,and how we ended up on this path despite our best-laid plans.
First the highlight:
- We’ve paid down over $56,000 in debt in the past 12 months! This includes $39,000 in Student Loans and $17,000 for paying off my wife’s car. (This does not include principal pay-down for the primary and rental house mortgages…add this in and we are right around $60k for the year).
- We are now debt-free with exception of mortgages on our primary residence and our rental property.
How did we do this?
I detailed some of the measures taken this year in my Student Loan Arson post, however, the chain of events that put us in this position dates back a few years…
Living below our means in a starter house – This is the big one. By living in a small house we were able to accumulate savings very quickly. During this period I paid off my truck and my student loans. But we didn’t begin to fully leverage this advantage until we decided we didn’t want it anymore…
Trying to buy our dream house– I know this sounds counter to most FI thinking, but hear me out… The starter house was OK for my wife and I, and was still fine once we had our first daughter. But with plans for a second kiddo and, most importantly, a desire for a better school district, we set our sites on a bigger house. We started saving aggressively for a down-payment on some new digs. Things could have gone off the rails here, but after failing to find a house that absolutely set our hearts on fire we came to the realization that we didn’t want to tie up all our earnings into a mortgage payment. Therefore, we chose house within our means, which meant that we had savings left over that could be used for something else, such as….
Trying to buy a rental property – Around this time I fell in love with the idea of passive income and a rental property seemed like just the ticket. So we set an ambitious goal of acquiring a rental property at the same time as we sought out a new primary residence. We pushed the saving account to new highs in anticipation of this purchase. Alas, rising housing prices meant that deals were scarce and were snatched up like lightning, so we were not able to get our hands on a good investment property. Funny thing though… when we tried to sell the old house were unsuccessful in capitalizing on those rising housing prices and had to settle for renting it out. We ended up backing into our goal. While, admittedly, not the greatest investment, we more than cover our mortgage payment (on most months) and are learning a ton about rental real estate and property management in the process.
Watching a pile of money do nothing – Since the new house was purchased for less than we originally planned, and we struck out on buying a rental property we had a little pile of cash in our savings account. I wanted this money to be doing something so I excitedly set up a “money market” savings account. Watching the interest “roll in” on that chunk of change to the tune of $0.26 or so a month was really something. We were very uncomfortable that this money wasn’t doing more.
Hearing about the success of others – Right around this time we had learned a couple of our close friends were following Dave Ramsey’s “Debt Snowball” plan. They were paying off large chunks of debt each month. Our skepticism drew us in. These questions were running through my mind. “Isn’t it risky running your savings down so low?” “Can’t you make more money by having it invested than by paying off debt?” (this was my biggest hang up). My wife started listening to Dave Ramsey’s radio show and bought his “book Total Money Makeover” and encouraged me to read it. I was still quite skeptical… I really didn’t want to give up my 401k match, and with 2 kiddos the thought of running our savings down to $1,000 was a bit too daunting. Essentially, we added a dash of Suze Orman’s approach to temper his method. Nonetheless, I found myself agreeing with a fare bit of Ramsey’s writing… with the biggest takeaways being the power of focused action and decreased stress from paying off debt. This was the tipping point that finally spurred us action, and we pulled a large portion of the money out of the savings account and killed off the remainder of my wife’s car payment.
Its funny to me, that our debt elimination success is more a by-product of our other, sometimes contradictory, desires. But in the end, all these pursuits led to a watershed moment of paying off the car early, which opened our minds to new possibilities. So, once we discovered the FIRE movement, we realized were already heading down the path. We had been working towards FI without knowing it. The idea of FIRE crystallized our thoughts gave us the confidence to really put the pedal down… and the proof is in the pudding… $39,000 in student loan payoff in less than 1 year. I look back at the last year and see a great reminder to keep pushing even when you feel like you aren’t getting anywhere because you never know when or how you might break through.
Looking forward
With the debt destroyed, we now turn our attention to creating wealth and avoiding new debt. I’ve laid out our 2018 savings and investment plan as well as the plan to replace my aging truck. I’ve taken the first step, by electing to fully fund my HSA through my work’s open enrollment and we’ve started building up the funds to cover the purchase of a used car.
Here’s to a FIREy 2018!