When my wife and I got married, we were over $200,000 in debt…without a mortgage.
It had been a challenging couple years before our wedding day. I had been working a part-time job while in grad school, making my life work with credit card spending each month. She had lost her job when her boss’ plane disappeared (it’s long crazy story that involves the plane being found two years later). Between student loans, credit card debt, a car payment, a personal loan from a friend – we were in a tough spot.
After I graduated (in the middle of the Great Recession)18 months into our marriage, we made a big shift and doubled down, in an effort to change our financial situation. We made very difficult sacrifices, including me working three jobs at one point. We cut out what once seemed like important spending like cable TV and smart phones.
We saw incredible results! Within 2 years, we paid off all of our personal debt (over $22,000 in credit cards and a $2,000 personal loan). Since then, we’ve shifted from paying interest only on student loans to actually making a major dent in the principal. Today, we have money left at the end of the month, we save and we get to share generously with others.
As Millenials, our financial situation is radically different than our parents. A recent study indicates the income of young Americans like you and me is shrinking. The average 2015 graduate left school with their diploma and over $35,000 in credit card debt, with much worse scenarios for those pursuing graduate and post-graduate work. We’re even making major shifts in how we approach purchasing homes and cars.
With an increasing burden of student loans, shrinking incomes and unique financial pressures, how can you and I make our finances work? If we’ve gotten into a tough spot, how do we come back and recover from a destructive spending pattern?
I’d like to share with you the five principles that helped my wife and I pay off nearly $80,000 in debt over the last seven years and still be able to enjoy life and be generous.
1. Make short-term sacrifices with long-term payoffs.
If you’re in a tough spot financially (by your doing or frustrating circumstances), shift your perspective from the crisis to the future. The decisions you make today will set the table for tomorrow. Small short-term sacrifices can have large long-term payoffs. For example, we gave up cable TV in 2009. While it seems small on the monthly bill, the average cable subscriber pays over $1,000 per year. Imagine what you could do with 1,000 per year! For nearly a year, I went without my smartphone. The $1,000 per year this freed up helped us pay off our credit cards. What monthly expenses could you cut which would give you resources to make a dent in other places?
2. Distinguish between wants and needs.
My wife pounded this mantra into my head – “Is it a want or a need?” Asking myself this question continues to help me reframe daily spending decisions. Consider this question, “Is eating out a want or a need?” Could you bring your lunch from home 5 days a week? How about this, “Is your morning coffee run a want or a need?” To be honest, I believe coffee is a need, but paying someone else to make it is a need. (My wife disagrees but this is a hill I’m wiling to die on!) While modern consumerism would tell you there isn’t a line between the two, I believe the difference can be life-altering.
3. Recognize you have more in the tank.
In his book, “Living with a Seal: 31 Days Training with the Toughest Man on the Planet”, ultra-marathoner and serial-entrepreneur Jessie Itzler shares how it took living with a Navy Seal to teach him how he was underestimating his capacity to achieve. If you’ve ever worked out with a good personal trainer, you know there’s a difference between how hard you work out alone and how hard you can work out when pushed. During our big push, I worked nearly two months without a day off and didn’t have a full weekend off for well over a year. I learned that I could do anything for a season and you can too. Each of us have more in the tank than we realize. We may need to dig deeper than ever before to change our financial condition.
4. Stop chasing the lifestyle of your friends.
Pinterest, Facebook, Instagram, Snapchat, Twitter. They’re all amazing tools, but viewing the best, edited, filtered, and staged moments of our friends’ lives fuels a sense that we’re missing out. Comparing our lifestyle choices with our friends’ highlights on social media will sabotage us as we pursue our financial goals. We must put our heads down and do what is best for us in our season. Financial-guru Dave Ramsey constantly reminds his audience, “if you want to live like no one else, you have to live like no one else.”
5. Celebrate your wins.
My wife and I took Ramsey’s approaching to paying off our debt – it’s called the Snowball effect. When we paid off our first credit card, we cut it up and then took some friends out to dinner. This may seem strange after telling you about all our sacrifices, but that dinner and shared excitement fueled us as we paid off the next card. Celebration fueled our work between wins. Few of us can live in austerity mode eternally. There are seasons to abstain and seasons to enjoy. It’s okay to stop a fast – I have an iPhone now (but we still don’t have cable). We’ve been a one-car family since 2009, but that may change in the future. In the middle of a big push, we all need small celebrations to fuel our enthusiasm to continue pressing onward.
I believe you can succeed financially, even if you’re in a very difficult spot. It may be harder and take longer than you’d prefer. But when you’ve overcome and emerged victorious, you’ll be a different person and you’ll have wisdom to share with others!