These days, when Canadian household debt loads are at record levels – an incredible $1.70 of non-mortgage debt exists for every dollar earned, according to Zero Hedge – it’s not surprising we are all buying more lottery tickets and wondering if grandma thought about us in her will.
How are we going to pay off all this debt, and will we get rid of it before Old Age Security cheques start coming?
There is a way to get out of debt fast, state husband and wife Alex and Cassie Michael, authors of The 2% Rule To Get Debt Free Fast. At the heart of it, the idea behind the book is quite simple. “Track your monthly expenses and earnings,” the authors state. “Use this actual information for the following month to decrease spending by two per cent and increase income by two per cent.”
Most of us, the book states, have no idea on where our money is going, so tracking is explained in detail and better record keeping is advised. The fun part is putting yourself on a two per cent spending diet for a month, and then adding that “found” money to your next month’s budget, the pair of authors explain. Then, you do it again. You live on 98 per cent of the 98 per cent, and add the difference to the income side.
The authors began their relationship in debt and gradually rang up an eye-popping $108,000 debt load in three short years. “We discovered we were paying over $1,200 in interest each month with an estimated payoff of 64 years paying the minimum… this shook us to the core.”
“The stress and strain our massive amount of debt placed on our marriage was almost overwhelming. Not only was our marriage suffering, but so was our health,” the authors write.
Once they moved to the 2% rule, they got things rolling the right way. “We just kept moving forward with the small, gradual goal to spend two per cent less than the actual results from that month. There wasn’t any falling off the wagon or feeling of failure. We just had to pull ourselves together, set the next gradual decrease from that prior month’s actual spending, and move forward with our new goal.”
In just over three years – not 64 – they were debt free, and still using the 2% rule for other financial projects. They give good advice on how to use their strategy to build an emergency fund, pay off a mortgage early, save for retirement, and more.
The authors do a fantastic job of explaining the hidden pitfalls of excessive debt. They look at the real costs of credit cards, mortgages and car loans, and debt in general. Even when the debt becomes gigantic, they write, “often, we just want to pretend that everything is OK and that nothing is wrong.”
A breakthrough was in learning to understand their spending weaknesses. They would have had no problems “if we had been more mature in our relationship, both to one another and even to our financial situation. Without realizing or even discovering our weaknesses, it was easy to continue down a path that resulted in the same problems we had before.”
Study after study shows that debt is the main restrictor of retirement savings. Any way to reduce debt is worth a shot – and a good destination for some of the money you save could be your Saskatchewan Pension Plan account.
|Written by Martin Biefer
|Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22|