Living on $20K a Year in San Diego: Becoming Debt Free

Recently, I shared that I paid off $12,000 in student loans in one month.  I realized from the responses I received that post was worth a follow up on how I'm actually doing this.  One of the responses I got was,  

 "Wow, you must be making a ton of money!"  

So how did I come up with $12,000 in a month? In addition to my monthly income, I also used investments and a savings account that I liquidated.  My monthly student loan payment going forward will be $5200, or more some months from extra income like having a garage sale. 

I live on what's left each month after the student loan payment of $5200, which comes out to be $20,000 per year. 

Let's address the myth that it's easy for me BUT impossible for anyone else.

My Advantages:

I don't have kids, I'm married, and I have a good paying job. 

 All true.  

Here's the thing though.  It's easy to look at someone when they are being successful and say, "Oh, they have it easy." But what you didn't see was the blood, sweat, and tears that got them to the point of success.  

For me, I came from a place of disadvantage. I had a hard home life so at age 17 I moved out of my parents, got my own apartment, bought a car and got three jobs to make ends meet.  All of this while I was still in high school. I was determined to not let my past dictate my future.  

I started college with no idea what I wanted to do in life.  At age 25, I had racked up a ton of debt and I was working at Starbucks barely making it month to month, while taking out more debt to take more classes to be "I have no idea what."  I was still no closer to where I wanted to be in life.  To be honest I hated my life at that point.  I worked a job I hated, lived in a town I hated, went to a college I hated, and even had a boyfriend I didn't like.  None of it was the life I wanted for myself.  

The moment that changed it all was when I handed a Starbucks coffee out the drive-through window to a woman about my age, who was clearly on a different path.  From what I could tell she was my definition of success at the time.  Nice car, nice clothes, and sophisticated.  I know that doesn't seem earth shattering but it was for me.  I said to myself, "that's it!"  "This shit has got to change!"  

That week I quit my job, moved back home, went to a Navy recruiter's office, and applied to nursing school.  All in one week!  Fortunately for me, both the Navy and nursing school accepted me.  Then for two painful years, I worked hard to graduate with a high GPA and spent the last four years working for the Navy.   

Now I'm working full time and going to graduate school to become a Family Nurse Practitioner. So let me dispell the notion that it must be EASY for me. None of this has been easy but it was easier than continuing to work at a job I hated and live a life I hated. None of this was luck either. It was all hard work and determination.  Anyone who is determined and committed enough can change their life.  

The hard reality is the only person stopping us from changing our circumstances is often ourself and the excuses we tell ourself why we can't.  

-Me (yes, I quoted myself)

Here's the Simple Truth

The truth is there's not one simple answer for how I'm becoming debt free.  It's many small and simple changes I've made in my life.  

It started with focusing on creating a budget and decreasing my spending. Anyone can raise their spending to their new level of income and often we go beyond that.

Have you ever gotten a promotion or a higher paying job and then before you know it, you're struggling financially again?  There's a model called the hedonic adaptation where basically you adapt to the good things that happen in your life and, soon after your happiness level returns to your normal baseline. For example, you got a pay raise and you're super excited because it's going to make such a difference in your life!  But then your wants and expectations rise to meet your new income and before you know it you've returned to your baseline of being broke. 

After that pay increase, you may find yourself saying, "I'm making more money now so I deserve a new and nicer car."  For most Americans, the mindset is, "what can I buy with this extra income?" instead of "what can I invest in?"  I was by no means above this.  That's how I ended up $130,000 in debt when I graduated college!

"Spending money I don't have to buy things I don't need to impress people I don't like."

-The Minimalists

I recently listened to this podcast by The Minimalists.  It's a really inspiring episode about money, retirement, and living a minimalist lifestyle hosting Chris Hogan from the Dave Ramsey team.

Mindset Shift

Currently, I love my job.  I love the people I work with, the babies I take care of, and the mothers I have the privilege to teach how to care for their newborns. But and this is a big BUT, if life events should come up like a sick parent or wanting to settle down and start a family, I CANNOT QUIT MY JOB. Trust me I have already tried.  Every year I have to ask permission to quit and most likely I will get one or two more no's until I get a yes.

I can't quit.  I can't not show up.  I have no say as to my free time.  I do what I'm told when I'm told.  Flashbacks to childhood anyone?

Being military doesn't make me alone in this predicament. Most Americans can't quit their jobs, retire today, or do the things that actually make them happy in life.  Why not? One word. 

DEBT

We have to work to pay for the car we don't own, the house we don't own, the credit cards to buy things we don't own.  We are enslaved to work to pay for the life WE DON'T OWN.  Let that sink in for a moment.  I certainly did when I realized one day how ridiculous it was to buy clothes on credit card.  I was financing a wardrobe I couldn't even afford.  When did it become normal to finance clothing?

Then I got mad!

I never want to be enslaved to my job, money, debt, people or things again.  After I got mad, I became passionately intentional about how I was living my life.

Living on $20,000 is simple but not easy.  No one ever said getting out of debt would be easy but it's a lot easier than remaining enslaved for the rest of my life.  It's also a lot easier to work hard and temporarily sacrifice "things and stuff" to become free than it is to long for freedom until the day I die.

Cancel Everything

My first step was embracing the concept of "cancel everything."  Cancel it all!! All those monthly memberships I was paying for was silently killing my bank account.  Even now I have to monitor for the occasional kindle membership charge I never signed up for.  

I looked at my bank account and credit cards and made a list of all the memberships I was paying for each month.  Some I knew about and some I didn't.  I'm embarrassed to admit there were three gym memberships on that list.  The only memberships I kept after this exercise was Netflix and Amazon Prime.  Both of which I split with my husband.

Spending Simplified

Basically, I simplified my spending.  I was listening to The Minimalist podcast and they mentioned the three different spending categories:

1. I Need
2. I Want
3. Junk

My goal was to learn the difference between the three in my life because up to that point I NEEDED all the things.  

So I asked myself, "what do I need to survive?" The answer went into the "I need" category. These were things like a place to live and gas to get to work.  "I want" were things like a new computer and an air mattress for a camping trip coming up.  "Junk" was the THREE gym memberships I was paying for and not using enough.  

For the things I wanted, I created a "fun money" budget category. Every month I put a certain amount of money into a separate savings account for things "I want," like camping vacations, going home for the holidays, and a new computer for school.  I'm essentially saving up ahead of time for things I want that add meaning to my life.  I also went on a shopping ban for a year. This doesn't mean I can't buy anything at all for a year.  Of course, I'm going to have to buy things like food, toiletries, and gas.  It means I shop intentionally and only buy things I need and truly make my life more meaningful.  I had to set guidelines for what I could buy and could not. Then, I shared it with people in my life and on my blog to hold myself accountable.

Cutting My Grocery Bill in Half

"Behind housing and transportation, food is an American’s third largest expense at 12% of overall spending (BiggerPockets)."

The next step was to tackle my grocery bill.  I was spending about $600 each month on just myself. Crazy, I know.  But when you shop at Whole Foods it's really not that hard to do.  Now I shop for my groceries at Ralphs and Walmart.  I've heard Aldi's is amazing for this but I still need to check it out myself.  By making small changes, I cut my grocery bill IN HALF! This included using the cash envelope system. You become so much more intentional when you are paying cash and only have a limited amount for that month. My next goal is to cut it by 1/3 down to $200 per month.

Car Debt:

I feel like I could do a whole article on this subject.  The car I drive is a 2009 Mazda 3 and it is by no means fancy but it is paid in full.  That's right, no car payment!  I know people that pay $500 a month for their car and that's not including car insurance.  Did you know it's higher if you have a car loan?

Now my dream car is a Subaru or Prius.  It's ok, you can judge me.  And at times I've said, "I've worked really hard to get here, I deserve a better car." 

"You don't get into debt for a car EVER if you want to build wealth."

-Dave Ramsey 

-

Here's why I haven't "upgraded" my car:

“Wealthy people invest first and spend what’s left and broke people spend first and invest what’s left.” Anonymous

Financing a car is one of the worst financial decisions you can make.  It immediately loses value the second you drive off the lot.

"According to a recent State of the Automotive Finance Study from Experian, the average new car payment reached $499 per month last quarter. Worse, the average new car loan is 68 months long! Like my man Dave Ramsey says, it’s entirely preposterous when you really think about it" (Forbes, 2016). 

Also, not having "car debt" also known as a "car loan"  frees me up to do things I enjoy in life, not to mention paying off all my student loans in 10 months (Side note: I know the challenge said 13 months but because I was able to pay $12,000 the first month of my challenge, I will now be debt free in 10 months).  I value things like traveling and experiences so much more than a shiny new car.  

"Over 50 years you'll spend nearly half a million on automobile related expenses alone." 

That doesn't even account for opportunity costs!  The video above explains the opportunity cost of owning a car. Just think of what half a million would do for you if you invested that money instead!

My goal is to drive my car into the ground and then when the day comes that I have to replace it, I will pay in cash for a used car and will then drive that car into the ground. 

The wealthy are wealthy because they invest in things that go up in value not down.  If I could afford to throw $100 out the window every week then I would lease or buy a brand new car, but then I would have no retirement future.

Other Debts

When I was up to my eyeballs in debt and living in D.C. there was no way I could live on even 50% of my income.  The way I got to this point is I did the debt snowball and paid off all my debts, except for my consolidated student loan.  That took three years and it wasn't easy.  It meant I had to live differently than I was used to living.  I stopped eating out and started cooking more at home. 

I moved in with my partner (aka got a roommate).  I avoided the shopping mall and started buying at thrift stores (this was before the shopping ban). All of these small changes added up and over a span of three years and my debt went from $130,000 to $68,000. We even paid for our wedding in cash.

Now, thanks to the debt snowball, I can add up all the payments I was making over the three year period and apply it to just one debt, the student loan.  That's how the snowball method works.  It builds momentum as you go, or in this case the amount of money you can apply to a debt.

Simplifying My Life

I purposefully didn't make this complicated because I knew I'd be less likely to stick to it.  I have just a few spending categories: Mortgage, car insurance, groceries, toiletries, gas, pets, student loans, and fun money.  That's it. It can be as simple as many small changes that add up to a transformed way of living.

I've got to say since I started this journey to become debt free, life has become so much more meaningful.

Resources:

Buying A Car: The Worst Investment? (2011, Feb 11). Retrieved from https://www.forbes.com/sites/investopedia/2011/02/11/buying-a-car-the-worst-investment/#2eebb4426be4

Curelop, C. How to Slash Your Food Bill in Half (AND Support Good Health). Retrieved from 
https://www.biggerpockets.com/renewsblog/slash-food-bill/ 

Mr. Money Mustache. (2011, Oct. 22). What is Hedonic Adaptation and How Can it Turn You Into a Sucka? Retrieved from http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/

Rose, J. (2016, Oct. 1). The One Monthly Payment Killing Your Wealth. Retrieved from https://www.forbes.com/sites/jrose/2016/10/01/the-one-monthly-payment-killing-your-wealth/#18b66f1d171e

Williams, S. (2014, Jul 13). The 3 Worst Investments You'll Ever Make. Retrieved from
https://www.fool.com/investing/general/2014/07/13/the-3-worst-investments-youll-ever-make.aspx