More Money Monday: Step 2

Step 2: Launch Your Debt Rocket

NOTE: This is the fun part. This is the part where you get to dream about what you want your life to look like. So if you've gotten rolling on Step 1, this is a sweet reward for your continuing efforts.

Everybody's done cheesy goal-setting exercises before, so it might seem somewhat lame to yet another one just because we said so. But this isn't going to be cheesy because this isn't a goal for your eighth-grade basketball team and this isn't a goal for drinking eleventeen glasses of water a day because Dr. Oz said so. This is a goal for you, for determining what you want your life to look like, and how you can set yourself up financially to make that possible.

Here's a free printable for this exercise, take some time either on your own or with your spouse or fellow budgeteer to sit down and answer the questions. When you're done hang it somewhere visible to you daily as a motivator and reminder.

Keep your answers as direct and concrete as possible. This makes them more measurable and understandable. And a big hat-tip to Dave Ramsey, whose Debt Snowball is a big inspiration for this piece.

First question: "Understanding the richness of my life isn't determined by my bank account or my toys, is there one luxury that I dream of having?"

This is your dream, your aspirational goal. For Carl and Ellie Fredricksen, it was moving to Paradise Falls. For Cassondra, this would be going on regular vacations. For Philip, this would be owning a hot tub or building a media room. Maybe for you, it's having built your own home, paid off your mortgage, sent your kids to college, and/or having built a dozen freshwater wells in Africa. (Sorry, was that a Jesus Juke?)

Second Question: "What are all the obstacles standing in my way of acquiring that one luxury?"

This is your Debt Universe into which you’re launching your Debt Rocket (we’ll kill this metaphor yet!). Here you get to list all your debts (from smallest to largest) and how much you’d need to save to reach your version of Paradise Falls.

A quick word on owing money: Debt is a the single biggest threat to your financial future. And while home ownership might necessitate a mortgage, there's other debt like student loans, car loans, and credit card debt (especially credit card debt) that can kill your dream before it even gets off the ground.

On top of that, debt is expensive. Add up all your debts that are not your mortgage and multiply them by the annual interest rate. For example, if you've got $2,000 worth of car loans at 6% interest, that's $120; if you've got $900 of credit card debt at 28% interest, that's $252/year that you're paying that you won't have to anymore!

So list all your debts, how much you’d need to save to achieve your dream, and get ready for...

Third Question: "What are 3 things that we can do without, starting today?"

Say hi to your Debt Rocket Boosters!

“Wait,” you say, “didn’t you say at the top that this was supposed to be fun?”

“Yes,” I respond.

“Well, I’ll admit the first question (deciding what my aspirational goal is) was fun,” you continue, “but then you had me write down all my debts, and the amount of money I’d need to save, and that wasn’t so much fun!”

“Uh-huh,” I respond.

“And now!” you exclaim. “Now you want me to give up stuff? How is that fun?”

“I admit it’s not all rainbows and lollipops,” I acknowledge, “but bear with me here.”

Look at your aspirational goal. How cool would it be to get there? Very cool. Popsicle Pete-cool. So this is fun, because we’re giving up things that are less cool than your ultimate dream, in order to get you to your ultimate dream faster.

So come up with a plan to put extra money against your debt. Write down "Give up my morning coffee from [insert your coffeeshop here]." Add it up for a year: even just $3 every weekday for coffee adds up to $750/year!

Or write "Cancel our cable TV service and switch to Netflix.” It’s easy to drop $50-$100 a month on cable, but Netflix has tons of shows you can binge-watch to your heart’s content for only $8/month (with a freebie to get you started). Even if you’re on the low end of cable TV costs, you’ll be saving over $500/year with this switch.

For us, a few things we’ve sacrificed include Philip driving to work (he busses), cable TV, and a few games’ worth of our Blue Bomber season seats. With those three changes, a conservative estimate suggests we save about $2500/year. It’s not easy, but when I remember that we’re $2500 closer to soaking the winter blahs away in a hot tub or one day having a “Winter Cruise budget,” it’s a lot easier to stomach.

So what’s your aspirational goal? What are you giving up to get there? Make note of it in the comments so we can all cheer you on!