Living the “Simple Life” can mean a lot of different things for people. It may be growing your own food, making food from scratch, being a minimalist, or just living your life with intention. Regardless of what your definition of “simple living” is, it should include living debt free.
For so many though, the idea of living debt free seems impossible. We’ve been told for so many years that “you’ll always have a car loan” or paying off your mortgage is just a dream. It’s time to change that way of thinking and start living with intention, live the simple life, live it debt free.
There are many voices out there telling you what to do with your money, how to lower your debt, how to invest your money, and the list goes on. Personally, I have found one voice that has a system that works- a debt free system that has worked for thousands of people around the world, people just like you and me.
It Worked for Us!
There’s nothing like finding yourself over $100,000 in debt (NOT including our house!) to make you sit down and rethink your finances. In 2018, my husband and I did just that. For the first time, we added up all our debt. Our credit cards and “toy” loans. It was quite the wake up call.
I had heard of Dave Ramsey before, but decided it was time to really dive in. I started by reading Total Money Makeover by Dave Ramsey. Not only did this book tell me exactly how to get out of debt, but it also told me it was very possible and gave us a new hope!
Dave Ramsey is a self made millionaire who wants to help people get out of debt all over the world. Not only does he have several books on the subject, but he also has a radio show (you can download the podcasts or listen in on YouTube) and classes you can take online or find in your area.
After I read Total Money Makeover, my husband and I decided to take the online course, Financial Peace University. We’ve learned the proven method to getting out of debt, how to invest for our future, and how to make our money work for us.
Dave has laid out the path to being debt free in seven steps, the 7 Baby Steps. Do them in order, one at a time, and you’ll be on your way to a peace filled simple life.
Dave Ramsey’s 7 Baby Steps to be Debt Free
Baby Step 1: Save $1000 Emergency Fund
Statistics show that many Americans cannot cover a $250 emergency. Because they don’t have the cash, they put it on a credit card. So not only does the emergency cost you, you’re paying interest on it too. (Crazy interest at that!)
Having $1000 set aside will prepare you for these emergencies AND save you from incurring more debt! Along with this step, determine that you’re done with credit cards! Cut them up! Take charge of your future by planing for the unexpected. You KNOW emergencies will happen, its only a matter of when.
It may take you a while and $1000 may seem daunting, but you can do it! Set aside any spare change, extra $5, or even start a side hustle to get that Emergency Fund started. Try one of these ways to make money from your homestead!
Start a Budget
Start a budget. Believe me, I know. This is a hard part, but when you look back at your bank account and actually see where you’re spending your money, I promise you that you’ll be able to make some changes and “find extra money” to put towards this Emergency Fund.
Having a budget won’t keep you from having fun. Instead, a budget will tell you how much you can spend. Use these homemade envelopes to keep track of your money in each category!
For me, it has become a “permission to spend.” Instead of going to the store and feeling guilty for buying clothes, I know exactly how much is in my budget for it and it’s there to be spent! Having a budget will show you how much extra money you have that was just “disappearing” before.
Baby Step 2: Get Debt Free (except the house)
For most people, this step is the scariest. The best way to go about it is one step and at a time. What’s that saying about eating an elephant? One bite at a time. You’ll get there!
List all your debts from smallest to largest. Still owe on your smartphone? Got student loans? Don’t forget that car payment, credit card payment, and any other loans. On the list, include the minimum payments for each loan. Just remember, we’re not including the house debt in this section. That comes later. This is how we start the “Debt Snowball.”
Use the Debt Snowball
We start by paying the minimum payment on all debts, except the smallest one. Throw every bit of “extra” money you have towards that smallest debt until it’s paid off. It may only be an extra $5 the first month, but that’s okay! Its the start you need. Once the smallest debt is paid off, take that first payment, plus any extra, and tack it on top of the minimum payment for the next smallest debt!
Just like a snowball that starts as a small handful of snow and grows as you roll it along, you’ll see your monthly payment grow and grow and knock out one debt after another!
Sell It All!
For the husband and me, not only did we throw every bit of extra towards debt, but we sold a lot too! The ATV we still owed on and we really didn’t use very often, we sold it! Not only did we sell it for enough to wipe out that debt, we made some money on it to go towards the next debt! We sold a remote piece of land, another ATV, and just about anything that wasn’t nailed down.
Like most Americans, we had a LOT of extra stuff laying around that we just didn’t use or need. Not only did we make money on the sales, but it cleaned up our lives and we found a lot of peace in getting rid of the clutter.
Baby Step 3: Fully Funded Emergency Fund
Baby Step 1 is all about having a basic emergency fund. $1000 in a savings account will stave off a lot of basic emergencies, but what if you’re laid off from your job? What about a large family emergency? What if your roof gets blown away? $1000 isn’t going to get you too far when it comes to big emergencies.
Baby Step 3 is all about having three to six months of expenses saved. Thanks to your budget, you know exactly how much money you need per month. Having three to six times that amount in your savings account will give you peace of mind, even if you lose your job.
How to decide if you should have three or six months saved? A good rule of thumb is three months if you’re a dual income household, six months if there is only one income.
Baby Steps 4,5,6: Retirement, College, and Home
Baby Steps 1-3 are to be done in order, one at a time. Steps 4, 5, and 6 are done at the same time.
Baby Step 4: Save for Retirement
Baby Step 4 is to save 15% of your income for retirement. Think 401k, Roth IRA, etc. Now that you’ve paid off all your debt (minus the house) and have a solid emergency fund, you can put your income to work for you. It’s time to start paying yourself!
Baby Step 5: Save College Fund
Baby Step 5 is to save for your child’s college. This is an optional step. It may not apply to you or you just decide that your kids can work through school the way you did. That is up to you and your family.
Baby Step 6: Pay off the House!
Baby Step 6 means its time to pay off the house! No waiting for that full 30 years to happen. No paying two to three times what the house is even worth in interest. While you’re putting 15% of your income into retirement and saving for the kiddos’ college, throw any extra you may have towards that mortgage. Guarantee yourself not only a decent retirement, but somewhere to enjoy that retirement too! Even just a little bit extra towards your principle each month will help you save on all that interest.
Baby Step 7: Live and Give like no one else!
Can you imagine? Baby Step 7- no debt, no mortgage, a strong retirement building each day and the financial peace of knowing you and yours are set for a wonderful future. A big part of Step 7 is giving. With no debt, just think of the amazing “pay it forward” you can do!
Live the Simple Life Debt Free
It’s possible! No matter what walk of life you’re in, I promise this method works. That’s one reason I listen to Dave’s show all the time. I get to hear people call in and tell their debt free story. People who were about to declare bankruptcy, single mothers, people with no jobs, and even people who started out homeless! Financial Peace is possible for you!