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Old 12-16-2009, 03:34 PM   #1
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Default How to live within your means (and be happy)...

The topic came up in another thread I was asked to give a few financial tips. Instead of hijacking the other thread I thought I would put a few thoughts down here. Yes, there are others on this board who make more money, better investments, smarter decisions than I do but I am just getting the ball rolling with this initial post. Hopefully this will help some of the younger guys out there. Careful planning will make you much better off than your friends (and parents).

Background: I am 42 and my wife is 40. We are a single income family (no kids) and I only make around $60K a year. My wife left her job about 15 years ago when I told her we would do just fine on my income (it was much smaller at the time). I'm old fashioned and believe the man takes care of the income and the woman takes care of the home (if you want to debate that please feel free to start another thread - I promise I'll jump in).

We are completely debt free and have a nice paid for house and two nice paid for cars (an '05 Lava MSM and an '06 Toyota Tacoma). We have a little over $300K in investments. 10 years ago we owed $125,000 on 22 maxed out credit cards and lived in a $40,000 house (we owed about $35K on it). Do not take any of this as bragging. If you see me on the street I will be wearing jeans and a t-shirt and driving around in a $1500 Geo Metro that you wouldn't be caught dead in <G>. I don't "act" fancy!

Over the past 20 years you have not seen me buying DVDs, new TVs, going to the movies, or going out to eat. I didn't have an Iphone, go on fancy vacations, or try to impress people with what I had. We didn't have ANY expensive possessions that I could show off. We lived very boring lives compared to some of our friends. I've watched several of them file for bankruptcy, get divorced, or fight over money everyday. At this time we are starting to enjoy life and buy some nice stuff here and there. We didn't borrow money to do this, we are doing it with money that we actually have. My wife and I have a great relationship (much better than when we were broke and in debt) and are in general very happy with each other and with life.

What we do:
1) We have three credit cards. #1 gives us 2% back on food/medical, #2 gives us 1% back on any purchase, and #3 gives us 5% back on gas (if the pump says gas is $3.00/gal it is actually only costing me $2.85). We never carry a balance on the cards but use them for all purchases. We are the people who the CC companies hate because they pay us and not the other way around.

2) We write down every single penny we spend (it all goes on a massive spreadsheet). Everything is put into different categories (food, auto, home, etc).

3) "Good" expenses (insurance, gas, food, electric, etc) have a budget but it doesn't get used that much. I can't really change how much I spend each month on car insurance, or house taxes. We have a category for "house" (paint, lawn chemicals, repairs on the AC unit) that we have to watch a bit because you can really burn up some money starting projects. Do you really need to install a new sprinkler system? Can you wait to paint the porch?

4) "Bad" expenses (pizza, buy a soda when you fill up with gas, new laptop, new 22 rifle, etc) get charged to the person who bought them. My wife LOVES to burn scented candles in the house. Hey, that comes out of her money. New Christmas decorations - I'm not paying for that. I like to go target shooting with a friend and then out to Wendys afterwards (comes out of my money). If we want to buy a new LCD TV we kind of vote on it and the money gets divided between the two of us. We spent around $100 on presents this year for the family. We can usually tell if something is bad by asking ourselves "Would we be buying this if I had just lost my job". Since becoming debt free we are able to spend more on bad stuff (see the formula below).

Side note on the $100 in Christmas presents - Around 15-20 years ago when we started all of this I can remember my wife buying me so much stuff for xmas that she had to cover it up with a blanket instead of wrapping it. It was a wake up call for both of us and helped get us to where we are today.

5) The spreadsheet adds up the income and the good expenses then spits out some numbers (kind of like an allowance for us). An example:

We got paid $1,000 this month. The good expenses added up to $800. That leaves $200. I get 15%, my wife gets 15% and the "bank" gets 70%. So, my allowance for the month in this example would be $30. The spreadsheet is setup so that if I actually spent $50 on bad stuff this month I would just owe $20 on the next month. As you pay off more stuff and have less bills you can see that the good expenses would go down. So, if you were normally paying $400 on a car payment and got it paid off there would be $400 extra left over at the end of the month (an extra $60 allowance for each of us). The 70% that is left over (the bank) was used to make extra house/car payments until we became completely debt free. As of this point we are building up cash reserves (emergency fund) but I am not exactly sure what we are going to do with the 70% when it starts getting large. It will probably be used to kick up the 401K beyond the 4% I am putting in now (see below).

6) To pay down the house/cars we printed up amortization tables for all of our debts. I kept track of how much money in interest we were saving (it is BIG) as an incentive. If the car payment was $200 ($100 in interest and $100 in principal) and you pay $800 you could see on the table that you just knocked out 6 months of payments and saved 6 months of interest at one time.

7) Included in the good expenses is $10,000 a year for a Roth IRA. We also put 4% of our money into a 401K at work. I put in just enough in the 401K to get some matching from my employer (they kick in 3% if I put in 4%). Any other investments go into the Roth. I believe that the S&P is a good place to put your money so we invest in a fund that does 2X the S&P. We had not been making any investments for the past 5 years in order to speed up the payments on the house/cars. Did this make financial sense? Not at all but that is not what we were shooting for. My boss can come to me tomorrow and tell me YOUR FIRED and I can flip him the bird and walk out knowing that I don't have a house payment or car payment to worry about. We worked very hard for a long time to get to this point and it was worth it.

Side note on investments - Last year I sold Red Beast. I was not at all happy to do it and pretty much (in my mind) gave it away for $4500. Since we were very close to being out of debt we invested it in a "2X the DOW" fund and it is now about $7500. I could have blown the money on another car but I realized that I could get another $4500 Miata now or buy a $40,000 Porsche later (or a build a V8 Miata - hmmmm). Actually, I did spend $100 on a used hi-def TV for my XBox. A consolation gift to myself. How many of you would have just blown the entire $4500? Making sound decisions like that are what helps you get to the goal. Last week my company gave everyone $20 in gift certificates to Outback Steakhouse. I sold mine to a co-worker for $15. I LOVE Outback but I would much rather have the $15 (which will grow to a few hundred later) than go to outback and spend the $20 + an additional $50. It doesn't sound like a lot of money but over many years doing things like that really helps out.

Questions or Comments?
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Old 12-16-2009, 03:47 PM   #2
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Great post, thank you for that. My wife and I are on a fairly limited income (I bet lower than any couple here, and I bet my individual income is lower than any single full time person here), and we've been careful enough that the only debt we carry right now is my student loans (which unfortunately is still near 16k). We're buying a house (actually, closing on it this Friday), so we'll no longer be throwing money away on rent (though we'll have more unexpected house-related expenses).

As much as I've been looking forward to getting the last few bits to my turbo Miata build, I've been thinking long and hard about knocking out that student loan. I hate it. $150 down the drain every month. I own too many nice guns, custom knives, digital cameras, guitars, etc. Time to sell what I don't need and knock that damned student loan out.
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Old 12-16-2009, 03:49 PM   #3
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I wish I had the dedication you have. Mostly I like toys to much right now to have the dedication. After Christmas that will hopefully change. I need to scale down my spending and get out of debt.
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Old 12-16-2009, 04:32 PM   #4
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Shuiends knows I'm a big Jew about my money and how i'm always "broke". What Shuiend has no idea what the size of my savings account, IRA, and 401Ks actually look like
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Old 12-16-2009, 04:44 PM   #5
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That is a really good post. I am pretty bad with money. I do not owe anything, but I'd be in trouble if I need a decent amount of money for an emergency. I'm getting to the age where I really need to start saving instead of just spending most of my paycheck every two weeks.

I'm definitely going to take a few of your suggestions and use them.

(ps Braineack I lol'd at your avatar for like 5 minutes.)
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Old 12-16-2009, 04:55 PM   #6
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Shuiends knows I'm a big Jew about my money and how i'm always "broke". What Shuiend has no idea what the size of my savings account, IRA, and 401Ks actually look like
Those are huge because your holding stolen **** Gold.
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Old 12-16-2009, 05:18 PM   #7
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Originally Posted by FRT_Fun View Post
That is a really good post. I am pretty bad with money. I do not owe anything, but I'd be in trouble if I need a decent amount of money for an emergency. I'm getting to the age where I really need to start saving instead of just spending most of my paycheck every two weeks.

I'm definitely going to take a few of your suggestions and use them.

(ps Braineack I lol'd at your avatar for like 5 minutes.)
You will be surprised out how good life becomes from just creating a budget and sticking with it.
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Old 12-16-2009, 05:24 PM   #8
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I can relate, a year ago my wife and I were struggling a bit, and would regularly not have much money left over at the end of the month to pay credit cards. Since then I've cut back on buying beer, lightened my lead foot, been promoted, and started drawing extra pay for knowing a language. I plan to "invest" in a VW Jetta TDi wagon since we have another girl on the way and my wife has plans to do a lot of highway driving once I reach Ft. Bragg. I'm probably going to Afghanistan in May so that will be a good opportunity to save some money and get out of CC debt. Additionally, May is within the 90-day window I have to reenlist in my new MOS so there's a good chance that I will be able to re-up overseas, which precludes me from paying taxes on the bonus.
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Old 12-16-2009, 05:25 PM   #9
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Awesome post man... I try to abide by some of these in my own life and have yet to have any financial problems thus far even when buying EXPENSIVE parts for the Miata. Just hope this carries over well as my current g/f has the same habits of spending as me. Kudos.
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Old 12-16-2009, 05:38 PM   #10
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Originally Posted by rmcelwee View Post

What we do:
1) We have three credit cards. #1 gives us 2% back on food/medical, #2 gives us 1% back on any purchase, and #3 gives us 5% back on gas (if the pump says gas is $3.00/gal it is actually only costing me $2.85). We never carry a balance on the cards but use them for all purchases. We are the people who the CC companies hate because they pay us and not the other way around.

2) We write down every single penny we spend (it all goes on a massive spreadsheet). Everything is put into different categories (food, auto, home, etc).

5) The spreadsheet adds up the income and the expenses:

6) To pay down the house/cars we printed up amortization tables for all of our debts. I kept track of how much money in interest we were saving (it is BIG) as an incentive. If the car payment was $200 ($100 in interest and $100 in principal) and you pay $800 you could see on the table that you just knocked out 6 months of payments and saved 6 months of interest at one time.

7) Included in the good expenses is $10,000 a year for a Roth IRA. We also put 4% of our money into a 401K at work. I put in just enough in the 401K to get some matching from my employer (they kick in 3% if I put in 4%). Any other investments go into the Roth. I believe that the S&P is a good place to put your money so we invest in a fund that does 2X the S&P. We had not been making any investments for the past 5 years in order to speed up the payments on the house/cars. Did this make financial sense? Not at all but that is not what we were shooting for. My boss can come to me tomorrow and tell me YOUR FIRED and I can flip him the bird and walk out knowing that I don't have a house payment or car payment to worry about. We worked very hard for a long time to get to this point and it was worth it.
VERY GOOD INFO HERE! I do many of the above mentioned things and have been financially stable for the most part the past few years being on my own. One other thing my fiance and I do is "Envelopes", where we take out X dollars each month for any given item.....like I have one for cars to cover unexpected things/toys ($100), Vacation ($100), Dog to cover vet bills/food/ etc ($50), Student loans ($200). This is money we take out right off the top and its nice because we kind of "Forget" about it as it sits in our safe at home and not in our savings or checking account. We have probably half of the amount at home as we do in our savings.....sure I could have that money in a high interest savings account earning interest or in a CD, but you really think I could look at that money in my account and not spend it.

Another good point the OP had is the ROTH IRA! Open one now. If you make under $120K a year and are old enough to work, you can put up to $5000 a year (Or up to your income) into a roth....both you and your significant other should do this, which is why the OP said $10000....This is a similar account to a 401K, but since you are funding it with after tax dollars, Uncle Sam can't take his cut later in life when you go to withdraw from it after you've made boat loads!

Also like the OP said, if your company offers a 401K match, MAKE SURE TO CONTRIBUTE AT LEAST WHAT THEY ARE WILLING TO MATCH! ITS FREE MONEY!!!!!
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Old 12-16-2009, 05:44 PM   #11
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+1 on envelopes

Keeps things from getting out of hand.
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Old 12-16-2009, 05:47 PM   #12
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Someone asked me for a copy of the spreadsheet. Here is a blank one (has a few examples in it) that we are going to start using in 2010. Some notes:

If you look at JAN you can see what we spent and what day it was. On 1/4 we spent $10 on some pizza (we split the cost). On 1/5 we bought pizza at the grocery store and it came out of the food budget. Buying a pound of hamburger at the grocery store is good, buying a quarter pounder at McD's is bad. U6 = 10 (all fast food $ is manually put in column U as well and is added up in U118. W118 shows what percent of the total income was spent on fast food (you will be surprised how much you spend on junk food). Again, a bag of chips at the grocery store (good) is different than getting them out of a vending machine (bad). Beer is always bad (ugh!). The pizza cost $10 but we only have $5 showing up (in two columns). That is why there is a note to the side so it is easy to track everything at the end of the month when we pay the visa bill.

R101 and S101 show the total that I (Bob) and my wife (Bunny) spent. U111 shows what 15% of the income minus good expenses was ($110). Since I only spent $35 U112 shows that I can still spend $76 (things are rounded) on bad stuff. That $76 gets carried over to the next month so if I am patient I can afford a new laptop at some time.

You can see that L101 is in red because we went over budget with the phone. L105 shows that we have spent 9% of the yearly phone budget so far and B105 shows that we have only gone through 8% of the year. This is good to show that at the end of June (50% of the year) we may have spent 75% of the budget and need to cut back. C102 shows that the monthly budget for "car" is $100. You change that on the "budget" tab and it carries over to each month. You can change the 15/15/70% thing on "budget" and also plug in your estimated income to see how much bad money you will have to spend throughout the year.

"income" is where you put your paychecks, etc. It will show you how much you made for the year, how much your 15% is and how much fast food you ate.

That is enough typing for me now. Enjoy....
Attached Files
File Type: rar 2010 Expenses - Copy.rar (39.6 KB, 48 views)
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Old 12-16-2009, 05:50 PM   #13
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I wish I made enough money to need a plan. Once I get my **** back in order and I am out of school and back in the work force, I will for sure do some of these. Used to anyway. The envelope thing really does help, and the 401k matching like already stated is free money, why wouldn't you. The company I used to work for used to match anything over 5% I think it was, with 3%. I didn't work there long enough to take part in it though.

I think the biggest thing is people need to use some damn common sense. I try not to buy anything I know I can't afford, and avoid debt like its the plague. Currently my only debt is school loans and a single credit card. Those will be payed off as soon as it is possible. If I can buy a car outright by saving rather than taking out a loan, that is how I am going to do it. Some people will take out a loan on a whim and not even consider the interest paid on that loan. Pretty much every large purchase I have ever made has been with cash out of my pocket. Cars, computers, anything else over $1k. Save for 4 months or take out a loan and pay on it for a year.....
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Old 12-16-2009, 05:53 PM   #14
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I think my problem, and most of my generations' problem, is the need for instant gratification. For instance, a set of wheels just got offered to me for my subie which I really don't need, but I really want. Instead of backing away from the offer, I started shifting things around to see if I can pay for it without dipping into savings. These wheels won't even go on the car until next April at the earliest and if I waited i could probably afford them, or something better by then. Unfortunately something in my mind takes over and says "I need them now!". I'm trying to distract that extra voice as much as possible but it's VERY difficult.

I will tell you though that my wife and I do bring in quite a bit and we have a big amount of savings, the hard part is forgetting about the savings and acting as if we're poor and save as much as possible. Luckily the only debt we have right now is our home (325k), we own both cars, both paying for our own education, and have no CC debt. We just need to stop spending so much money.
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Old 12-16-2009, 05:59 PM   #15
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I think my problem, and most of my generations' problem, is the need for instant gratification. For instance, a set of wheels just got offered to me for my subie which I really don't need, but I really want. Instead of backing away from the offer, I started shifting things around to see if I can pay for it without dipping into savings. These wheels won't even go on the car until next April at the earliest and if I waited i could probably afford them, or something better by then. Unfortunately something in my mind takes over and says "I need them now!". I'm trying to distract that extra voice as much as possible but it's VERY difficult.

I will tell you though that my wife and I do bring in quite a bit and we have a big amount of savings, the hard part is forgetting about the savings and acting as if we're poor and save as much as possible. Luckily the only debt we have right now is our home (325k), we own both cars, both paying for our own education, and have no CC debt. We just need to stop spending so much money.
That is my biggest weakness. I love to buy things. Even if I know I shouldn't I still do. It's never anything that puts me into debt, but it's always spending money that would be better spent elsewhere.
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Old 12-16-2009, 06:53 PM   #16
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If you are weak the spreadsheet will keep you in check. We didn't use it for a few years because we were so set on paying extra for stuff that all our money went to additional payments. Now we have started using it again because I don't want to blow all the extra money we have left over at the end of the bills. The most important part is getting your spouse/gf on board with you. One person can't blow money like crazy when the other is saving. It just doesn't work.

FWIW, we paid off our house in 7 years! You wouldn't think that was possible but you just have to put your mind to it. We had a $7K tax refund (strange accounting stuff from a business we used to own) the year before last and put all of it on the house. I can remember hearing several of the guys I work with saying they were buying new TVs with their refunds. These are guys with upside down car notes and instead of paying on that they were buying stuff they didn't need.
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Old 12-16-2009, 07:05 PM   #17
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You make $60K a year and paid off your house in 7 years? What was your mortgage at the start of those 7 years?

Was that during the same time period you paid down $125K in CC debt?

That's impressive.
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Old 12-16-2009, 07:09 PM   #18
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For the most part i completely agree with your financial outlook, i hate debt more than anything. i carry no debt other than my mortgage which i aggresively pay extra towards, and put 10% of my income to my 401k. the rest of our money goes towards bills, fun, then savings. I've watched my father live a life where he never had any fun or bought anything for himself until he was 50. i can't imagine torturing myself to something so strict for the next 20 years, afterall i could die tomorrow.
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Old 12-16-2009, 07:37 PM   #19
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Quote:
Originally Posted by rmcelwee View Post
Everything in OP
Damn good post, man. As Dave Ramsey says, live like noone else so later you can live like noone else.

Quote:
Originally Posted by sicklyscott View Post
I think my problem, and most of my generations' problem, is the need for instant gratification.
Bingo. Work on this now and it will pay huge dividends later.

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Originally Posted by sicklyscott View Post
I will tell you though that my wife and I do bring in quite a bit and we have a big amount of savings, the hard part is forgetting about the savings and acting as if we're poor and save as much as possible. Luckily the only debt we have right now is our home (325k), we own both cars, both paying for our own education, and have no CC debt. We just need to stop spending so much money.
This was the harder part for me. We make damn good money and I just bought whatever I wanted, whenever I wanted it. No loans or credit cards, but wasn't saving enough or paying extra on the house. That changed. No more "Hey there's an extra $20K in the checking account, I'm getting a new truck (or car). That happened several times. I started treating vehicles as the depreciating asset that they are. So, no more $30K cars, even if they are paid in cash with the trade. Now, we dump the extra cash in 401K (cap hers, mine is reduced depending on the other employee contribution in the plan, which sucks) ROTH (cap hers, mine when I can contribute), extra $25K on the house each year (paid off in 3 more years) and an extra $15K in general investments. When the house is done, the house payment and extra will go to investments. We plan to retire in 10 years.

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For the most part i completely agree with your financial outlook, i hate debt more than anything. i carry no debt other than my mortgage which i aggresively pay extra towards, and put 10% of my income to my 401k. the rest of our money goes towards bills, fun, then savings. I've watched my father live a life where he never had any fun or bought anything for himself until he was 50. i can't imagine torturing myself to something so strict for the next 20 years, afterall i could die tomorrow.
His might be extreme, but your "die tomorrow" is extreme as well and generally kills any incentive to save for the future. There is a happy medium. You just need to find yours.
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Old 12-16-2009, 07:42 PM   #20
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You make $60K a year and paid off your house in 7 years? What was your mortgage at the start of those 7 years?

Was that during the same time period you paid down $125K in CC debt?

That's impressive.
We financed our business with CCs. At the time, banks put internet businesses the same category as a phone sex business so it was not possible to get loans. When we sold the business we used the proceeds to pay off much of the $125K. That was 1999 and EVERYONE said to put the money in the stock market (remember how crazy the dot com stuff was back then). Man I am glad I didn't do that. Anyway, the $125K payoff is not as "impressive" once you know where the money came from BUT the fact was we were still $160K or so in debt on Jan 1999. There are a bunch of people with businesses and a huge debt right now. A very bad place to be. We got very tight with money at that point and paid the remaining $35K house loan and all the other car loans and stuff off between '99 and '03. In '03 we sold our house for $65K and STOLE this one for $185K. We used the $60K after commissions as a down payment and had a loan for $125K. That $125K was paid off in 7 years. Actually, we got it down to around $55K and took a 401K loan out for the balance in '07. Not a very good financial decision, more of an emotional decision. We paid off the 401K loan between '07 and '09. On 9/11/09 I got a 20 year service award bonus from work for $1500 and used that to pay off the remaining balance on our Lava MSM.

1/1/99 - $160K in debt
9/11/09 - $0K in debt
4/01/22 - Retired @ 55 with a smile on my face...
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