This guest post from Mike C. is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.
On June 26th, I married my best friend. Together, we entered married life debt-free and with six months of expenses in the bank. We paid for the ceremony, reception, and honeymoon in cash. This may not seem remarkable, but just two years ago I was sitting on about $14,000 in high-interest credit card debt with no real sign of ever digging out.
In fact, I didn't even really care that much. I had the gizmos, gadgets, and toys I wanted. My monthly bills always left me with enough left over to feel like I wasn't completely in the red (even though I was — deeply). Everything looked rosy from where I was sitting. Even as the economy crumbled around me, I remained blissfully ignorant of the precarious situation I was in.
The Turning Point
By the late summer of 2008, I realized that I had found “The One” and wanted to spend the rest of my life with this very special woman. Now, this may sound cliché but this was honestly one of those “The heavens opened up and I saw with perfect clarity” moments. Here I was, living in a cheap apartment, with a mountain of debt, no real savings, and no plan for the future. I was spending money hand-over-fist on ridiculous Stuff that wasn't making me happy, and wasn't improving my quality of life at all. This was not a good situation to be in if I wanted to bring another person into my life.
I knew that money is one of the main issues couples fight about, and I was determined that debt, specifically, would not be an issue for us. I decided it was time to change. I made a promise to myself: I wouldn't propose until I had eliminated my last bit of debt.
The Blitz to Solvency
You've read all of the tricks here at GRS about how to cut expenses and eliminate debt. Everything from canceling subscription services to cutting luxury purchases, from eating out less and finding creative ways to cutting minor expenses here and there. I did it all.
In fact, for several months I went a bit over-board and didn't buy anything that wasn't 100% essential to my daily survival. My monthly expenses dropped to virtually nothing (under $1,000/month, including rent). If I had to guess, I'd say that I was socking away roughly 60% of my take-home pay. I was a savings machine.
At this point, I also consolidated all of my credit-card debt onto one card with a better interest rate than the rest (from a usurious rate of near 30% on one card to a much more reasonable 9.9%) to reduce the complexity of the payments and make it feel like I was doing more with each payment. (Never underestimate the psychological benefit of making one $200 payment as opposed to two $100 payments.)
Initially, my debt vanished at a fantastic rate as I employed all the tricks I could. But eventually it leveled off, and it felt like, while I was making steady progress, it would still take a long time to get to where I wanted to be.
Fear Sets In
Late 2008 and early 2009 were just flat-out terrible for the US economy. Jobless rates were skyrocketing, consumer spending was near an all-time low, the housing market was imploding, and banks were closing their doors. For someone trying to rebuild their finances, this was terrifying, and I worried about what would happen if I lost my job. Sure my debt was dwindling, but my savings was going nowhere; if I lost my job, I'd be in a world of trouble.
Of course, the emergency fund vs. debt reduction debate is hotly contested:
- On one side, you have the argument that it's mathematically better to kill off the high-interest debt before putting money into a savings account that earns less interest.
- On the other side, there's the issue of psychological comfort and the safety net being in place if things really go wrong.
I decided to split the difference. I adjusted my payments so that two-thirds of my left-over income went to debt, and one-third went into savings. I opened an ING Direct account for the emergency fund so I'd earn some money on it, and it'd be out of easy reach in case I was tempted by some new toy.
In addition to wanting to be debt-free, my goal had now expanded to include a six-month emergency fund.
Sheesh! At this rate I'd never get married!
Impatience Sets In
My debt-repayment plan progressed steadily, if a bit slower than originally planned, and I was working to save enough money to survive for six months should I lose my job. Assuming no unexpected expenses came up (ha!), my spreadsheet said I'd hit both goals by mid-2011.
2011?! That was two years away! In two years, a lot of things can change. The company I work for could be out of business. I might have to move cross-country for work. My car could blow up. And so on.
Not to mention, I'd be near 30 and have very little to show for my life so far. Waiting two years before I could start my life — and start building assets — with my intended was just too long. So, I made a decision that was probably foolhardy long-term, but which has definitely helped immensely in the short-term: I cashed out a Roth IRA.
From a previous job, I had about $8,000 sitting in a Roth IRA that had lost all of its gains and essentially just contained the money I originally put into it. Pulling that money out and using it to pay down the debt would eliminate what was left of my debt and let me focus 100% on the savings plan. Instead of another two years to meet my goals, if I tightened my belt even more, I could reach them by Summer 2009.
I know that I forfeited a few decades of compounding interest, and at the end of everything probably gave up near $100,000 in retirement savings, but I felt that getting myself on solid financial ground today would pay me greater returns in life overall. I know many will criticize this decision I, but it was the right one for me, and I feel much better having made it.
Every few weeks I'd update my spreadsheet and watch as the numbers inched closer and closer towards my goal. I was going to make it. By the end of May 2009, I was going to be debt free and have enough money in the bank to survive for six months if the worst happened. I was finally in a place where I felt I could propose and bring nothing but good things to the marriage. So over Memorial Day weekend 2009, I proposed to my girlfriend Elisa, and she said yes! Now it was time to celebrate by planning the wedding.
Staying Smart in Wedding Planning
Both Elisa and I have pretty simple tastes when it comes to celebrations. We're also not into weddings that have hundreds of guests. So, we set the goal from the start to have a small wedding, and to retain full control, paying for it ourselves. All-told, the wedding and reception cost us $5000 for a 50-person event. We saved on costs by doing some of the following:
- Ceremony in a local park ($100)
- Non-traditional wedding dress ($200)
- No flowers (huge savings here)
- Reception at a restaurant (wine, tapas, and dessert) ($2,000)
- Simple wedding rings ($1000)
The rest of the $5000 was made up of miscellaneous expenses like tux rental, favors, hair, makeup, and two nights at a local B&B after the wedding. Every step of the way, we paid in full. I carried no debt for the wedding longer than the few days it took for my bank to send the funds to pay off the credit card. The same was true for our honeymoon to Rome. We paid off the flights and hotel costs before we left, and we put away a bit of cash every paycheck to cover all of our in-country expenses for the trip.
Setting a Solid Foundation for our Future
Here we are, just married and we have solid savings, no debt, and have settled down to a plan where about 40% of our take-home pay goes into savings towards future goals (house, retirement, vacations etc). We're also working towards building that six months savings into a full year of salary, so that we have true freedom from our paycheck, and can live and explore life the way we want to and not be tied to any particular job. Right now, it looks like we'll hit that goal within the next year!
The feeling of security and contentment I had when I paid down the last of my debt, then again when I had six months of expenses saved, and finally when I paid for the entire wedding without incurring debt was beyond words. Accomplishment coupled with a huge burden being lifted from my shoulders is probably the best way to describe it. And best of all, we're on solid ground going forward.