It’s been over a week now since our last #LiveFreeLife post. If you remember, our first intro into the FPU curriculum was to save $1,000 into a rainy day fund. Check! thanks to extra wedding day gifts, we were able to accomplish that pretty quickly. This week, we just finished lesson #2 and our next baby step in this debt-free, live-free program is to pay down our existing credit card debts in what is called the Snowball Effect. Hence, we’re going to make it snow in June! The lesson incorporated not just telling us how to snowball our way into a live free life, but how money and debt can help or destroy personal relationships.
I know many of us have heard a story or two on couples who seemed rather happy, and yet end up divorced after a spouse loses their job or goes through a life crisis that creates financial hardship. Financial hardships can be some of the toughest ditches to dig out of in a marriage. This is why it’s important to be on the same page financially, agree on the same goals, and keep supporting, reminding, and encouraging each other along the way.
J and I have very different and not so different experiences handling finances when we were single. I used to be and sometimes can still be an emotional spender. However, my job is centered around numbers and that has helped me learn to budget and save. Keeping to it is an entirely different story though! J is a social spender, but a spender nonetheless, and numbers aren’t his thing so he’s slowly learning as we start to tackle this together.
The Snowball Effect is quite simple. You basically organize your debts from the smallest amount owed to the largest, regardless of interest percentages and fees. The goal is to pay only the minimum payments on all the debts except for the smallest one. With the smallest one, you tackle it like your life depends on it! Budgeting comes in handy so you know how much to set aside for all the basic necessities and also set a little bit aside to have a life (tackling debt doesn’t mean you have to put your life on halt and live like a prisoner in your own house). However, it makes you aware of what you’re spending on so you can put as much as you can towards paying down the smallest debt. Some people may ask,”Why don’t you pay the debt with the highest interest first? Wouldn’t you save more money by not having to pay so much interest?” Some methods do take this approach, but the reason FPU and Dave Ramsey suggest the Snowball method, is because debt is a behavioral problem and people can get easily discouraged when trying to tackle their overall debt. Tackling the smallest debt first seems more do-able when you’re starting out, rather than looking at the largest debt and feeling like you can never pay it off. Tackling the smallest debt first also brings a faster sense of accomplishment because you can probably pay it off in a short amount of time when you’re only paying the minimums on everything else. Once you accomplish the payoff of the smallest debt, you’ll gain confidence to then tackle the next smallest debt (and you’ll put all the money you invested every month into paying off the first debt, combined with the payment for this second debt to pay it off fast!) and sooner or later you’ve paid off a good amount of the total.
It’s only been about 3 weeks in and sometimes I have to remind myself why we’re doing this. It’s definitely not easy, I have to think twice about everything! Would I rather spend money eating out for lunch Mon-Fri or would I rather save $50 dollars a week towards living debt free by just packing my lunch instead? A $10 meal may sound like peanuts, and don’t get me wrong, I do allow myself a cheat day now and then, but those $10 meals, 5 x’s a week, ends up being $200 a month!
July 4th is this weekend, so hoping everyone has a fabulous firework filled holiday! I’ll be in Portland (first time!) on a small trip for fun, so hopefully I’ll have some good finds to share!
Till next time