When we started our marriage, Nicole and I had $50,000 of debt. I racked up $30,000 in student loans and Nicole had a $20,000 car loan.
The debt didn’t bother us much really. We were young, having fun and living for the day. Combined, we were making around $130,000 and spending a lot of it.
I’m an amateur personal finance geek.
Your tools have helped me become a smarter investor.
Personal Capital Dashboard User, February 2021
It wasn’t until we talked about becoming parents that we really wanted to pay off the debt. We thought becoming debt free would help us start off our new parenthood on the right foot.
To combat this debt, we decided to live on half of our income for a year. We created a budget to help us stay on track, met each month for a “budget party” and found various ways to control our expenses.
Additionally, we brought more money into the house by selling things on Craigslist and working on new commissions through my sales job.
After 12 months of focus, it worked! We were debt-free before our daughter came into the world!
Now we had a new challenge: What should we do with this new money? We were throwing extra at the debt each month and now there was no debt. Options started to abound!
Here’s what we did with that extra cash to build our wealth and help our family have a happy, healthy and wealthy life.
Increase Retirement Investments
Ever since we got our first jobs, we knew the importance of saving for our retirement. Does that mean we did it? Well, kind of.
Nicole, on the other hand, did have a 401k match at her job so she took advantage of it.
Read More: What is a 401k? – A Comprehensive Guide
With more money available, it was time for us to increase our contributions!
Luckily, I got another job shortly thereafter where my employer matched 15% of my contributions. So for six years in a row, I maxed out my 401k. This helped us to have around a $200,000 401k balance by the time I left my company.
If we let that amount grow and not put another dime in from today until we’re 65 (using a conservative 7% annual growth rate), we could potentially have around $1.1 million at retirement. Not bad!
We’d like more than that, so we’re investing in other tax advantaged avenues like a Traditional IRA, Roth IRA, Roth 401k and HSA. Fewer taxes and more money for us.
You can use the calculator below to see if you’re on track to retire on time.
Save for a Home Down Payment
After our initial debt free day, we set our eyes on moving out of my bachelor pad and into our forever home. Well, honestly, I thought my bachelor pad was fine, but Nicole wasn’t digging my beer bottle decor and closet-like bathrooms. To each their own I suppose.
For the next year or so, we continued to live on around half of our income so we could save up a healthy down payment on our next home.
Nicole eventually found our forever home. Although I loved where I was living, our new home was a major upgrade. And since we were parents now, it wasn’t all about the walkable downtown areas and the easy access to the highway. We were more focused on a good school district and more living space for our growing family.
We were able to save up a 45% down payment for our new home. This helped us to put a major dent in purchasing our $350,000 home.
Invest for Our Kid’s Future
With more money available, we wanted our kids to have a bright future as well.
A great starting point for us was with a 529 College Savings Plan. This tool allows you to invest money for your kid’s future college expenses and have it grow tax free. Also, the money will not be taxed when it’s taken out for college use.
Since we’re looking at around $200,000 for each of our kids to attend an in-state public university in 2030 and 2032, we started this investing process right when they were born. That way, we’re letting compound interest do the heavy lifting for us.
Give Away More Money
Over the past few years, we’ve increased our charitable giving from 1% to 5%. This charitable giving increase felt right as our wealth increased substantially over time.
We give another 1% away randomly through random acts of kindness and another 4% to family through gifts and cash. Our favorite trick is to double cash gifts for nieces and nephews who decide to invest their money instead of spend it. I’ve gotten a few of my teenage nephews to start a Roth IRA with this “stealth Uncle hack.”
With more money after paying off our debts, giving more to charities, random neighbors and family felt like a fun way to do our own version of 10% giving.
We love going on vacations. In fact, we’ve prioritized it as 10% of our budget this year.
Each month, this portion of our budget goes directly into a savings account specifically labeled as “vacation fund”. This way, we will always have money set aside for vacations.
Getting away is important for our mental health and with our Michigan winters, a little sunshine can be good for our physical health, too!
This summer, Nicole and I are headed to Europe together for the first time. We’re thrilled that our “vacation bucket” was filled with cash to make this a possibility.
Debt freedom, and eventually our mortgage freedom, has allowed us to do some incredible things so far as a family. Recently, we even became millionaires in our 30s.
We’re excited to keep dreaming together as a couple, making more memories and strengthening our family tree for years to come.
Ready to get your finances in order?
Personal Capital compensates Andy Hill (“Author”) for providing the content contained in this blog post.