Note from Travis: I’m excited to announce a new addition to TeamEOD! Steve Stewart, who hails from his home blog of MoneyPlanSOS, will be sharing with us a dose of no-nonsense personal finance once a month. I’ve been a HUGE fan of Steve for several years, and know that he is an excellent addition to the team. Please give him a warm EOD Nation welcome by leaving a comment below on his debut post here on Enemy Of Debt!
Despite the blame-scream media’s coverage of The Great Recession and all the bad decisions Congress has made, my wife and I have been able to double our net worth.
We didn’t hit the Lottery, we didn’t get an inheritance, and we certainly didn’t invent the Slanket and sell it to a bunch of late-night viewers who just wanted sleeves.
We followed common sense advice that bores most people and is frowned upon by the more sophisticated advisors you see on TV.
How did we double our net worth?
We followed Dave Ramsey’s advice. You may not agree with Dave Ramsey’s Debt Snowball Method, you might believe his investment advice is dangerous, or you might just love your credit card rewards too much to hear his message of financial independence. What you cannot dispute is that we doubled our net worth in 8 years by following Dave Ramsey’s Baby Steps.
Note: The figures below include savings, retirement, and investment accounts. The total does not include the value of our home but does include mortgage and consumer debt. In essence, I did not include personal items or home equity into these figures. While the totals below appear to be five times growth, I am not making that claim because they include the contributions we have been making during this awesome process. Adjusted for contributions we have more than doubled our net worth since 2005 net of initial investments.
So, how did this happen?
Net worth was $74,000 in 2005
Before starting our debt-free journey we had $176,000 in retirement accounts but our net worth was $74,000. Wait, that math doesn’t work! Well, it does when you factor in our debt load. Credit card balances, a car loan, and the home mortgage kept us in the red. We needed to get on Dave Ramsey’s plan and turn this thing around.
- I stopped using my credit cards altogether. Why pay a middleman in Rhode Island when my local bank could handle every check, debit transaction, and cash withdrawal first-hand?
- We created a budget. It allowed us to spend more money on the things we really wanted by keeping us from spending on the things we really didn’t.
- Our family stopped borrowing more money. This made us even hungrier to save up to pay cash for all future purchases.
I can’t say that we sold any big-ticket items and I didn’t get a second job. We still travelled and ate out, we just did it smarter by staying with family on vacations and remembering that eating out was a treat. This allowed us to pay off our final debt, an auto loan, in 2006.
Net worth was $121,000 in 2008
After becoming debt free we started putting about $10,000 a year into retirement savings. But in 2008 we got hit with the Great Recession and all that value went away. Also, the value of our house plummeted to about 70% of what we purchased it for.
However, we stuck to Dave Ramsey’s advice and stayed invested in the market. Besides, any investments we were buying were on sale! I expected the value of our home to come back someday and it really didn’t matter what it was in 2008, we weren’t planning on selling.
I had to remember that markets go up and down, but they eventually go up. If we stick to our moneyplan then we’ll be OK. Besides, our big emergency fund was there to help in a pinch.
Net worth was $234,000 in 2011
WOW! What a jump! No debt and no credit cards sure puts us into a great position for saving money. We continue to budget and spend purposefully, but now we have a little extra for vacations and lifestyle. Unfortunately we don’t have money to put into Baby Step 6 because it’s all being used for Baby Step 4 and 5. That means we are putting 15% of our income into retirement accounts and investments for my daughter’s first car, college, and wedding (in that order please!)
We also upgraded our vacations to a horse ranch in the middle of Sunlight Basin, Wyoming. This is a dream vacation for my wife and tween daughter and gives us another reason to be purposeful with every dollar we make. It’s hard to save for 11 months to go on a one-week vacation!
Dave Ramsey was right, you can make 12% in the market. You can also lose 50% but then gain 27.1%, 14.3%, and 13.4% over the next three years. I sure would have hated to miss out on that because we bought another car on payments or couldn’t stay away from credit cards.
Our net worth is $380,000 today!
Let me break it down for you:
- We have paid off all our debt except for our mortgage, which was about $100,000 in 2005
- Once we had no debt and 3 months of emergency savings we increased retirement contributions
- Our plan has us saving for retirement and at least six more years for our daughter’s future
- We continue to pay down our mortgage and put money aside for car replacement, new windows, etc.
- Mutual funds are doing really well these days which makes staying in the market during the bad times even more powerful
I won’t lie to you; it takes sacrifice to double your net worth. My daily desires try to derail me from our long-term plans. I have very little willpower over eating-out so I avoid the temptation by staying home. Don’t let me near a Best Buy because I’ll want to pick up the new MacBook Air. I set limits to how much I can spend on Amazon; otherwise I would get to know our UPS driver by name!
You can do all this too with the right motivation. What is keeping you in debt? What is keeping you from saving money and moving forward? Tell us in the comments below how we can help motivate you to double your net worth too!