It’s been two years, one month since Alan and Dawn decided a change was in order for their financial situation. They were living paycheck to paycheck despite having a nice income and they were tired of it. Tired enough to get motivated to make some tough changes. Tired enough to do what neighbors, friends, and co-workers were unwilling to do despite facing similar difficulties. Alan and Dawn changed their behaviors towards money and the results are amazing.

In May of 2007, Alan and Dawn had $131,000 in consumer debt  including a BMW ($22,200),  mini-van ($12,100), one credit card ($10,500), two student loans ($17,500 & $37,000), a personal loan ($28,000), and a handful of miscellaneous smaller debts ($3,700). In addition to the consumer debt they had $259,000 on a negative amortizing home-loan. Combined, Alan and Dawn had a pile of debt adding up to around $390,000. To tackle this debt they had a take-home pay of $5,200 when they started…..and then they got to work!

They “downsized” their expenses by selling their two vehicles for two much cheaper ones, cut the budget (and the credit card!) in every possible way, and stretched every penny as far as it could possibly go. Doing this dropped $17,000 off their total debt, and saved them thousands of dollars worth of interest. About six months into the process they decided to take the big step of selling their home and renting until they became debt free. Not only did they knock $259,000 worth of debt out, but it reduced their total financial risk and dealt with the terrible loan situation they were in. They ended up with monthly expenses (including minimums payments on debt) around $5,000, leaving about $100.00 each month to throw at the remaining debt.

Two years later Alan and Dawn are doing great. The once $390,000 pile of debt has been reduced down to $69,537 without having received any significant pay increase or bonus. Taking any extra money they could find from garage sales, gifts, or the odd job resulted in taking a nice size hit out of the debt. Only the two student loans (now $16,500 & $33,687) and the personal loan ($19,350) remain to be paid off, and at this rate they will meet their goal of  being debt free in less than 5-years!

What Alan and Dawn have accomplished in such a short amount of time is amazing to say the least, but it’s not impossible. It has taken them hard work and caused them to be intentional to the penny every month for two years. I’ve sat with them when it was tough and tears were rolling, and I’ve witnessed the multiple little victories along their journey. Most people living paycheck to paycheck would like to be free from the stress and limitations that situation creates, but few are actually willing to do what it takes to change the situation. It’s tough! Anything worth anything typically is. But it’s completely worth it if you will commit to it! I know Alan and Dawn are going to make their goal and I’m excited to see how their life flourishes in the future because of the decisions they are making today. Great job guys, keep up the great work! I’m so proud of you!!!

(This post is part of a series that you can find in the Alan & Dawn category bar on the home page of this blog.)

It has been a while since we have checked in on Alan and Dawn, a family going through a major financial transformation. To recap, Alan and Dawn began their financial transformation in May of 2007. Alan works in the medical sales industry and Dawn is a full-time mom. Their goal was to get a handle on their finances, become debt-free, and be able to start saving for their future. Starting with $131,000.00 in consumer debt and another $259,000.00 on a home mortgage, even a good paying job wasn’t allowing them to live beyond a paycheck-to-paycheck life. So where are they at 6 months later? Let’s take a look.

Alan and Dawn got focused. First, they got on a written budget and named where each dollar of income was going to go before the check was deposited. They also began using the envelope system for all of their purchases (one for food, gas, misc., etc) and kept a record of their spending using the receipts. Within the first 6 weeks they saved a $1,000 emergency fund for the rainy days ahead that are sure to visit us all from time to time. They traded in two vehicles that they couldn’t afford to begin with in exchange for less auto debt and a little more monthly cash-flow. Miscellaneous items were sold to pay down debt and all in all, Alan and Dawn paid off $16,800 of debt, lowering their total owing to $114,200.00 + their home! Their financial risk/liability was also reduced because of the debt reduction. The $16,800 of consumer debt equals 12.8%, which would put them on pace to be debt-free except for their home within the next 5 years.

It’s important to note that the changes that Alan and Dawn have made to this point required behavior and mentality changes more than anything. Neither Alan or Dawn started another job, begged friends for money, or tugged on uncle Sam’s beard for help. It was tightening the financial belt (aka using a budget) and getting focused on paying off debt. There was also one more major change that they decide to make: sell their home.

The home loan they were sold was terrible to say the least. It essentially required less than an interest only payment each month and “used” the homes equity to make up the difference, about $700 per month. Numbers like that speak for themselves, the home was more than they could afford. Even refinancing the loan to a standard 15 or 30-year fixed would have pushed the monthly payment too high to afford. The good news is that they would still have $30,000 to $35,000 in equity if their home sells for their asking price. That would be a large chunk towards their debt reduction plan.  As of the date of this post, they have a full-price offer on the table and they are scheduled to close within a week or so.

To summarize Alan and Dawn’s progress, they have made huge strides towards reaching their goal. They have made more progress than the average family in their situation simply because they got focused and starting running in the right direction. Few people get past “thinking” about starting a financial makeover. So I have to take my hat off and say congratulations to a great start on a difficult journey. You’re going to get their, you’re doing a great job!

Alan & Dawn Ronning could be the poster couple of the modern American family. Alan is in the medical industry and Dawn is a full-time mom of four with one child already out of the home. They bought a home, two cars, have two student loans, a credit card and one personal loan. It all adds up to one large pile of debt. They could be the poster couple because many American families are in the same position and facing the same challenges that they are. As we peer into their financial situation I am sure that many of you will be able to relate in some, if not all, areas.

At our first meeting we took inventory of their income, expenses and what their monthly balance sheet looked like so we could establish a starting point for a budget.

Take-Home Income (after taxes):
$62,760 annual salary ($5,230 monthly)
$4,200 – $24,000 bonuses ($350 – $2,000 monthly)
$500 business reimbursements (monthly)

Short-Term Debt:                                       Monthly Payment:
Les Schwab Bill —— $1,200.00 ——- $1,200.00 due w/in 30 days
Property Taxes — — $1,200.00 ——- $1,200.00 due by Oct. 31st
Credit Card ———- $10,500.00 ——$160.00
Dawn’s Van ———- $12,100.00 ——$256.89
Alan’s Car ———– $22,200.00 ——$380.00
Student Loan #1 —– $17,500.00 ——$164.17
Student Loan #2 —– $37,000.00 ——$350.19
Personal Loan ——- $28,000.00 —— $375.00

Total Short-Term Debt: $128,500.00 — $1,686.25 (not incl. Les Schwab or property taxes)

Monthly Expenses:
Tithe ————-$675.00
Food ————-$400.00
Utilities ———-$200.00
Transportation —$450.00
Miscellaneous —-$250.00
Phones ———–$335.00
Auto/Home Ins. –$240.00
Life Insurance —-$46.00
Property Taxes —$300.00 (reduces to $200 after Oct. 31st)
Home Mortgage —$826.46 (negative amortization loan; $255,000 balance)
School Tuition —–$611.00 ($5,500 per 9-month term; private grade school)

Total Monthly Exp. = $4,333.46 — Total Debt = $383,500.00

Monthly Balance = $60.29 (based on min. monthly income)

At first glance this budget may appear satisfactory; after all the month ends with a positive balance. However, this budget does not consider the fact that there is no savings being withheld or the financial risk that their large short and long term debt creates. If Alan and Dawn were to continue making only the minimum payments on all their short term debt, it would take over 9 years to be debt free except their home! And that’s if they never used debt again for any purchases or loans. Then you would have to look at the terrible home loan they have. Simply put, a negative amortization loan (also named “pick your payment”) only requires you to pay a low monthly rate that is below the monthly interest of your loan. Since the bank isn’t going to give away or lose money, they make it up by applying the difference of the payment you make and the amount of a monthly interest and add it to balance of the loan! If you didn’t catch that it means you owe more on your home each month! These loans should be outlawed in my opinion, but that’s a separate issue for another post.

Alan and Dawn want to be completely debt free and setting themselves up for a solid financial future. To do this we need to create room in their budget for savings, a better home loan, and far less financial risk. I’ll show you how we have started this in the next segment on Alan and Dawn. Hopefully after seeing this you will be inspired to take a closer look at your financial position and make changes as needed.

(We are checking in on Alan & Dawn. For those of you who didn’t catch the first installment of this real life series, you can find it a few posts back labeled Alan & Dawn: Reality Check. The financial figures and situations used herein are the actual ones faced by Alan & Dawn. They are an awesome couple making a determined effort to change their financial behaviors in order to one day live financially independent.)

It’s been two months since Alan and Dawn started their journey towards financial freedom which involves them getting debt free. To do this they have made many hard decisions and have focused on getting their finances working for them instead of the other way around. Here’s how they are doing so far.

Original Budget: $6,080.00 income – $6,019.71 expenses = $60.29 Balance

Their original budget barely got them by each month and it didn’t account for expenses such as a portion of an upcoming property tax bill, the Les Schwab bill, a few other one-time miscellaneous expenses, and left nothing to put towards an emergency fund or debt reduction. Alan and Dawn wanted to get aggressive about paying off debt so we started cutting away at the fat (debt). Roughly one-fourth ($34,300) of their total debt and over one-third ($636.89) of their monthly minimum payments were tied up in two vehicle loans. There was nothing wrong with the vehicles other than the fact they couldn’t afford them and they were keeping Alan and Dawn’s monthly finances strapped down. So they took the huge step of downsizing their vehicle debt. Alan sold his late model BMW and Dawn’s ‘05 Dodge Caravan. This step alone dropped their monthly auto payments by $195.82, and also reduced their total debt from $128,500 to $116,400. That’s a debt reduction of $12,100 by making one good decision. It also allows them to get out of debt 45 MONTHS sooner and saves them almost $18,000 in interest payments!

New Budget: $5,230 income (not incl. bonuses) – $5,150.82 expenses and set asides = $79.18

They were also able to pay off the Les Scwab bill ($1,200) and fully fund their emergency fund ($1,000). These are huge steps in the right direction. Perhaps the biggest savings and testimony so far came only a few days ago. You see, Alan and Dawn had planned on sending their son to a private Christian school beginning in September that would have cost them $611 per month. This was $611 that they didn’t currently have and didn’t see coming in the foreseeable future. Dawn particularly sacrificed a lot when she agreed that they would have to put off the private schooling they had been planning for and enroll him into public school instead. About a week or so after making that decision they received a miraculous phone call. A relative who had been watching Alan and Dawn’s new financial commitments to getting out of debt and living the way God designed to them to live heard about the schooling change they had made. Motivated by the faithfulness of Alan and Dawn, this relative decided to pay for their son AND another one of their children’s private education…100% w/out repayment! Hello!

You won’t be able to convince Alan or Dawn that God doesn’t honor people who follow His principles. They could have tried to force the issue, but instead they made a decision based on God’s principles and then let God be God. Too often this is the reason that people do not experience God’s hand in their financial life. They want or need something so bad but instead of allowing God to work His way, they try to make something happen on their own and end up with less than what God could have done. Way to go Alan and Dawn, you guys are doing awesome. Your testimony is already impacting people and God is going to use you and your story to affect many others!