Paying off debts fast & how life can change in just one year

In 2014, I paid off close to £12,900 of debt, starting the year on a £24,000 income.

In this post, I will tell you all about how I did it and how my life changed during that one year. It does not involve moving back with my parents, just saying.

It is going to be a long post taking you through the twelve months. The post focuses on the successes but I aimed to ensure the hardest things during the year too. It was a year of transformation, and also a year of very hard graft and hardship. Before getting into the post, grab yourself a cup of tea and get comfortable.

 

Towards the end of 2013 I was desperate to sort my finances out. I wanted more than just seeing all my hard earned measly salary to be consumed by bills the moment it hit my account. I made a plan. Don’t laugh, but it literally had three things on it:

  1. Make more money
  2. Spend less money by budgeting properly
  3. Follow Dave Ramsey’s first two baby steps i.e. save a $1000 (£1000 in my case) emergency fund and pay off your debts, smallest to largest.

I used this seemingly simple plan to navigate 12 months from the start of 2014 to 5th of January 2015, when I moved back to UK. Yes, the year involved me moving countries, but not for financial reasons. Here is how things went down month-to-month.

January 2014

On a piece of paper I noted down all my income and outgoings as well as my debts – that was my first budget. I was bringing home £1606. Once a quarter I would get a bonus, usually equating to around 2% of my annual salary. Would you believe it if I told you I was working as a digital project manager for world’s 4th largest online security company for £1606 per month? Yes, I was not making a lot of money, but turns out you can get a lot done with little money too.

Two things needed to happen. My budget needed to tighten and my income needed to go up. I had no savings at the time either leaving me with both an income and expenses problem.

I started with tightening the budget, because, at least on paper, it was easy. From January 2014 normal outgoings looked like this:

Description Set amount bills
Service charges incl rent 310.3
Mortgage 291.88
Landline and internet 25.94
Council tax 96
Travelcard 177.1
Health Insurance 26.32
Scottish Widows Pension 27.5
Variable amount bills
Gas and electric 30
Water rates 30
Mobile 15
Envelopes
Food 80
Household and beauty 40
Going out/fun 20
Birthdays and weddings 50
Christmas 50
Travel and flights 100
Emergency fund & Debts 235.96
Total expenses 1370.04
Income 1606

Based on £235.96 available to start the step one (save £1000 as an emergency cushion), my plan was to next clear the credit card and then the student loan according to debt snowball method (more on this in the next post). Every single bonus would go straight towards this plan, otherwise I might have gone genuinely crazy. The bonus payment months in 2014 would be: March, June, September and November. All would go towards clearing my debts.

Throughout January I gritted my teeth and stuck to the budget, just about. It was rough and with £20 in my going out budget in one of the most expensive cities in the world, lonely.

February

Throughout February I was sticking to the budget like my life depended on it, because it sort of did. I did go out on a non-commitmental date on Valentines day. NOTHING else was in the budget for February, but weirdly enough my productivity at work was looking great. I was also babysitting for a family in Great Portland Street on weekly basis at £8 per hour and reviewing university essays. I was putting every penny into my emergency fund to reach £1000.

In a spur of the moment I had a house clearout and sold everything of value I no longer loved – eBay and Gumtree were useful for that. I made just over £300 and felt amazing, a tiny light in the tunnel appeared and it was not a train about to hit me.

I also made my very first meal plan in February, full of cheap but sort of healthy foods. I no longer have it in full, but to give you an idea, it mainly had oatmeal with almond milk for breakfast, pasta with vegetables and sometimes chicken for lunches and baked potatoes with tuna or beans on toast for dinners. £80 in my budget was not dire but it was not stretching particularly far either.

It was a cold February so the heating was on for 2 hours per day – 30 minutes in the morning, 1h at 7pm and 30 mins at 10pm. This pushed my gas bill over budget a little.

March

Sticking to the budget was hard, but possible. The spring was nearing and friends were starting to wonder why I stopped going out to see them. So I told them – “I am saving money”. The fact was that I booked a trip to Hong Kong for Easter well before getting onto the plan and resolved to go if it was to kill me. I LOVE Hong Kong and have since visited it multiple times.

On the flip side to my quiet social life, I was working so much that the head of my department saw a whole other side of me – a committed professional. To be honest the fact that I had nothing better to do since January actually made me look a lot closer at what I was doing and start grabbing at the projects I enjoyed and there were many of those.

At the end of March I was absolutely shocked when my quarterly bonus came through at 11% of my annual salary after tax. Suddenly, there was £2640 in my account. I knew what to do with it too!

But it was not all rosy – with my £80 food budget I was permanently hungry and without a going out budget constant inability to satisfy my FOMO was turning into a problem.

April

Easter in Hong Kong. I went to Hong Kong for 18 days in total. The flights cost £485, I took the tube to the airport instead of a taxi. Accommodation was free, at a friend’s family home in Fanling Wai (he came out with his girlfriend and two kinds and invited me to tag along to help with the childcare, best deal ever, the kids were teenagers). The food in Hong Kong is cheap compared to London if you eat local cuisine. There is a lot of budget friendly things to do too. If I didn’t love London so much, I’d move there.

It was my first trip to Hong Kong and the only thought on my mind when leaving was that if I want to come back, I need to have my finances in order.

After a glorious 2 weeks in Hong Kong and spending a total of £538 of my £540 budget kept back from my bonus. I went back to work and decided it is time to start job hunting after end of year raise of 2% in the scale of the year. Bonus or not, my usual salary was not cutting it. And with that thought knocking on my mind for about one week, I was told to go to Paris at the end of the month and to Moscow in May.

I have always loved travelling so this was a blessing. Travel was one of the key reasons why I joined this company to start with and the main reason why London is still my home – plenty of airports nearby.

May

I had 3 interviews with a company based in Shoreditch. Their HR team approached me via LinkedIn. My biggest worry was around being client facing project manager, not internal one. My budget was looking ok, but I did not have enough money to put towards Christmas savings that month after an unforeseen need to get a prescription for eye infection. Contact lenses and long hours were not agreeing with my eyes.

My fourth, last, interview in Shoreditch was with the CEO. I was 45 minutes late, coming from a delayed Eurostar and running through Kings Cross. I was wearing a navy short sleeve turtleneck (still have it) and a pencil skirt (sold on eBay about a week later). I just about made a good impression.

They kept me waiting on an offer until May 30th.

On May 30th I was in Moscow, in the middle of a team-building workshop. The offer said £36,000 with a £5,000 annual bonus paid quarterly, 25 days of holidays and some travel. On May 30th, in the middle of the workshop I asked my line manager for a word and just like that told him that I will be leaving the company in one month. That night (at 2am and drunk) I got back to the hotel from a company outing (I still have a thing for Radisson Blue) and read the fine print of my existing contract. I was going to get the Q2 bonus payment even though I was leaving before it was due to be paid. I actually danced in the room.

shaking-hands-1240911.jpg

June

The month of June is not the sharpest in my memory. I remember it being very busy with handovers and paperwork and very boring at the same time. My last day at the £24k per year job work was 18th June 2014 after using up all my accrued annual leave.

At the time I had my emergency fund fully funded at £1000 and approximately £8500 in debt still remaining.

There was one more change that happened – I somehow stopped being the giddy idiot and actually started to pay attention to the things around me. The change was so vivid to me that I remember it very clearly even now, over 4 years after it happened. It’s as if somebody flicked a switch. Whether it was speaking to people and truly listening, or reading, or absorbing more information from the Dave Ramsey plan I chose to follow financially, somehow I gained more clarity.

On June 30th at 10am, rested and ready for a new challenge, I showed up for a new job and LOVED IT.

July and August

Honestly, nothing of note happened other than my budget changed to show a much higher income and that I managed to get a laser eye surgery. Contact lenses were killing me (£32 out of my £40 household and beauty budget) so I used the bonus from Q2 from my previous job to pay for most of it. Knock on the wood. I have not had a single eye infection since.

September

I put £915.96 into my debts just from my salary. Not counting the babysitting and other odd jobs which also helped. My debt at the end of September was standing at just over £5400. In January 2014 I was hoping to have it paid off one day. In March I was hoping to have it paid off in two years. In September I was really hoping to be done before the next summer.

There is a concept in Dave Ramsey’s plan called ‘gazelle-intense’. In simple terms, when a gazelle sees a lion, she runs for her life. It’s the same with debt, which for me happened to not just be financially challenging but also emotionally crippling. My need to get rid of it really propelled me forward and looking back at the year, it made me really put my life in a higher gear.

I will add, the only thing which changed in my budget was actually the income and the amount going towards the debt.

Description Set amount bills
Service charges incl rent 310.3
Mortgage 291.88
Landline and internet 25.94
Council tax 96
Travelcard 177.1
Health Insurance 26.32
Scottish Widows Pension 27.5
Variable amount bills
Gas and electric 30
Water rates 30
Mobile 15
Envelopes
Food 80
Household and beauty 40
Going out/fun 20
Birthdays and weddings 50
Christmas 50
Travel and flights 100
Debts 915.96
Total expenses 1370.04
Income 2286

I also turned 28 in September and passed my probation period with the company in Shoreditch.

October

I remember really missing travel in October. And also, really willing to be able to travel again. It’s weird how sometimes if you really want something, the world will deliver.

At 23:17 on a cold October Tuesday I checked my work email. An email from a head of strategy asked for volunteers to be seconded to a freshly opened New York office to help with project management there, for up to three months. I responded at 23:19 (to all instead of a direct response, just to be sure everybody saw I really wanted to go) . The next morning I was asked to book a visa appointment with the US embassy.

November

My budget changed. This is because my work picked up all my living expenses while in New York (I went from November 5th 2014 to January 5th 2015) freeing up another £240 of my budget to towards my melting student loan. I continued to work remotely on simple freelance tasks bringing few £ here and there but for obvious reasons I was not able to babysit for the family in Great Portland Street.

By the end of November I managed to smash through the debt bringing it down to £2400. I was going out only if it was free or really cheap (lost few friends on the way there, sorry not sorry), not buying any clothes (2nd hand creeps me out) and really keeping my head down in work.

I did not pay a penny from my own pocket in New York and I also worked like a madwoman. At the hardest time I was managing 14 digital projects across UK, USA and Canada (on top of helping the New York project managers learn to work with teams in India well) and basically sleeping 4 hours a day. If you have a digital project manager in your life, they will tell you that more than 4-5 projects over £100k budget each is really hard to manage.

December

The pace of work which I picked up in November was starting to wear me thin but at the same time I really enjoyed seeing the progress in work, in myself and in my melting pile of debt. On December 18th two of my friends came to visit from London with a plan to stay for Christmas. On December 22nd I got paid my salary for the month. As I got in the shower that morning, it hit me. There was enough money in my account that I can put £2400 against the debt, if I cut into my emergency fund.

I wiped majority of my emergency fund, all my other sinking funds (I was not buying any Christmas presents or birthday present s for this year anymore) and paid my debt off. I then logged into skype and called the student loans company to tell them that I paid it off in full and would like a written confirmation.

On 5th of January 2015 I hopped on a Virgin Atlantic flight back to London (no idea how much it cost, company paid). My flat, looked after by a friend was clean and cosy and I had no more debts to pay. I was still broke, but not in an urgent way anymore. Within a single year my life evolved in a  way I never expected it could (and I visited top three largest countries in the world!).

2014 is a year vivid in my memory. It started with me being in financial tatters and ended with me being still broke, but no longer in tatters and really wanting to get my financial life rolling. Please do excuse that there isn’t a budget shown for every month – I simply no longer have them and had to rely on my memory for the figures, which are rounded to the nearest 10 rather than inclusive of exact pennies.

 

In the next post I will explain the debt snowball  debt avalanche methods of debt repayment. The post will include numbers which you can apply to calculating the best method for you, if looking to pay debt off.

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