Recently, my yearly bonus was announced at work. While the last few years we have put my bonuses directly into savings, at one point in time I might not have done that at all despite the debt I had. There was one bonus though that changed everything, and I want to share with you why it was so transformative.
Starting January of 2012, Erin and I were $107K in debt. Things had escalated quickly in the year before. 6 months prior we got married and our debt combined. A few months later we bought a used car and took out a loan for about $15K to cover the cost. Between my credit card and student debt, Erin’s student debt and the car loan, which was the first debt we took on together, things were getting out of hand.
Throughout our engagement we talked about money and our debt. We shared a desire to not be in debt anymore, but it is easy to want to be out of debt. Taking the steps to not be in debt is a different matter.
I have written a lot about my attitude towards money and debt before marriage so check out those articles for more information, but suffice it to say, during our engagement we had to get on the same page and work through our approach towards money if it was going to work.
During those first 6 months of marriage though things did change. We paid off my credit card debt using money saved up prior to the marriage but we still had this big chunk of debt remaining.
There was one key moment though that made the rest possible.
My First Bonus
I graduated in 2008 and watched the economy tank. In January of 2009 I lost my job. For the next 2 years I worked multiple contract jobs and was just thankful to have a job at all, frankly. I did some cool work during that time, but I had no benefits. It wasn’t until 2011 that I got a legit salary job with benefits and the work was interesting too.
I started that job making $48K a year. The economy was recovering but even after a year I was still thankful I had a job since that was a milestone for me.
At the beginning of 2012 I had a review with my boss. I had no clue what to expect.
During the meeting my boss told me that I had done a great job and had taken on more responsibility than expected. As a result, she was giving me a $4,000 raise and a $3,000 bonus.
I was not expecting that.
That is when it all changed.
I was excited because now Erin and I would be making $83K a year combined which seemed like so much money.
I thought to myself, now we can finally start to pay off the rest of our debt.
A year prior to that I know I would have thought about what I could buy with the additional income and bonus rather than be responsible with it. This year was different though.
I Told My Wife To Take A Hike
Now that I was Mr. Moneybags making $52K a year I told Erin to take a hike.
Wait, that’s not right.
We mutually went for a hike and came up with a game plan to pay off our debt during it. That is more accurate.
I found out the good news on a Friday afternoon and less than 24 hours later we added up our debt that Saturday morning in a spreadsheet. Little did we know, we were taking the first step to paying off our debt.
We were a bit shocked to see that we owed $107K. We thought it is more like $90K.
Because I had the bonus coming though, I figured that it would be a good way to jumpstart the debt payoff.
We then went on a hike and talked about all the ways we could pay off the debt. We discussed what expenses we could cut and generally got excited and passionate about what we were trying to do. That hike meant everything to us.
Of course, during that discussion we hiked a mountain which was symbolic for what we were about to undertake.
We never had really hiked a mountain before just like we hadn’t paid off $107K before. You never know what you can do unless you do it.
Note: All of these photos are from that day when we hiked that mountain and decided to pay off our debt. Not sure why we didn’t take a selfie together. Yes, this is what Phoenix looks like in January.
We Then Took Action
When we got home we put together our first budget because we wanted to see what we could put towards our debt each month. This was critical and involved some tough decisions.
The first decision was for me to stop eating lunch out. Four days later I looked at our bank account and saw that we hadn’t spent any money and knew right then and there it was possible for our budget to work. This meant that we would have money left over to pay off debt each month. That was huge for me because I never had that mindset before.
That Saturday I also started to build a debt tracker spreadsheet based on the one we made that morning so we could track every debt payment. This spreadsheet became the nucleus for everything related to our debt.
With each payment we made, no matter how much, I could see the progress we were making.
The funny thing is that my bonus payment didn’t arrive until March. We didn’t expect that, but that is just how it worked out. That $3,000 bonus wasn’t in our pockets yet and during those 10 weeks we paid off a few thousand dollars of debt. Those extra payments eliminated 2 of our loans during that time.
Here is a snapshot of our debt tracker and the loans we eliminated in those first couple months.
Then, we received the bonus money.
We had been operating as if we had gotten a bonus, but we didn’t have the money yet in our pockets. Yes, we had the increased income, which helped, but the one thing that spawned this whole transformation was the idea of a bonus. It was a small windfall in a sense.
The bonus itself was not going to save us anyways, it was everything we did after it that made the difference.
The bonus was what I needed to get over the hump mentally, but I very quickly realized that we could have been paying off debt all along including when I was single and making much less.
That is why I think you can pay off debt on a low income or why you should just start paying off your debt now.
Fortunately, we went into hyperdrive because we were trying to overcome years of bad decisions (me more than Erin) but as I reflect back, that one moment was the moment that triggered all of this. The debt freedom, this blog, our Etsy shop and our financial independence goals.
It all comes from that one moment where I mentally committed.
So, here’s the question. What is the one thing you are going to do today that you will look back on 7 years from now and be thankful you did it?