Ending Debt

Welcome back to the End Average Fundamentals series! If you are new to this, please begin reading the series from the beginning by clicking HERE. Although the messages work on their own, there will be more context for you if you follow them in sequence. Make sure you’re signed up for the newsletter and I’ll send these directly to you so that you never miss a new post. You can sign up right on the EndAverage.com homepage. Now let’s get right to it.

Financial reality check

If your income went away today, how long could you live as you do?

Do you fight about money with your spouse?

When someone who is in real need asks you for help, or you find a cause you want to support, does it hurt that you can’t just donate?

What if…

What would life be like if you had no mortgage or debt payment and you had six months of savings to replace your income in case something happened to your job? What if you knew you had the right insurances in place to financially care for your family if you became disabled or died? What if you could tithe without any hesitation and set aside money in a donation account so that when the right cause or mission showed up you’d be able to wildly bless them financially – with a joyful heart! What if…

What if I told you this is how the Bible teaches us to live and we’ve just strayed so far from the right way of doing things that the scenario above looks impossible to achieve? That’s right, it’s in there! In fact, there is very specific biblical instruction about staying out of debt, building an inheritance, being grateful, and giving. I realize that you might be shaking your head and thinking “everyone has a car payment, and it’s no big deal”. There have been plenty of times when I’ve heard myself saying, “it’s ok, I’ll just use the credit card and then pay it off at the end of the month”. Ask me how I know that debt will choke the life right out of your dreams and opportunities? It’s because I have burned myself playing with financial stupidity!

Learning things the hard way

When I first got out of the Army, I got a job that made pretty good money. My wife and I looked around at others who made similar amounts and we accelerated our “social status” by renting a house that was too big, and the using credit cards to furnish the empty house. We were relying on credit to appear like we had it all together. We wanted to match, fit in, and enjoy “the good life” comforts that our new socioeconomic tier expected us to enjoy. In short, we wanted to keep up with the Joneses. We felt entitled to certain new standards, we sought instant gratification, and we never stepped back to think about what we were doing. We stumbled into a pit of debt and a lifestyle that kept our noses barely above water month-to-month, where the paycheck disappeared just as fast as we could bring them in.

I set big goals for the right reasons

Debt strangled us. So we agreed to figure out what it would take to fix it. We decided that we would do whatever it took to realize a new way of living that allowed us the freedom to pursue more fulfilling work, even if it meant a pay cut. We decided to establish a “launch fund” for each of our four kids that would cover their college and weddings, and get them “launched” into adulthood without a penny of debt. (But this doesn’t mean they won’t have to work hard and earn that money). We agreed that our goal was to be financially ready for me to retire by 45 if we chose to do so. Of course all of these goals were set so that we could be in a place where we could spend our time and money doing things that actually matter. Remember Matthew 16:26 ‘What good would it be for someone to gain the whole world, but forfeit their soul?’ . We want to glorify God and free ourselves up to live with abandon with our treasure, time, and talents.

We got aggressive for the right reasons, and it’s awesome!

The following section is the outline of the steps that I personally followed (and am still following) to achieve those goals. If you have been through Dave Ramsey’s Financial Peace University you will recognize these steps very well, and the fact that Dave has helped millions of people to get out of debt should give you confidence that it’s more people than just me vouching for the plan. The following are my steps, derived from several plans like Dave’s that I’ve studied, applied, and taught.

The First Steps to Financial Freedom

1- Take a financial snapshot

When you start a trip you have to know three things: where you currently are, where you are going, and what direction you need to start heading. Financial goals are exactly the same. Unspecified amounts of debt are like a looming cloud, an unknown monster in the closet that just causes anxiety.

List your debts on a piece of paper that you will tape up on the wall so you can’t pretend it doesn’t exist anymore. Don’t read another sentence. Go get a pen and paper, log into your accounts and list these things. Let’s pull that beast out of the closet and take a good hard look at him so we know what we’re up against. List everything: student loans, mortgages, credit card debt, stuff you owe mom, outstanding parking tickets, all of it. Decide which debts hurt the most and list them in order. Go ahead, I’ll wait.

Done? Good. Now list your monthly recurring expenses. These are your bills, groceries, and anything else that generally makes life happen. This total amount is called your run rate. So when I mention your run rate I’m referring to your monthly expenses. Getting rid of debt brings your run rate down, upgrading to higher cable packages makes your run rate higher. My goal is to have the lowest run rate possible so that money coming in is free to be used as best needed.

End this sheet by listing your incomes. The majority of us are keenly aware of this number so I don’t feel the need to explain any further.

2- Insulate yourself from the chaos with an emergency fund

I like to view money as a tool, a shovel to be exact. I can use my shovel to dig a hole for me to fall into, or I can use it to pile things up so I can rise up. Every financial decision I make is either digging or piling, and it’s 100% up to me how I decide to use it. When you’re first starting to rise above a paycheck-to-paycheck life it’s very easy to slip right back into the trap. Things happen! You weren’t expecting that vehicle registration renewal notice. The kids need clothes. Christmas just “came out of nowhere” this year and you need to buy all the food and presents. The list goes on, of course, so I want you to prepare for those unexpected things that could derail you from the budget you’ll be making. An emergency fund is preventative medicine to your finances.

My wife and I set aside $1000 as an emergency fund. Were we to start our plan over I think I would make that bigger, enough to cover the most expensive critical appliance in the house. $1000 would cover the repair of most things like an AC unit, but I’d rather be ready to fully replace the fridge if it died – just decide on the number with your spouse and go with that.

3- The “B” word (umm…Budget)

There’s no getting around this. It’s not easy to get used to, but if you get this right you will have everything you need to succeed. There’s a difference between lists for tracking bills and a budget. The budget is the agreement you make with yourself (or with yourself and your spouse) where you give a purpose to everything left over after bills are satisfied and grocery shopping and other essentials are taken into account. For example, I’ll take my income and subtract all the bills, then take out what I will need for groceries and non-recurring expenses. This leaves me with a number for the left over amount. Deciding which debt to pay down or savings account that left over money goes to is the budget. There are hundreds of useful tools online that can teach you to budget properly, and we don’t have time to cover it all here right now. Shameless plug though, instructions and examples will be in my book 😉

Note: if you run your budget and you have a negative number at the end of bills and needs then you are in serious trouble. That means that you’re in a downward debt spiral that will ruin you financially if left unchecked. If that’s the case, then it’s time to step back and really rethink your spending by cutting non-essentials like eating out, cable tv, and expensive car payments. You’ll survive. If you don’t start cutting expenses or dramatically increase your income, then you will literally be unable to retire. Retirement is absolutely NOT an age, it’s a financial setup. Get serious about this now.

4- Start crushing debt

This is where the rubber meets the road. Romans 13:8 says ‘Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law’. This is you ripping tentacles off of that monster and every time you cross a line through the debts you listed earlier you are that much closer to vanquishing the dragon! By getting rid of debt you get to love others when they are in need. This is pretty straight forward: take every penny you have left over in the budget and pay extra toward the first debt on your list. Do it right away and don’t wait until the end of the month because every trip to Starbucks will erode your intensity. Once that first debt is paid off, put the leftover amount each month toward the second debt, and so on. This is your chance to make a new habit. If you habitually pay extra on your debts you will be primed to habitually invest into your future once you’re debt free. Success in finances is the sum of consistent positive habits over time.

Then what?

Keep doing this simple habit until you are debt free. Commit to never, ever, EVER, get yourself back into the debt pit again! You’ve worked so hard to become free!

Next time we meet we are going to talk about the steps we take once we’re debt free and we get to start setting big, hairy, audacious goals for our future. My next goals are to pay off my home completely and save $40k per kid in a “launch fund”. I don’t care how much you make right now – forming your financial habits correctly will change your life, and also those of your children and others around you. You can do this. So start, and start right now. I’ll help you with the practical steps of saving and planning for the future next.

The average person thinks debt and payments are normal. I’m telling you debt is a crippling, dream-squashing monster.

Let’s end average together.

Spread the love

Leave a Reply

Your email address will not be published. Required fields are marked *

Post comment