These are a few more ways that we did it. After cutting to the bare bones to make the first $1000 for our emergency fund, we came up with more ways to eke out a little more cash from our budget so that we could push it towards our debt to get it paid off.
We worked hard to get our first step to being debt free nailed down. We had our "mini" emergency fund set aside. We now wanted to start work paying off our debt. Our next step was to "free up" whatever cash we could. Having that $1000 for emergencies gave us some freedom to be able change things. We were afraid of these changes, but we knew it was the way to financial freedom. We knew that some of the changes would only be temporary if we want it that way.
The starter emergency fund (or mini) was there to protect us from a few of life's dangers. It helps to keep from charging things if something happens, such as flat tires, broken washer, sick pets, etc.. So, with that in place, we wanted to move on to the next step. It was so scary to do this, at least for me.
We called our car insurance company and raised our deductible from $500 to $1000 on each of our cars. That saved us a good bit of money. We also went over our coverage with a fine tooth comb to make sure we were not paying for things we could do without now (and maybe forever). We raised our deductible on our homeowners insurance and adjusted the amounts on that too. That did not save us as much as the change to our car insurance, but every penny helped.
Next, we changed our W-2s at work. Instead of filing zero deductions we adjusted so that less would be taken from our paychecks each week. Sure, we won't get much back from the IRS when we file, but I don't want them borrowing my money interest-free all year when I need it in my checks NOW! Even if I didn't need the money, I could have put that money in savings or invested it and watched it grow instead of letting Uncle Sam borrow it. This freed up a bundle. We were bringing home about $30 more each week on each of our checks. By the way, when we filed our taxes this past year it was a wash. We owed federal a little and we got a little back from state ... so breaking even is right where we wanted to be.
We made sure that we owned the right type of life insurance. My husband had a whole life insurance policy before we were married. His payments on that policy were well over $100 a month and it was not even for that much insurance. We cashed in the whole life and put the money towards our debt and then purchased a term life policy that was for more of a payout and for which we pay only about one third the amount. After really doing the research and seeing what a total rip-off whole life policies are, we had no problem in making this decision. The money we are saving monthly also went towards debt.
These are just a few of the things you can do when you have that little security in the bank to do it.
If you happen to already have $1000 mini emergency fund then you are on your way to freedom. If you have more than the mini emergency fund and you have tons of credit card debt then think of this scenario. Take out as much as you can from your savings just leaving the $1000 and put all that you can towards your debt. Think about it! Why are you paying 20% to 30% interest on a credit card and making less than 2% on your savings. It makes no sense. Pay off the debt then start to invest to use your money more wisely. Yes, this step is sort of terrifying, but think about how much money you can save when you have no bills!! Also, you will want to save a fully funded emergency fund (about 6 months of your income) after you pay off all your debt. That is the real safety net.
So, now we were on our way to putting all this extra money (along with all we continued to save using the other steps we took to get that fund together -- clipping coupons, cutting off cable, having cheap cell phones, meatless meals a few times a week, making my own cleaners and freezer meals, and on and on – toward paying down debt, one thing at a time. It was hard, time consuming, and scary, but we did it!! And all those changes we said we could do because they were only "going to be temporary," well, they are permanent. We sort of like keeping our hard earned money.
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PREVIOUS "FRUGAL SALLY" ARTICLES IN MACARONI KID : NEPHILLY-EMC
- What Makes Me This Way -- Friday, May 11, 2012
- Frugal Lessons Every Parent Should Teach Their Children -- Friday, May 18, 2012
- What Would YOU Do For A Million Dollars? -- Friday, June 1, 2012
