Friday, March 30, 2012

Life After Debt: A Vision for the Future

I've had to force myself to do a reality check recently.

As I've mentioned before, in 2008, we went to Dave Ramsey's FPU at our church in Tuscaloosa. This changed our marriage and our financial outlook for the better. Since then, we have been working our way out of debt by following Dave Ramsey's baby steps. We are currently on Baby Step 2.

Baby Step 1: $1,000 in a "baby" emergency fund.

Baby Step 2: Debt Snowball. We started first by paying off our vehicles, then our credit cards, then my student loans. Now we're working the debt snowball to pay off Eli's loans, and we're about 2.5 years away from success.

In four years, we have not had any "emergencies," but only inconveniences. I think the difference is having the emergency fund ready, and having the mentality that we are going to save up for cash and pay for everything we need.

And I had been getting excited about out debt-free date (and it is exciting, really).
There was a part of me that was thinking, in 2.5 years we're home free! But, they are called baby steps for a reason. Being out of debt is not the same thing as freedom, necessarily.

So, I've been thinking about what things will look like in a couple of years, and the truth is, not much will change (much to my selfish chagrin). Instead of paying out to pay off debt every month, that money will go toward Baby Step 3, a fully funded emergency fund. When that is accomplished, we move on to Baby Steps 4 and 5 and use the same money to fund retirement first, and college second. Any income above that will go toward paying the house off early. Then, and only then, will we actually be free. This could take decades.

I set up a spreadsheet and did ran the numbers, modeling our finances into the future until the kids are out of college (2035?), and it was a little bit depressing--we'd still be paying on the mortgage, and barring any raises (which will happen, I know, but who knows what to plan for?), there would be little wiggle room in our budget.

On the bright side, the babies will one day no longer require daycare, which is a huge chunk of our budget. But then they will go and grow and need new clothes and need to eat more (and more often, perhaps) and will have activities and school-related needs/wants/desires. A little more wiggle room, but not much.

We are currently trying to discern the best time to refinance the house to a 15-year fixed rate mortgage. That timing will depend on whether or not I get a contract for next year. This will change everything. We will have the house paid off before Elsie graduates from high school if we stay on the amortization schedule (which we won't since we'll be making extra payments). If we don't stay in the house that long, we will have WAY more equity in the house than if we were on a 30-year schedule. And extra payments on the principal will go much further.

I guess there was a part of me that thought I would be ready to give give give when we're debt free, but that's Baby Step 7 for a reason. If I don't take care of my family first, I won't have anything to give later. That's encouraging.

So, what on my dream list gets put on hold for a little while (or indefinitely)?

monthly support of my missionary friends
a new wardrobe (a la What Not to Wear)
new bedroom furniture
an interior designer to design on a dime (whole house)
a professional landscape designer
a bi-weekly maid
a professional organizaer
backyard play structure
pottery lessons
cake decorating lessons
vacations to exotic locations
lots of cool stuff for my classroom
gifts/cool stuff for Elsie's teachers
greater donations to church building fund
charitable donations to a variety of causes

It's not going to be easy after Baby Step 2, but it's going to be worth it. The inner child (memememe!) is throwing a fit, but I'm changing my family tree. This takes discipline. Planning. Saving. Deliberate execution. And a lot of ice cream.




Thrifty Crafty Girl said...

You can do this. Remember, normal is broke... be weird. :)

Lauren said...

You are doing an amazing job. Ben has had me recently reading Dave Ramsey's books and while we've paid off all of our debt, we would like to save more and eventually pay off our house. "Live like no one else today so you can live like no one else tomorrow." :-)