Money is like a river. Like the tide it comes in and goes out. The constant flow is away from you ultimately. But, like a steward of the land, we can build dams and reservoirs to capture some of the flow and keep it where it needs to be.
OK, metaphors aside, the goal is to keep some portion of your money for yourself. Right now we aren’t doing that. We’re headed into debt again so we’re sending everything to get rid of that. It’s not a happy place to be, in debt. But even a few extra dollars a paycheck will help get us out that much sooner. I’m still planning on having everything, including the house paid off in under 15 years. It’s possible. We are saving money using thrifty techniques, we have set an amount to live on that is below our means, and the rest is going to debt. We had already set up the college funds and retirement account, so we’re letting those go. We won’t be able to pay everything off quite as quickly by leaving those in place, but we’ll get there. At least this isn’t going to be as bad as the first time around.
So, first things first, save up a little bumper. Pay minimums on your debts until you can get $500 to $1000 saved up. Next, attack the smallest debt first. Once that’s paid off, send the money that you were sending to that debt to the next biggest debt. Keep rolling it over until you have all of your debts paid off. It’s going to take a while, but it’s amazing how much quicker it is than you think it will be. Next, save up an emergency fund of 3 – 6 months worth of expenses. Then start on retirement accounts (15% of your pay), and college funds if you have kids. Finally, pay everything you can to pay off the house. If you can manage an extra payment a month after all of your other bills are paid off, you can pay it really quickly. Probably in under 10 years. Then you have a paid off house and no debts. At which point it’s time to start playing and investing and giving. This specific order comes from Dave Ramsey (The Total Money Makeover), but it’s a pretty old approach to paying off debt and saving. It’s working for us so far, that’s why I recommend it.
You’ll go back and forth among the steps sometimes- we are headed back into the paying off debt step after having done the retirement and college funds – but as long as the general trajectory is in the right direction and you’re doing things in order, you’ll get there. We’ll get there.