How Much Time Do You Have?
On average, new budgeters save $200 their first month and more than $3,300 by month nine! Pretty solid return on investment.
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Yesterday I featured Jenny and Aaron’s, well, debt. Today I’m covering their budget and showing them how they can be debt free in 18 months thanks to a debt snowball, work bonuses, and tax refunds.
This budget is based on two $1,350 paychecks per month. Health insurance and retirement contributions are withheld from paychecks, so don’t appear in the budget. 401k loan payments are also withheld from paychecks.
You’ll notice a lot of $0 categories. That’s a reflection of the change in lifestyle Jenny and Aaron will experience by committing to getting out of debt. Paying off the balances will allow them to start funding those categories again.
|Monthly Bills Total||$1,176.03|
|His spending money||$30|
|Her spending money||$20|
|Everyday Expenses Total||$540|
|Rainy Day Funds|
|Rainy Day Funds Total||$75|
|Back to School||$0|
|Savings Goals Total||$10|
|Credit Card A||$140|
|Credit Card B||$100|
|Credit Card C||$100|
|Debt Payments Total||$575.17|
Jenny tells me Aaron’s annual work bonuses are very consistent (he works for a very large, growing company whose commercials you see every day). Although they’re expecting a raise before year-end, it won’t be huge and their tax refunds should be close to what they’ve been in the past.
It’s also worth noting that this snowball doesn’t include the two “extra” paychecks per year Aaron gets (because he’s paid bi-weekly), and it also leaves out the raise I just mentioned (which has already been approved).
In other words, as long as Jenny and Aaron live within their means, they can be debt free in a very reasonable amount of time. The snowball kicks off using $5,000 from the savings they’ve set aside for their two kids’ future. Although it’s emotional, they agree that they need to solidify their own finances before they can hope to help their kids.
Here’s the plan:
Jenny and Aaron – it’s going to be tight, but you can do it. Getting out of debt involves one big decision (“We’re through borrowing and we’ll do everything in our power to get out of debt.”) followed by small, daily decisions (“We’ll buy that DVD when we’re out of debt.”).
Work together and fight for your goals. When the snowball is done rolling, you’ll have freed up $600 per month – over 20% of your current take-home income, not to mention your annual bonus and any tax refunds. Life will be brilliant with no debt. Make it happen!
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