Ryan and Courtney Luke of the “Arrest Your Debt” blog are in a great financial position with over $320,000 in retirement savings, $35,000 in cash and living a debt-free life. Their strong financial position means they are easily able to live of Ryan’s salary as a police officer which allows Courtney to stay home with their two young children.
While they are in a great financial position today, this was not always the case, when they first got married, they had little savings and were struggling with debt.
- Ryan was $20,000 in debt which consisted of a car loan and credit card debt.
- Courtney had a $35,000 car loan.
Let’s review how they increased their net worth by $400,000 and what lessons we can learn from their story and apply to our own lives.
They knew what they value in life
I fully believe that the recipe for a happy life is as follows.
- Figure out what your value in life (easier said than done).
- Examine your spending and determine how much of your money you spend on the things that you value and truly make you happy.
- Cut the expenses that don’t bring you value and redirect that money towards the things that do.
As a married couple, Ryan and Courtney had to figure out not only what they value individually but what they value as a couple. I can tell you from experience there is only one way to do that is constant discussions about money and what you want out of life.
If that sounds simple, it’s because it is. If you want to be happy as a couple, establish what will make each of you happy and put together a budget that allocates money towards those things (assuming they require money). While it is simple, it is also hard.
Money is a limited resource and managing it as equal partners partnership can raise conflict if you don’t agree on how it should be allocated. Conflict makes people uncomfortable, that’s why most couples avoid talking about money. The lack of communication about money is a major reason so many families are living paycheck to paycheck and nearly half of all marriages end in divorce.
Luckily for Ryan and Courtney, they communicated regularly about what they want in life and how to allocate their money towards the things they value. They worked on a budget together where they decided to allocate their money towards the things they value.
- A strong retirement fund
- Cash on hand in case of emergency
- A future beach home in California
These are great goals, but they require a lot of money. This forced Ryan and Courtney to cut down on their spending’s on the things that did not provide them value.
- They traded in their expensive cars for used cars, eliminating their car loans in the process.
- Ryan cut out the $1,000 per month he was spending on eating out. A subject I have covered in great detail here.
The most important thing Ryan and Courtney did and what we all need to do in our own lives was figure out what they want their life to look like and work on a game plan to make that life become a reality.
Making their debt tangible
Pop quiz: Exactly how much do you owe on your mortgage?
If you don’t know the answer don’t beat yourself up, most people don’t know how much they owe on their credit card let alone their mortgage.
Out of sight, out of mind.
Ryan and Courtney make their mortgage debt tangible by using a jar of marbles. Each marble represents $1,000 they owe on their mortgage. Every time they pay off $1,000 of principle, they take out a marble.
I love this because it keeps their goal of paying off the mortgage in plain sight and top of mind every day. Every time they take a marble out of the jar, they can see with their own eyes how much closer they are to being debt-free.
I love this idea and will talk to Trish about doing a similar thing with our finances. Right now, Trish and I are less concerned about paying off our mortgage which has a 2.49% interest rate then we are about building our investment portfolio.
Rather than taking marbles out of a jar that represents our debt we might start putting marbles into a jar that represents our investment portfolio. Every time we add another $1,000 to our portfolio, we throw a marble into the jar.
What other interactive ways can you think of to make your money more tangible? Let me know in the comments below.
They Have 6 Savings Accounts
The final lesson I want to highlight from Ryan and Courtney’s story is the fact that they have 6 savings accounts.
- Car fund
- Vacation fund
- Short term emergency fund
- Vacation fund
- Long term “rainy day” fund
- General day to day account
Do you know what I notice about these 6 accounts? They are aligned with their financial priorities of never having car loans, allocating money towards vacations and having cash on hand in case of emergency.
If you know what your priorities are in life, it’s important to allocate your money towards those priorities.
If travel is a priority, you should have a separate bank account used only for travel and have an automatic deposit made into that travel fund from your checking account every month.
Long-time readers will know this is exactly what Trish and I do and why we have 8 savings accounts.
Ryan and Courtney have been able to get out of debt and build a strong net worth on a single income. They were able to do this primarily because they had a clear vision for what they want in life and communicated regularly on how to turn their vision into a reality.
By automating savings into specified accounts that matched their goals and visualizing their debt they were able to stay on track and move closer and closer to the vision they have for their life.