12 Month Debt-Free Journey Update

Written in August 2019

I know you are probably curious as to how much progress we have made in our first 12 months into our debt-free journey. Check out our 6 month update here. While we aren’t even close to being debt-free, we were able to cover our remaining wedding expenses with cash, and pay in cash for Mark’s Masters degree tuition. We went back and forth in multiple conversations to talk about how aggressively we should pay off debt. Dave Ramsey says to save $1000 in an emergency fund and then throw everything else at the debt.

For us, and mostly for me, $1000 is not nearly enough to have saved as a buffer, especially since we are homeowners. Additionally, Mark has just reached one year of employment and we don’t have real health insurance yet. We are waiting to buy an Obamacare plan during the next enrollment period, but at least we have some cash on hand in case some health emergency happens before then. At the end of the day, you have to do what makes the most sense for your family, even if the financial guru tells you otherwise. 

12 Month Overview

Our first 12 months of our debt-free journey have been more about security and laying down a firm financial foundation so that we can be set up for whatever comes our way. In fact, a lot has come our way, and I feel like we can handle it because of our decision to save instead. I have made the very personal decision to leave the MD-PhD program I was enrolled in, which was fully funded, and provided me with a $30,000/year stipend and a full scholarship for medical school. Right now, we are trying to figure out the least amount of student loan I need to take out to complete the remaining two years of my medical degree, and how to adjust our budget to accommodate a loss of income.

Figure 1. Assets, Debts and Net Worth

The debt creep is due to accruing interest, which is because though we made a few payments toward debt, we primarily focused on savings this past year. The asset drop was primarily due to our largest asset, our home. Home values fluctuate, and in our case our home value fell by $120k. We’re playing the long game, though. For the most part, home values do increase over time.

On the Bright Side

Luckily for us, we had enough of a down-payment where the value of our mortgage will very unlikely exceed the value of our home. So yeah, this looks scary, especially since we were actually trying to pay the debt. We are being honest here so that we can 1) hold ourselves accountable and 2) so that you can see how far we are coming from when you celebrate with us the day we come to the end of our debt-free journey.

Goals & Achievements

Anyway, the big picture glosses over our many achievements that we have made this past year. We’re celebrating the little things:

Achievements in Past 12 Months

• Added additional $100/mo on mortgage payment toward principal
• Started paying off student loan debt in April 2019 with our huge tax refund on top of our regular payment-> Extra $2000 toward principal
• Paid $2000 toward student loans in April and May, but lost steam when we went on our honeymoon in June
• Had $10,000 saved in Emergency Fund (2% high yield savings account)
• Mark’s tuition paid in cash
• Moved Roth IRA from Alliant (2% fixed APR) to Betterment (stock market rates)
• Paid the remainder of our wedding expenses (December 2018) with cash
• Invested in A/V equipment and cameras for our side projects
• Bought a second car for me to get to my rotation sites ($4600)- but it’s a hybrid!

Short-Term Goals to Compensate for Lost Income:

• Continue to cash-flow Mark’s Master’s Program
• Reduce mortgage payment to the minimum, since we will likely move before the mortgage is paid in full and the interest rate is relatively low (4.25%)
• Decrease spending to bare minimum
• Make minimum contributions to retirement accounts
• Save $500/month to replenish Emergency Savings

Long-Term Goals:

• Build emergency fund to $15,000
• Be debt-free by January 2023

Life changed and we were ready with our emergency fund. I was able to get a second car and pay with cash. Even though we had to use $4600 from our $10,000 Emergency Savings, we still have a decent amount left over in the case of another emergency. This is going to be a financially tight two years, especially since I don’t want to take out student loans for living expenses, but it is only for two years!

Next Steps in our Debt-Free Journey

Before I graduate and we move, we are planning to save up $15,000 in the Emergency Fund (to prepare for the impending recession), first and foremost, and then paying what we can on our student loans, neither of which are currently in repayment. We will continue to minimize expenses and make a modest contribution to our retirement accounts, and we are challenging ourselves to live extremely frugally for the next year or so.

I’m anxiously looking forward to the point in our debt-free journey when we both graduate and have extra income to ferociously tackle our debt and hit our financial goals.