Steps to becoming financially free: Create a visual aid
First thing is first. Ask yourself, do I really want to become financially free? If there is any doubt at all, do not pass go, do not collect $200. You have to be all or nothing, this in between stuff doesn’t usually work to well. No taking vacations every month, buying purses that cost half your paycheck or dining out all the time! When Mr. Bigtime and I had begun listening to Dave Ramsey, we had decided we had HAD it!!!!! We were done living paycheck to paycheck, we were done having debt and we didn’t want to WONDER if we would have enough money to retire someday. These first few steps were intimidating:
1. We stopped putting everything on a credit card.
2. We nearly emptied out our savings to completely pay off two brand new cars we had financed.
3. We set aside money for an emergency fund.
4. We decided if we wanted to live and work like no one else that we had to start now and live and work like no one else.
5. Mr. Bigtime created a visual aid that would incrementally track our progress toward our goal.
We were fortunate that the only debt we had was the balance on our credit card, our car loans, and our house. It took a few days before we made the decision to almost deplete our savings to pay off the credit card balance and the cars. Our rationale was that we were paying the bank interest every single month when we had the money to pay it off. Why pay more than we have to? This left us with our house debt. The norm logic is that you NEED to have a mortgage payment so that it can be used as a tax write off. BOLOGNE!! Dave Ramsey explains it best:
QUESTION: Diana and her husband make $288,000 a year and her husband is a contractor in Afghanistan. They are in a 33% tax bracket. Should they pay off their house with the excess money, or take their accountant’s advice and keep the mortgage to get the tax deduction?
ANSWER: You don’t keep a house to get a tax write-off. You’re paying $7,680 in interest per year, so you have that as a tax deduction. When you have that, it saved you $2,500 in taxes. Your accountant is telling you to send $7,680 to the bank to keep from sending $2,500 to the government. That’s stupid! You can pay the house off, give $7,680 to a charity and keep the tax deduction without the debt.
Once we figured out that we didn’t NEED a mortgage payment, we decided to start the process of paying it off. It is almost necessary to have some kind of visual aid when tackling something as big and long as a mortgage, whether it’s a list of payments, a bank statement or even a picture of some sort. Here is our visual aid that Mr. Bigtime made (I know, he’s so talented!)
Each black piece of cloth represents an increment of debt from our house, every time we reach that increment we take a piece off and have a little party! This is what it looked like last year. This is what it looks like as of March 2012 (we take the pieces off at the end of every month):
Maybe one day when this is all done I will be able to tell you how much we paid off and how much each increment is worth….highly unlikely. Mr Bigtime would never go for that.
Sorry for the poor quality on that picture, but can you see Mr. Bigtime’s attention to detail? The lining of our black hole of debt says “WE ARE DEBT FREE”!!!!! So excited for the day we can say that, hopefully it will be before the end of next year 😉 I plan on updating you with pictures of our visual aid monthly. Thanks for reading!!