What does financial freedom mean to you? Does it mean having a never-ending flow of income so that you can buy whatever you want? Not having to work for a living? Or does it mean something a little simpler, like living debt free, and being content with what you have?
As a child, I never thought of my family as poor. We always had plenty to eat, clothes to wear, a car to drive. We never did without, and to be honest, we didn’t know any better. I had an idyllic childhood, and was surprised to learn as an adult how much my parents did without just so that us kids wouldn’t have to.
Getting Married – Merging Incomes… and Debts
When Gaby and I got married, we were poor – and that’s putting it lightly. He was fresh out of university, and we had moved to one of the most expensive cities to live in Canada. I had only been working for a few years after college back in Winnipeg, and was still paying off student loans. When we moved out west, neither of us had jobs lined up and ended up staying with his parents for three months while we found employment and a condo to rent.
We had been in Calgary a few weeks when Gaby landed is first engineering job post graduation. I followed suit a few weeks after that, finding employment as a graphic designer. We were so excited to have money in our pockets, and loved to spend it. We were making all our payments and still had cash to spare – we’d never had disposable income before!
But, after a few months of living this way, we started feeling the crunch. We weren’t going into debt, but we weren’t getting out of it either. Between student loans, car loans, and the line of credit we had used to pay for the wedding, we were going nowhere fast. We couldn’t figure out where all the money was going and knew that we had to urgently rectify the problem.
Meeting Our Financial Planner
Gaby has made a lot of contacts over the years, but meeting Rob Avis was probably the most important person he met in regard to our financial future. (You’ll hear a lot about Rob and his wife Michelle, and their company Verge Permaculture, in the future as we explore sustainability and permaculture on our homestead.)
Rob introduced us to his mother-in-law, a financial planner with Investors Group. A more wonderful and insightful woman I have yet to find – she took us on when we had no money to make investments and a lot of debt to deal with. We owe her everything when it comes to being financially free – she taught us tips and strategies to help make our money stretch, and how to roll it all together to make increasingly larger payments on all our loans and credits. With her help, we paid off $70,000 of debt as well as saved up the down payment on our first home in only four short years.
How We Did It – Tips and Tricks You Can Use to Help Pay Off Debt
- This is by far the most important thing I can tell you about getting out of debt. In this world of consumerism, please know that stuff is just stuff. What matters most in this world are the relationships we make, being the village for the next generation, being a good neighbor and a loving friend, and having faith in God. Material objects will never be able to give us what we need, physically or emotionally, and the sooner we come to terms with that, the more content we’ll be. Always ask yourself whether the something that you want to buy is worth spending the money on, and if there is money available to spend on it.
- In certain circumstances, renting may be preferable to owning when it comes to living quarters. Most people will tell you that buying is more desirable to renting, as with owning there is equity. I’d like to play devil’s advocate and offer a different thought. Owning a house costs money – not only regarding the mortgage, but there’s also a myriad of other expenses involved – repairs and maintenance, property taxes, utility bills, insurance, and more. With a rental, the expenses go down significantly. Depending on your agreement, the cost of utilities may be rolled into the rental price, renters insurance is quite a bit less than homeowners insurance, and your landlord should be taking care of the repairs and maintenance of the property. There’s also the cost of the mortgage to consider – you can rent a property, or you can rent money (the interest on the loan is the “rent” for the mortgage). In either scenario, there will be money that you will never get back. So, get out your calculator, and figure out which option will give you the more bang for your buck. If the price of renting is less than the amount you would be spending on home ownership, it may be better to rent a property, use the extra money you’re saving to pay off debt, and save up a down payment before buying a home. A quick aside. If the cost of renting is more than the cost of a mortgage payment, then it may be time to start looking at buying.
- Make a budget and review it on a regular basis. Use the method you know you will stick with – either pen and paper, a software accounting program, or good old Microsoft Excel. You will never know where your money is going unless you have a record of it. Account for every penny (or nickel, as we’re in Canada and the penny is now obsolete). To help you get started, I’ve included a link to the Excel spreadsheet that we use to keep us on track. (Feel free to download and edit it for your own personal use.) Every payday I enter in all the receipts and payments we’ve made for the last two weeks. Until you’re used to keeping a budget, I would suggest entering in bills and receipts on a more frequent basis.
- Use more than one bank account. We have three personal accounts as well as a business account (for Cinq Artisans) – a chequing account, used for expenses, a savings account for emergencies, and a second savings account to keep track of the money we save for future payments and maintenance (such as property taxes and car repairs). I call this one my Budget Allocation account. I keep track of what goes into each category on a second worksheet, and take the money out of this savings account when these expenses come up.
- Don’t spend money unless you have it. I know things can come up that will deplete your emergency fund faster than you can blink an eye, but whenever possible, save for something you want or need before you buy it. For example, if you know you’re going to need a new (or new-to-you) vehicle in a few years, add to it your budget, and start putting money away each paycheck. Even if you don’t end up saving the whole amount by the time you need to use it, you’ll have significantly decreased the amount of the loan you’ll need to take out.
- Fun Funds! This one has been a marriage saver for us. No more complaining or getting upset about what your significant other is spending money on. Gaby and I give ourselves an allowance each payday in cash. When the cash is gone, it’s gone, and there won’t be any more until the next paycheque. We spend our fun funds on non-budgeted extras, such as going out for lunch or drinks with friends and buying craft and hobby supplies. We’ve even been known to save our fun funds for larger, more expensive non-budgeted purchases down the road.
- Saving for retirement. This one doesn’t really fall into the category of getting out of debt, but I would be remiss in not mentioning saving for the future. It could be a pension or investments through work or something that you save for on your own. It’s always a good idea to plan and start saving for the future now. Even if it’s only $50 a month – find yourself a good financial planner, start small, and you’ll be amazed at how quickly your money can grow.
We used these tips from our financial planner with great success. When we stuck to our budget, paying off our debt was a breeze! I’m not saying that it was always easy – believe me, there were many times when I didn’t like what we needed to do, and what we had to miss out on to stick to our budget. But in the end, it was worth it (and I don’t even remember what the things were that I thought I needed back then). We are now completely debt free (except for the mortgage) and have been for the most part for the last 7 years, even through Gaby’s layoff.
How do you keep track of your expenses? We would love to hear your tips, tricks, thoughts and stories. Happy saving!
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