However, Al is quick to let people know that he’s no cheapskate. “I don’t want people to think I’m the cheapest guy on Earth. I do spend money, but I don’t splurge to the degree that some people do. My wife has received some expensive gifts,” Al says, mentioning the $1,200 that was recently approved in the budget for Lesia’s latest Louis Vuitton bag.
As the Riddicks point out, living within their means doesn’t mean doing without. “We do have some nice things,” says Al. The couple’s rule of thumb to buying those things is simply, “If we can’t pay for something in cash, we can’t afford it.”
How We Did It
Pay off debt first. Before paying down the debt, we were investing a lot toward our retirement. We backed down on retirement and paid the debt off. It was the best decision, because having debt would have forced me to find another job when I was laid off. It took us three years to pay off the debt. First, we paid off the student loan ($10,000). Second, we paid off Lesia’s car ($18,000), and finally, we paid off the house ($122,000) in 2007. In that final year, we were paying almost eight times the regular mortgage payment. We achieved our goal by paying off the debts from smallest to largest. Because we prepare a monthly spending plan, we knew exactly how much money would go toward debt elimination. If any extra money came in (for example, a bonus check), we put that money toward debt as well. After deciding to become debt-free, we simply allocated more money toward debt reduction instead of spending normally on items we considered wants, not needs.
Become broke on purpose. By creating a monthly budget, or spending plan, our goal is to be broke on purpose. By this, we mean giving each dollar coming into our household a purpose and direction so that income minus savings and expenses equals zero. Start by knowing exactly where you are. Most people don’t create a spending plan or budget, so they don’t know exactly what’s going out or where it’s going. You have to figure out what you have and maybe give up some things. We have separate budget lines for recreation and dining out. To us, those are two different things. You have to be very specific and account for every penny.
Live on one income. Every couple should pretend that they have to live on one income for one month just to see the impact of a what-if scenario. This may help identify areas of wasteful spending. Once you distinguish wants from needs, the next step is to set goals for the excess cash. For example, you may want to increase your emergency cash reserves or eliminate debt.