Getting Out Of Debt Without A Budget

Updated September 2021

Back when I got married, we were living a carefree DINK (dual income, no kids) life.  We had moved to the west coast and were renting a 1 bedroom apartment.  We had one car between the two of us since we were both walking distance to our jobs, and the car was only used on the weekends.  We had a plethora of dining options down the street and around the block.  We met some lifelong friends.

We also happened to have six figure educational debt.  Our net worth was deep in the red as we had very little in our bank accounts when we got married.  This is the reality for many married couples who have college and professional degrees.  As many people like to say, the homeless person that has a net worth of zero is better off financially than a fresh graduate.

Over 10 years later, our student loans are paid off and we have a healthy positive net worth.  And contrary to what you may think, we did this without being on a strict budget.   How did we do it?

Answer: We developed a good savings habit.

Sorry folks, it’s as boring as that.  

Here are the steps we took as a newly married couple:

1. Since we had relatively minimal expenses (biggest expenses were rent, student loans, and food), we would have some money left over at the end of the month.  This money got transferred into a savings account.
2. Very early in our marriage, we decided to automate some savings.  We chose a relatively random number of $100 per week.  This amount was then set to be automatically deducted from our checking account into a savings account every week. 
3. We maxed out our IRA accounts every year.  

That’s it.  We didn’t have a budget tracking every expense.  We didn’t obsess about our spending and savings rates.  We weren’t poring over DIY finance and investing books.  Our eyes weren’t glued to CNBC.  Honestly, we were both very busy, and any time away from work was spent socializing with friends and exploring our new city.  

POST-DINK LIFE

Fast forward a few years: now we were parents to three children.  We had moved and bought our first house.  We added another car.  Our expenses had increased significantly when compared to our former DINK life.  We accounted for these life changes by taking the following steps:

1. Maxed out Mr. RLDVM’s retirement account at work.
2. Started 529 accounts for each child as soon as they were born and started contributing every month.
3. Had a monthly savings goal.
4. Decided to pay off student loans earlier than planned.
5. Snowballed our debt payments: as soon as one debt was paid off (for example, our car loan), we would use that amount and roll it into our student loan payments.  

The difference this time around was that we became much more intentional about our money and what we wanted to do with it.  We still didn’t go over the nitty-gritty details of personal finance and investing at this point.  We just followed some very general guidelines on how much we thought we could save, and we took advantage of tax-protected accounts like the 529 and his retirement account. 

At the same time, we weren’t tempted to upgrade our lifestyle too quickly because even when we paid off a loan, we immediately snowballed that amount into paying off another loan.  We could have easily celebrated paying off a loan by spending that fixed monthly expense, but we were intent on getting rid of debt, so we chose the snowball option.

As you can see, all we did was focus on saving and paying down debt.  Doing both of these at the same time will do wonders for turning your net worth from negative to positive.

GOING FROM GOOD TO EXCELLENT

So where are we now? Due to my interest in personal finance and investing, I have started learning about the details and nerding out a bit.  I’m interested in fine-tuning what we already have because I want to fully optimize our finances.  Learning this new “language” has been eye-opening and enlightening.  Our financial health was in the “good” category with our earlier savings habit.  It is now on its way to the “excellent” category due to this new knowledge.

Of course, it would be nice to go back in time and put this newfound knowledge to good use.  We could have been even more intentional about our spending and saving during those early years, as well as taken better advantage of tax-protected accounts. I briefly entertained the idea of actually crunching the numbers to see how much more we could have saved, but I would probably get sad and mopey.  What’s done is done, and I’m just glad we developed some good savings habits early on.

So you really don’t have to be a financial guru to achieve your financial goals.  Learning the fine details on this subject can make anyone’s head spin, but you can be successful by just keeping it very simple, developing a good savings habit, and becoming debt averse.  As long as you get the basic concept of “don’t spend more than you make” and living below your means, you are well on your way to financial wellness.  

WHAT IF I HAVEN’T SAVED?

How about those of you that are deep in debt and you have not yet developed a habit of saving?  In fact, you feel like your money is all spoken for and there’s nothing left to save? This situation is very common, and you’re not alone.  We live in a society that is consumption based, and from the time we are born, we are conditioned by society to spend.  If you are not a natural saver, then everything around you is working against you.  There are no mandatory financial literacy classes that we had to take during school.  Whether you were born into a financially savvy family is completely left to chance.  The relative ease of acquiring debt in the form of loans and credit makes the situation much worse.  

If you fall into this category, then like it or not, you must develop a budget (or as I like to call it, a spending plan).  You can read about how I created a spending plan here.  It is never too late to get into the habit of saving, and the earlier you do it, the better.  You were able to acquire your veterinary degree with a lot of grit and determination, so I am confident that you can use these skills to turn your financial situation around!

Have you used this savings/paying down debt method as your only means of budgeting? How have you financially accounted for major life changes? Have you decided to take the plunge and start a budget? Comment below!