While you are working and saving and planning your journey (daydreaming, reading blogs, taking notes and trying to figure out how it would work for your family), you can work to get your finances in a healthy position. Earning extra money always helps, but the real grit is in decreasing the cost of living.
Make an inventory of all of your debts
- credit cards
- student loans
- house payments
- car payments
- Any other recurring payments
Now write down their interest rates.
Now prepare to snowball those debts. A snowball effort is where you pay off your HIGHEST interest debt first, usually credit cards, but it varies. Assume it was your car payment. Put all your expendable income toward that particular payment as much and as often as you can. Set a bare minimum that you’re going to pay above and beyond the minimum payment, say $400, then challenge yourself to beat that. Skip the mall, skip the fancy coffee, just laser focus on the highest interest debt you have until you’ve melted it away. GREAT JOB!!
Now, take that extra money (say the $600/month that you were paying for your car), along with the expendable income you used to pay off your car, and put it ALL toward your next highest interest debt. Assume it’s your credit card and you owe $10,000 on that card. You will now have $600 from the car payment and, say, $400 expendable income, so $1,000/month to pay off that card PLUS the amount you were already managing to pay toward that card. You’ll have that paid off in less than a year!
Awesome!! Now you are without a car payment OR a credit card payment. How does that feel? NOW, you’ll have that same $1,000/month PLUS what you paid each month on your credit card debt to pay toward your next highest interest loan – maybe your house payment. Can you imagine if you made an extra $1,200/month on your house payment each month??
With each debt that you pay off, you have increasing amounts of money to pay down the next debt, therefore you can pay it off even more aggressively.
This snowball plan of aggressive payments will help you minimize the amount of money that you need to earn each month just to pay interest on borrowed money. You can work your way to financial independence by living debt free!
If you are living debt free and own a house, you can more than likely survive on the rental income of a single property. Realize that there are still monthly expenses to owning a house, even if you own it free and clear, like taxes and insurance and property management, but it should be net positive and your monthly rental income can either supplement your earned income or even replace it. Now pack up all that money you’re saving on interest and get out there and travel!!