If you read our "We Lost Our Home" post, you know our rental was sold and the new owners wanted to live in it. There were a few things I did not include in that post.
For example, when we moved into our home, I did not have a budget set up. I already had some debt when we moved in, but that debt would just keep growing. Towards the end of 2019 I was financially frustrated. I wanted to travel but was held back due to financial struggles. I wanted to purchase a house but was unable to due to finances. I was frustrated to the point that I decided to deep dive into the Budget Mom's Budget by Paycheck method.
I finally put a budget together and started saving for things like Christmas and birthdays. It was so nice to not stress about Christmas finally. I did run into an issue of not wanting to spend the money when it was time, but I quickly got over it. If you think you do not have any money to save after bills are paid, I beg to differ. I thought the same thing until I started the budgeting process.
When I first started out, I started using cash only for variable expenses. Food was the main variable expense we had. It was already a very tight budget, but I decided to do what the Budget Mom did; I took the change and placed it in a separate savings jar. At the end of the first year, I had saved $100 just in change. That showed me I really could save more than I thought.
Once I got the hang of the process, I went back to using my debit card as it was easier. That would end my change savings, but that did not mean saving was done. The Budget Mom used to create savings challenges for a small fee. I decided it was worth the price and for two years used her challenges to save money. At the end of the year, I would take the money saved and apply it to debt.
Once we lost our house that freed up quite a bit of money. I still had bills, but nothing compared to what I did have. I was able to pay off the last of my consumer debt within a few months of moving in with my parents. It felt amazing to be consumer debt free. Whereas I was consumer debt free, I still had some family loans to pay off.
One of the most asked questions in finance is whether one should use the snowball or avalanche method. I am not an expert in finance, nor am I a financial advisor, but I can tell you what worked best for me. In the beginning, I used the snowball method for a quick victory. My debt ranged from hundreds to thousands. With the snowball method you order your debt from least to greatest. As you pay off one debt you apply the payment to the next debt. I chose to use this method until I reached the higher debt amounts. Once I reached the higher debt, I switched over to the avalanche method. With the avalanche method you order debt based on interest rates and attack the higher interest rates first.
Once my consumer debt was paid off, I switched back to the snowball method and just applied the full debt payment to family loans. I used the rest of my paycheck, outside of bills, to start our house savings. In one sense it felt so good to be able to start saving for a house, but in another sense it felt impossible.
If you are stuck in debt and want out, my advice is to create a bare bones budget. A bare bones budget consists of only necessities needed each month. What can you get rid of temporarily to apply to your debt? Does your paycheck cover your bare bones budget? If it doesn't you need to find a way to bring in extra money or lower living costs. Once you have your bare bones budget, you can cut costs and apply the money saved to your debt.
We have built up our house savings enough to be able to purchase a house within our budget. We have somewhat halted our house savings as we have a big announcement to share with you all. Make sure to come back next week to see what it is!
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