There are a lot of different websites out there that give you pointers on how to be more frugal and save more money – and we will definitely do that in the near future. However, a good place to start is at the beginning of our journey, and what steps we took here at Marco Polo Money to pay off $40,000 in 1 year and 8 months (20 months).
But first a bit of background. We had left Taiwan in 2010, after living a very lavish lifestyle there where we would think nothing of dropping a couple of hundred dollars (CAN$) on a night out and do twice yearly multi-week long trips to tropical resorts where I would scuba dive ( a very expensive sport)! After a family health crisis, we left Taiwan in May of 2010 with $20,000 in debt. Upon arriving back in Canada, I found an entry level city job in a couple of months. It had great potential for long term growth, but I wasn’t making much above minimum wage at the time ($12/hour to start). My wife went back to school and we were very quickly living beyond our means. This wasn’t due to going out to eat all the time or anything, it was using the credit card to buy groceries and clothing. This was made even worse by the birth of our son in 2011 – who we loved to bits, but babies are expensive! In a 3 and a half year period (where I continued to work at the entry level job, but was constantly applying for a better one), we managed to add another $20,000 in debt. Things were bad, very bad and we needed to do something!
However, in February of 2014, I finally managed to get the dream job. My pay went up, but not an incredible amount at first. I was making less than $40.000 per year, and my wife was home with our son. We battled for the first year, and then at the beginning of 2015, we realized we were paying thousands in interest on our credit card every year that was unnecessary.
We went to the Royal Bank, and they gave us a loan for the $40,000, payable over a 5 year term. The interest rate was around 5%, which was light years ahead of the 22% I was paying for the credit card month to month. We locked the credit cards away, and vowed not to use them until the loan was paid off.
Above is the chart I used to track our payment of the $40, 000. As you can see, 5 years was way too long for us. We were making a lot more than we had before (when I was in the entry level position), and we used the surplus that we had to attack our debt.
If you look at the chart, there is a big drop off in the first few months. We had a big tax return and savings from the Child Benefit, so we put both of those to work paying off $7,000 in the first 6 months.
We continued to work away at the debt, using an extra $200 a pay cheque to put towards the principal on the loan. We continued to live at the level that we had several years before, and found more ways to allow for a greater amount of available cash to pay off even more of the loan.
The first thing we did was have a very strict budget when it came to groceries. Our budget every 2 weeks was $250 – for myself, my wife, and our, at that time, 4 year old son. Not exactly lavish, but we did not feel like we were doing without. Part of that was simply choosing different foods at the grocery store – always buying no name whenever possible, and watching very closely for sales. If there was something that we used often, and there was a great sale on it, we would buy a fair amount of it and freeze/store it. I would also write down the exact price of the groceries as we would shop, and if we got to the checkout and had gone over budget, we would discuss if there was anything that we didn’t need.
Please don’t think that we were perfect at this – by no means is that the case. We would often go over our budget, but we would try to make that as little as possible. And when it did go over, I would hopefully have some overtime on the following cheque to try and cover that extra expense.
That is where we come to “side gigs”. If it is at all possible, a great way to increase income flow to help with cutting down your debt is with a side gig. This can be doing something on your days off that you enjoy (teach music, dog walking, yard work, craft shows, etc.) that can help make some extra money. The goal for this is not to make tons of money, but instead to take some of the pressure off when the tight budget is exceeded – so you are not in any financial trouble.
For me, there were a couple of avenues. The first was teaching music to private students. It paid ok, but the trouble with people cancelling and rescheduling, combined with the shift work at my regular job made it more trouble than it was worth. After that, I worked on my days off as a teaching assistant/marker at the University of Manitoba in the History department. I did my academic training in a History related field, so it was generally enjoyable. Finally, I was also able to do call outs if there was a lack of man-power at my regular day job, which led to the overtime that I mentioned above.
Another way we cut back was to only have pay as you go cell phones with no data. I know that in the world of unlimited data and the modern addiction to the internet, many people believe they need constant connectivity – but the reality is that this is a want, not a need. Both my wife and I agreed that a $30 a month combined cell phone bill (sometimes less) was better for both of us, and let us have a bit more money to use for paying off our debt. All you need is an unlocked flip phone to start with like this one at Amazon: BLU Diva Flex-Factory Unlocked Phone, Retail Packaging, White (Canada Compatible)
Then there was our internet. Now don’t let the above make you think that we are luddites or something. That is not at all the case. I love my computer, and have always been a bit of a tech junkie. At home we have always had decent internet, and our home entertainment set-up has been a computer hooked up to the internet and a large screen TV with remote keyboard and mouse for as long as I can remember (I am typing this on this set up right now!). Regardless, in Canada, we are rather hooped by the telecommunications industry, especially when it comes to the Internet.
In Winnipeg, for the longest time we have only had two choices for Internet: Shaw and MTS (though I have heard that there is a third recently – Vmedia). The thing is, for the first 3 months, Shaw generally has very discounted rates, close to 50% off the regular rates for Internet. I found that if you signed up with a salesperson in the mall, you could get that rate for 6 months. Then, when the 6 months was close to coming to an end, we would change providers to the other one, in this case MTS (who also have the 6 month deal). They would always tell us that they were going to stop allowing people to do what we were doing, but in the years (now going on 7) that we have done it, they have never had an issue with it. The truth is, most people just find it inconvenient to change every 6 months. To us, the inconvenience was worth the close to $500 we were saving each year by doing it.
Another thing that we did our best to limit was alcohol. We definitely enjoy our wine and beer with meals, but we would limit it to weekends or special occasions rather than drinking a beer or a glass of wine with dinner every night. Not that this should be substituted with pop or anything – try and drink water! Although it may be boring, you get used to it after a while. (Really you do, really …)
Perhaps the most important thing that we did was focused almost entirely on making our meals at home. We each had a very limited “fun” budget that we had for the entire year, which included eating out (I think it was around $500 each from our tax return). But I found that the better we became at cooking on our own, the more we enjoyed eating at home, and the more we saw eating out as a waste of money. This was especially true when the food we made at home was better that the stuff that we bought at restaurants !! My wife’s thin crust pizza has become a thing of legend these days, and it is now a weekly ritual in our house – – I would rather eat it than a take out pizza any day of the week ( I am now definitely thinking about pizza).
A great deal of credit needs to go to my wife. She was a big part of this, and without her equal enthusiasm for getting rid of our debt and saving, we would not have gotten as far as we have so quickly. An area in which she was the prime mover was clothing. She would buy most of our clothing at Value Village and other thrift stores. This led to awesome savings on things that you wouldn’t generally think of as thrift store purchases (dress shirts anyone?), bought at a fraction of the price. She would also wait for the the major sales on websites, and then buy what we couldn’t or wouldn’t buy at thrift stores (socks, underwear,etc.) in a large purchase that we would save up for.
While we are on the topic of thrift stores, don’t forget about them for toys! As long as you carefully inspect the toys that you are buying, thrift stores are a great place to get toys at a very low price. Our son has a love of the Thomas line of toy trains, and bought new they are really expensive. The wood tracks and trains are generally easy to find at thrift stores, as is lego. If you need it in the package, or have to be sure it is a brand-name, you are out of luck. But if your child needs a toy to play with, and not a status symbol …. oh sorry, brand name, toy, then your child will be happy indeed.
In the beginning, when we received every cheque we put an extra $200 on to the loan payment, and some cheques we put a lot (and I mean a lot!) more. We just made the $200 extra non-negotiable, and put it on the payment every payday, like a mortgage payment. We had no choice and had to pay it every 2 weeks like clockwork, before we paid for anything else.
Then, in the beginning of 2016, I got a raise, and that is when we started to really attack the debt. We figured out with the raise and our frugal ways, we could increase our minimum payment to $500 extra towards the principal per cheque. And if we were able, we paid even more if we had any extra from side gigs or overtime. That is why 2016 has a steady downward trend until the debt was paid off in November 2016, 20 months after we got the loan.
Remember that all of this started with having a sound budget and awareness of our spending – which was covered previously here. Now, after it has been paid off for almost a year, we use that same mentality to pay ourselves first every cheque – but now it goes into saving towards our retirement. However, we will save that topic for another time and talk more about it in a future post.
I hope that this shows you that no amount of debt is impossible to conquer. It just takes time and perseverance and a little bit of patience. This ultimately is the first important step in financial independence and early retirement, whether you stay where you are or live overseas.
Marco Polo Money – Be safe and travel far!