If you knew our past, you’d know that at the beginning of our marriage, we weren’t exactly the frugal, penny-pinching couple you’ve grown to know online.
We lived paycheck to paycheck, and had been pretty financially irresponsible for a long period of time.
Roughly eight years ago, if you looked at our overall financial health, you would have probably said “Wow, they have a tough road ahead of them.”
And we did.
A new mortgage, two car payments, multiple credit cards, a few personal loans and all the day-to-day luxuries and trimmings of an American lifestyle.
We thought we had reached the definition of success, until we found out we were pregnant with our first son and decided to “somehow” make all of our bills work on just one income.
We didn’t realize it at the time, but becoming a single-income household meant living near the poverty line. We technically qualified for government assistance!
We never applied though, because we thought our situation was normal.
Didn’t everyone have the same bills we had?
We had no clue it was going to be as hard as it was.
You know that saying, “It’s not what you make. It’s how you spend it.” ?
Well, for the majority of financial situations, that saying holds VERY true.
Our past decisions had finally caught up with us, and we had to trudge down that hard road of making tough decisions in order to better our own future.
Many of you already know, but we’ve been completely debt free for over 5 years. Not a car payment, loan or creditor owed. We’ve completely unplugged from the system of monthly payments and we did it on our own. No financial planner, long-term investment guide or anything else of the sort.
We finally became debt free out of sheer will, determination and hard work.
But HOW exactly did we do it? What steps did we take to get from point A to point B?
Finances are difficult for many families, and we want to share our story of overcoming debt to encourage those who struggle in this area. Like our real food journey, we want our financial “lessons learned” to be lessons you don’t have to learn, so hopefully you too can get out of debt, and stop living paycheck to paycheck!
Stop Living Paycheck to Paycheck: Tracking Expenses and Creating a Budget
Before you begin, know that getting out of debt is one part plan and three parts discipline. Here are simple steps you can take NOW to get out of debt, and stop the stress of not having money until next payday.
1. Track Your Expenses & Know What You’re Spending
If you are serious about getting out of debt, this is single-handedly THE MOST IMPORTANT STEP.
Turning a blind eye at your expenses is what got us into debt in the first place. So the best thing you can do to get OUT of debt is to stare them right in the eye.
First, write down your fixed monthly expenses. These are line items that do not change every month, like rent/mortgage, insurance and loan payments.
Next, write down your variable expenses. These are line items that DO change every month, such as gas, eating out, vacations and entertainment. Groceries, and utilities are variable expenses too, since you have control (whether it be little or big) over how much they are each month.
To get an idea of what you spend on variable expenses, look at what you spent last month.
Yes, dig up receipts, look at credit card statements and log into the bank account.
It takes work, but you can do it!
Note: Do NOT estimate these variable expenses, as we were VERY good about underestimating what we actually spent. Take the time to dig up your spending history and know exactly what you’re spending.
2. Set a Budget & Stick With It
Once you know what your monthly expenses are, you can create a realistic budget.
Since your fixed expenses are the same every month, you can assume that for the time being they will not change. With each fixed expense written down, let them be and let’s focus on your variable expenses.
One by one, go through each variable expense and write down a number for either of the following, as it applies to the line item:
- The maximum amount you’d be willing to spend each month (fits with categories like tithing, giving and spending money).
- An estimate of how much it would cost to meet your commitments for the month (fits with categories like gas/fuel, groceries and parking costs).
Let’s use gas as an example. We all have commitments like work, school and church. You would estimate how much it would cost to fill up your tank for the month to meet these obligations, and then round up.
Your budgeting goal now is to not exceed the numbers you’ve written for each line item.
Inevitably, you’ll have expenses that you’re not quite sure where they go, or you don’t necessarily need an entire line item for it. One thing we’ve done in our marriage was combine categories such as entertainment, shopping and miscellaneous expenses like coffee out and called it the “buffer.”
We allow ourselves $100 each month to spend on anything we want, but it’s for the whole family. Bowling after church, seeing a new movie, or even a stop for a burrito on our way out of town for a camping trip – it all comes out of the buffer.
3. Needs versus Wants
Heads up – this step might hurt!
There comes a moment in every budget where the numbers don’t quite add up.
When you see – on paper – that your expenses every month are more than your income.
This is where the rubber meets the road and you have to make some hard choices.
- That sports car you have in the driveway… with the $600/mo car payment?
- A last minute camping trip…
- A cute pair of new shoes that called your name from afar…
- Even buying 100% organic, 100% local and 100% grass-fed foods from a local health food store…
Sit down, look at what you’re buying each month that you don’t really need, and determine if you can sell it or eliminate them from your budget.
Be realistic, and be real and honest with yourself about your expenses and if you can cut them back.
I’ll share an example from our past where had to make a very tough decision.
At one point, we owned a brand new Honda Accord and a brand new Mazda RX-8. When we were cutting back, we sold the Accord for an older Honda Civic, and traded the RX-8 for a used Toyota Corolla.
While we missed having two new cars, we were able to eliminate a car payment, reduce the remaining car payment by over $200/month, reduce our gas costs (both the Civic and Corolla got better gas mileage), and reduce our insurance costs. All in all, it tallied to about $500 in savings each month.
So… remember those variable expenses you just wrote down? Do you even NEED them?
Take a red pen and cut out the categories you know for a fact you don’t need, and limit your spending on the remaining items.
Final Thoughts for the Beginning Budgeter
If you are married, you MUST be on the same page. Communicate daily if any purchases are made, don’t point fingers and work as a team.
Hold weekly budget meetings to analyze where your money is going. Evaluate what has worked, what hasn’t worked and adjust accordingly.
Start small. The starting goal is to not spend any more, but as the weeks turn into months, try to reduce what you originally wrote for the line items. Get creative for family trips and think outside the box. Disney a little pricey… why not borrow camping gear from a friend and try a nearby national forest?
Commit to these three simple steps and you’ll be taking the first steps needed in order to get out of the cycle of living paycheck to paycheck.