When we had our first baby we both quickly realized that we wanted me to stay home. As much as I loved my job and I thought I would want to go back to work, once I had that little baby in my arms I couldn’t imagine leaving him. But I was really worried about how we could pay our monthly bills without my income. So I did what I do best. I started to research how other families made the transition from two incomes down to one.
First, I was amazed at how many families were making this difficult transition. Second, I was amazed at how many families not only survived on one income but thrived.
Reading their stories, I realized that we could do it too.
The one common thread among all the stories I read was that each family had a budget. I knew with the right plan along with a ton of motivation and creativity our new family of three could make the changes we needed to in order to allow me to stay home.
Related: The Easiest Way to Make A Monthly Budget
We followed the three steps below and I successfully transitioned to a stay at home mom. We were able to pay our bills and not only that, we ended up paying off $40,000 in debt in less than a year.
Download my Getting Debt Free Tracker for your Debt Free Journey.
At the time, we lived in a high cost of living area and we had to make a lot of sacrifices. There were lots of challenges along the way. We made mistakes, we learned, we fought, we got excited seeing our debt decrease. Over time it got easier and we became like a well oiled financial machine.
If we could do it so you can you. Whatever your financial goals are, these three simple steps will get you on the road to achieving your goals.
Step 1: Evaluate Your Spending
When I sat down to go through our spending I was shocked. I was overwhelmed. Among other shocking things, we were spending $400 a month on eating out. This included all our Starbucks runs. A MONTH! FOR 2 PEOPLE! WHO DOES THAT? And to boot, I was still spending around $500-$600 a month on groceries.
I also realized that we were making purchases without having a plan. Need a new sofa? Go buy one. No biggie. There’s 0% interest for the first 12 months. But guess what? You still have to pay it!
This was by far the hardest step, but also the most crucial. Evaluating our spending was a real eye opener. It also made me really mad that we had been so reckless. That anger fueled me forward and it drove me to commit to getting our spending under control.
So how do you start? Review your credit card statements and bank statements. You can create categories and subcategories so you can really get a good look at your spending habits. The more details you list as you evaluate your spending the better. I recommend going back 3 months to help you see any trends that might emerge. Maybe you’re more likely to spend a lot at the beginning of the month and then have only a little left to get through the month.
Whatever the trend is it will smack you in the face. Trust me.
We continue to use a spending log (you can download a free one here) to track our spending to make sure we’re not falling into bad habits.
Evaluating your spending will also create a foundation for Step 2.
Step 2: Create A Budget
Once you have had a good hard look at your spending, it’s time to create your zero based budget. A zero based budget means you assign every dollar to a category within your budget. There is no extra or fluff. That does not mean you are spending every dollar. You can still build your savings with a zero based budget.
First write down your monthly income. Next, write out all your expenses and fill in the amounts based on the evaluation of your spending. I always start with the non-negotiables or the “needs” category. These include:
- Utilities, including electricity, water, gas
- Minimum payments on debt
- Car Insurance
The next group of budget items are the “negotiable” items. These are the ones where there is more flexibility in the amount you spend and what you spend on:
- Home Repairs
- Regular Medical Expenses
Related: Master List of Budget Categories
There are a number of free budget tracking resources out there. Personally, I found it easiest to use an excel spreadsheet. I had way more flexibility in terms of categories and assigning funds to different areas. I also knew that one Walmart trip was part grocery budget, part clothing budget, and part home repair. Using the excel spreadsheet, I could easily assign what I spent from one credit card purchase to multiple categories. If you don’t have excel, you can use google sheets for free.
At this point, you may realize that you don’t have enough income to cover your expenses or you would like to build up some savings or aggressively pay off some debt.
That’s when you go to Step 3.
Step 3: Cut Unnecessary Spending
It’s funny how when our kids tell us they “need” something we are quickly able to decipher that it is really a want. But when it is our own spending it becomes so much more difficult. In order to meet your financial goals you will have to take a cold hard look and your needs vs. your wants.
Related: 31 Simple Ways To Save Money Every Month
When we started our budgeting journey we made a ton of cuts. Some were big and others were much smaller. Cutting both larger expenses and smaller expenses were crucial to making that transition to a one income family. Here are just a few examples of the expenses we cut:
- Home Phone Service $12.99/month
- Dog’s grooming $10/month
- Eating out $400/month (really I still can’t believe this one)
- Clothes Shopping (for fun mostly) $100/month
- TV package downgrade $25/month
These changes alone saved us a total of $547.99 a month. That’s $6,575.88 a year!
When we started running the numbers we became addicted to cutting wherever we could. And even though I have gone back to work and our income has increased, we still continually assess our spending and evaluate our needs vs. our wants. Making these choices were really difficult at first. There were times when we did still splurge on wants and ended up with major buyers remorse. But we learned from those experiences and you will too.
These 3 simple steps have changed our lives. Whether you are transitioning to one income, looking for a way to pay off debt or build your savings, these 3 steps will put you on the road to success. As we practiced these steps each month we built a habit of being fiscally responsible rather than throwing caution to the wind and hoping for the best. This plan allowed us to achieve our goal of becoming a one income family and I know it will set a foundation for you to reach your financial goals!
10 thoughts on “3 Simple Things We Did To Become Debt Free”
Thanks for the awesome tips! I need to go through and evaluate my spending a create a budget but it is definitely something that I don’t want to do… 🙂
Getting started is so tough! You’ll make mistakes the first couple of months but then you’ll get into the swing of things and you’ll surprise yourself how budget savvy you really are 😉
Yes, yes, yes! I regularly evaluate all of these steps when it comes to my budget. I started using YNAB after trying to make it work in Google Sheets, and found that YNAB meets and exceeds all my expectations. Realizing how much money we spend on things can be shocking, for sure.
I’ve heard great things about YNAB, but I’ve gotten into such a good flow with Google Sheets I’m hesitant to move to something new. I am a creature of habit!
Excellent and simple in theory. It takes planning and determination to stick with it. Good for you!
Karen you are so right! These 3 rules are the foundation. When we first started our zero based budget and tracking our spending we made lots of mistakes and there were moments when it felt impossible, but there were also small wins that felt incredible and kept us committed. I think the fact that we evaluated our spending from the start was also key to helping us stay on track despite the mistakes we made.
This is a great resource! My husband and I use a budget and we have learned to cut our grocery spending by using meal planning and shopping sales! We are pretty disciplined but have paid off all of our debt (except our mortgage) and we are able to live the life we want!
Sarah, I agree that discipline is so important when it comes to money and budgeting! I think grocery spending is the one budget item that I personally struggle with the most. Meal planning has helped a lot and really paying attention to sales. Those are two great tips that also help me to stay on budget.
It’s so important to evaluate your spending and to make sure that you are not unknowingly spending more than you should be.
We never switched to a cash system, so constant evaluation of how we are using our credit/debit card was so valuable to understanding our spending habits!