Getting out of debt is hard. It forces you to face a past that has probably caused you some pain. As if that isn’t bad enough, you have to own your part in causing that pain. On top of all that you have to change the habits that got you there in the first place and never go back to them! It’s no wonder that so many people that start the debt free journey fail to complete it.
This is why finding your “why” is so important. At some point, you have to get so disgusted with your situation that you’ve got the emotional fuel to change who you are. If you feel your fuel running low I’m hoping I can help. Stick with it! I promise you it’s worth it.
If you’re in the process of getting out of debt I want to give you an idea of what life looks like on the other side. Before I do that though I want to explain a concept that is so simple yet so hard to do.
Living Below Your Means
If you’ve ever read or heard anything about personal finance you’ve heard this. It’s practically the golden rule. If you can’t live below your means you can’t win with finances. What does it actually mean though?
All this means is that there needs to be a gap between how much you earn versus how much you spend. That gap is where you build wealth. This is referred to by some people as the wealth gap. I know this is really simple but sometimes we tend to complicate this financial thing.
Sometimes we try to get so analytical when really we just need to KISS (Keep It Simple Stupid).
Do me a quick favor. Think about how much money you bring in per month. Now think about how much of your money is going out in debt payments (including your mortgage or rent). Think about how much of your money is going out in waste because you aren’t being efficient with your income (i.e. you aren’t doing a budget). That represents what your wealth gap could be!
Now let’s get to the fun stuff!
The Power of The Gap
I was looking back at some budgets from 2012 and realized we make roughly the same amount of money now that we did back then. We had just gotten married in July of that year and moved into a decent but cheap apartment in the area we wanted to buy a home in. Our big goal was to pay off some debt and to save up for a down payment for a home within a year. At that time we were able to save about 33% of our take-home pay. This was our wealth gap!
Here is what we were able to accomplish with our wealth gap and with the power of budgeting over the past 6 years:
- Paid off Kim’s car and paid off her student loans.
- Saved up an emergency fund (about $12k) and a down payment for our home (about $12k).
- Saved up for our official honeymoon to Aruba (about $4K – I HIGHLY recommend Aruba by the way).
We ended up closing on our house in late June of 2013 then flying to Aruba six days later. Talk about being on cloud nine!
Since moving into our home in 2013 we’ve been able to do the following:
- Install hardwood floors on the main floor and top floor.
- Update the upstairs bathroom.
- Bought a new (used) SUV with cash.
- Update our Kitchen.
- Overhaul our Deck.
- Get the interior of our home painted.
- Put new flooring and paint in our Laundry room.
- Install a new HVAC for the main floor.
- Install a new HVAC for our upper floor.
We’ve been able to do the above and continue to visit Destin, FL for vacations because Kim has to go to the beach every year (Lol). On top of that, we’ve continued to invest a nice chunk per month in our 401Ks and IRAs as well.
We planned to update our master bathroom and had saved up the money twice but found better uses for the money both times. The first time was covering Kim’s maternity leave and insurance deductible. The second time we felt it was better to increase our emergency fund again.
- read: Don’t Call It A Comeback
Please keep in mind that we have not borrowed money to do these things. When you have control of your wealth gap you can focus it on whatever you want to accomplish and knock it out insanely fast.
Over this 6-7 year span, we’ve also had two children (one of which was born this past summer). I was able to increase my income through new employment over the years which allowed Kim to go from working full-time in 2012, to part-time in winter 2015 when she returned from maternity leave the first time, to PRN in late summer 2015. Now that Kim is PRN she’s only required to sign up for 3 shifts in a 6 week period. This has allowed us to spend more time with our two sons as they grow up. Not to mention avoiding a hefty daycare bill. Most of all, it’s been an increase in the quality of our life.
Final Thoughts
OK. I’m going to wrap this up because I actually feel a little dirty because I don’t want this to come off as a humble brag. There isn’t anything special about Kim and I. We don’t make huge sums of money. We’ve just mastered our wealth gap and use it to accomplish our goals. Once you eliminate your debt and free up your gap you can do the same. So stay the course. The grass is really greener on this side!
Kim’s Thoughts: I just want to reiterate that while there’s a list of things that we’ve accomplished over this time, the first list was using our wealth gap to essentially get out of debt and assure that we stay out of debt. The second list was using our wealth gap to do some things we wanted to do and needed to do. Neither of these lists was completed in a short amount of time. As you can see, it took us YEARS. And that’s OK. We had to run our race as fast as our income would allow. And you have to do the same – Run your own race.
Great blog! I enjoyed the living below your income. I may attempt this. This is a killer for my need for instant gratification. I’m glad that you guys returned to blogging. I hope that I am continue to follow and learn from y’all. I need to find the blow money method and discuss if we can implement that concept😃 have a great day!
Living below your means is definitely worth it. The easiest way to do it is with the budget so you can watch the dollars coming in nd going out. We’re glad to be back. Blow money is Kim’s area of expertise (😂). I’ll theow in my two cents too if you want it though.
It’s good to be back! I’ll get straight to the point since Omar called me out. Lol. This is the post that talks about blow money (http://thinkingofsomeday.com/budget-categories-things-you-cant-leave-out/). I feel that blow money helps with instant gratification to some degree because you can spend your blow money on whatever you like as long as you have some. So sometimes I try to save mine if it’s going to cost more than what we allot for blow money. I suck at saving it though. Lol.
Nice blog guys!!! I would have to talk with my hubby on what our wealth gap is. We were aware of living below our means. I believe we could do a little better in category in my personal opinion. I am definitely the saver and sacrifice person in our relationship lol (in personal opinion lol). Starting at the first of the year, we did share with you guys that my husband is going to re-evaluate our budget and actually stick to the budget. We keep you guys posted on how that goes.
Let us know for sure Katrice! Knowing What your gap is important but managing it well and growing it is even more important. If you can maintain or decrease your spending and increase your income you’ll make that gap bigger. That’s when things get really fun.
Great blog guys..valuable. concept…wish I knew all these things during my working years. It could have make my retirement ‘bucket’ much bigger….believe it or not, we are trying to keep within our social security using the budget….very doable since we do not have a mortgage. We enjoy reading.
Thanks for reading! The good thing is that you can probably make it just off social security. If you think about it that means the income you decide to pull of your nest egg(or let continue to grow) represents your nest egg. That’s a beautiful place to be!
Once I got out of my student loan debt, my savings rate increased a whole lot and with a contributing factor of living below our means that meant bigger wealth gap. Right now we could practically travel anywhere or buy a nice car fully-paid without the stress of car payments with interest. We have the freedom do that if we want because of the nice wealth gap we built.
Exactly Kris! Exactly. The bigger that wealth gap is the more freedom you have to make certain choices. Also, it makes you more resilient to the negative events that can decrease your income like loss of job and disability. Sure, your gap might shrink some in those cases but it won’t make you sink.