I know this can be a scary and daunting subject but it’s something I think everyone needs to look at and keep in mind on a week to week or at least month to month basis. The reason I’m writing this post now is because I finally got the nerve up to really ask Oliver if we could sit down and create a financial plan. I was really scared to bring it up but when I did and he didn’t react negatively except he knew it wouldn’t be pretty, I felt better about it. It’s been bothering me that we haven’t had a financial plan for the last 8 months we’ve been living together because I’ve always had a financial plan of some kind or another. Especially since we are talking about getting married and getting a house, I want to make sure we can afford it all but we won’t be able to unless we pay some stuff off.
The first thing we did was write down all of our debts with the name, the total amount, the interest rate, and the monthly payment. Initially we left out our base expenses i.e. rent, electric bill, cell phones, insurance. The stuff you can’t pay off and be completely done with. But I will talk about these items a little later.
Between the 2 of us we have 12 total debts we want to eventually pay off. Some of them we want to have paid off in a year, others not for another 6+ years. After listing all of our debts, I plugged them into a Crush Debt Spreadsheet that helps calculate payments and payoff times. I had to add a few more lines to accommodate all 12 debts as well as copy and paste a couple boxes. After we initially entered all our debts with interest rates, we then went through and figured out how we wanted to pay stuff off. There are 2 main ways to paying off debt. The snowball method: Paying off the smallest bill then using that money to pay off the next smallest bill and then using the money from the last 2 bills to pay off the next smallest bill and so fourth until you pay off all your bills. This is a good method to quickly see some small bills disappear and then watch larger bills disappear rather quickly. The avalanche method: Pay more money to bills with the higher interest rate until paid off then use that money to pay off the next higher interest rate bill and so fourth. Similar to the snowball but you go by interest rate. This method you’ll see pretty much a good chuck of your bills disappear at once but it can feel like it takes longer even though it really doesn’t. Both methods are great and it just depends on what kinda of debt you have and what goals you want to achieve. I personally like the snowball method because I get great satisfaction by completely paying off a debt.
Once we had all our debts entered into the spreadsheet and what method we wanted to use, we then prioritized our debts with a 1 – 12 (1 being the debt we want paid off first). Then we went through to see how much extra we could allocate towards that bill. We don’t want to sacrifice our lifestyle so it just means we have to watch how we are spending our extra money for our lifestyle and slightly alter it if needed. We calculated our base living which is how much we have to pay a month for each bill at a bare minimum including our debt. On a sheet of paper I wrote out each of our monthly bills for living along with our monthly payments on everything. I typically don’t like paying the bare minimum payment on any debt but if it helps pay off a couple bills quicker then I will for a couple months. After I calculated how much we have to pay at a bare minimum, I then figured out how much money we bring home each month and then used the remaining to create a budget. We still have money to put to savings and money to play with but I found we have a couple extra hundred dollars that we can put towards a bill. That just so happens to allow us to get one loan paid off by next month and then by snowballing that, we can pay off a second loan by October, and then by continuing to snowball and watch our pennies we can pay off a 3rd loan by November or December. Then unfortunately we start getting into the larger debts so we decided to take the highest interest debt to payoff after the first 3 debts. That one will take us almost a year to pay off but by the end of next year that means we will have paid off about $20,000 of debt in 1 year and 3.5 months! I think that’s pretty amazing when you look at it like that. It gives you a bigger perspective and a great goal to achieve.
I know not everyone has the same situation as me but it’s good to feel like you have a handle on your finances. I’ve struggled for years just barely trying to make the minimum payments on some debts but when you get to a place where you can lay it out, it still depressed the fuck out of you, but at the end you have a plan and a goal and it makes you feel slightly better about it because it’s all in front of you and you can control it. If you decide one month that you want to take a trip or something else comes up and you had to put your extra money somewhere else, all you have to do is adjust the dates in the spreadsheet and calculate your new goal which won’t be far from your previous one.
Finances can also be hard because they aren’t always taught properly in schools but there are a lot of blogs and articles that help guide you through financial debt which is how I got to where I am and how I found the spreadsheet which I modified. Best of luck to you! Let me know if you have any questions.