Monday, November 26, 2012

My Tortoise Thoughts

Honey Smith over at posed an intriguing question last week. When attacking a large ticket debt item, what is the turtle thinking as they move along? This question is based on the premise, which I subscribe to, that when it comes to building overall financial security the tortoise wins the race. Being slow and intentional over a long period of time builds wealth.

It caused me to reflect on the process that was obliterating our debts through Dave Ramsey’s debt snowball process. Dave’s debt snowball works like this. I lined up all of my debts one by one. I paid minimum payments on each debt and with every extra dollar I could squeeze out of my budget I paid extra on the smallest debt first. Once that smallest debt was paid off I would repeat the process moving from the smallest to the largest debts until we were debt free.

Between my wife and I we paid off and closed 3 credit cards and 2 student loans that in all totaled just over $80,000. The process in its entirety took us three and a half years to complete. The credit cards and 1 student loan were the easiest and quickest to payoff. With deadline dates in hand and gazelle intensity in our hearts we annihilated 4 of the 5 debts within 6 months. What remained was the largest and last debt that mathematically was going to take us a few years to payoff even with paying extra every month.

So what was this turtle thinking during that time period? I knew that the road ahead for this final debt payoff was long. But I also knew that with a final payoff date on the horizon that there was light at the end of the tunnel and that we were going to be ok and we would be debt free. Since this last debt was going to take us more than 2 years to pay off we went back to our emergency fund and raised it from $1,000 to 6 months worth of expenses. We also began to contribute to retirement savings. Though short of Dave’s recommended 15%, in gearing up for the long haul of that final debt payoff we decided to put ourselves on a firm foundation.

But we also budgeted and planned to live life. We saved for and paid cash for our wedding and honeymoon. We took small trips to Mackinac Island, Charlotte and to visit my family in California. We treated these small trips as ways to keep us motivated and give us breathers in between the extra payments and long sprints of gazelle intensity.

So even with the aforementioned plans we still paid off that last student loan faster than expected. To seal the deal we took our 6 month emergency fund down to $1,000 to pay off the last of the loan. And then we swiftly rebuilt the emergency fund. It was a long couple of years to focus on one goal. The “attaboys” through small vacations and even the birth of me tracking our net worth helped us feel that we were moving in the right direction every month and passing quarter.

Now that we are living life after debt the opportunities before us seem limitless. When we want to travel to far away destinations we save up, pay for it and go. Our next milestone is saving up to pay cash for our home. While I am still taking a turtle’s approach to this goal, there is a great deal of comfort and peace knowing that we are accomplishing this and all of our goals without debt and with carefully calculated and intentional actions. We are going to start having some more fun along the way and coming up with joyous and unique ways to give. Dave Ramsey says there are only 3 things to do with money in life after debt: Invest, give and have fun. For 2013 our household is ready to start doing a little more of each than we did in 2012 and that is what this turtle is looking forward to in the coming year.

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