For Kayla and Ryan Anderson, "zero" doesn't just represent their goal of finishing their student loan payments and finally being debt-free. It's also a key number in the spending strategy they're using to get there.
Kayla, 32, and Ryan, 33, finished their graduate programs in 2014 with degrees in physical therapy and prosthetics and orthotics, respectively — and a combined 24 student loans. The principal on the couple's student debt added up to $336,676.17 and it has kept growing, with interest averaging 6.5% across all of their loans. Their four largest loans accrued interest at a rate of 7.9%.
To help them make their monthly payments and keep their focus on debt repayment, the couple turned to a new spending strategy: micro-goals as part of a zero-based budget, where your income minus your expenses equals zero, and there's no room for frivolous spending. They adopted it as part of a commitment to Dave Ramsey's Seven Baby Steps, the second of which is to pay off your loans and your debt in general using the snowball method and knock out your smallest balances first.
"It's those structures and that system that have helped us learn a financial lifestyle that is sustainable," says Kayla. "It's not like a quick-fix diet."
Since 2016, they've been chronicling their journey on the Instagram account @DumpingDebtWithDave, where they've shared their challenges and victories with over 6,000 followers and connected with others who owed six figures. "What I'm finding is that we are not alone in this," says Kayla.
After almost five years, seven baby steps, one baby, 12 different jobs and countless hours of overtime, the Andersons have repaid $377,744, and are on track to pay off the remainder by December 2019. That means they'll have paid back about $400,000 total in five years.
A zero-dollar based budget ensures that every cent is working towards a greater goal — in this case, being debt-free.
Each month, the Andersons kick off their zero-based budget by calculating their combined income and breaking their expenses into different categories. Kayla, a physical therapist, and Ryan, a product development engineer, earn an average combined income of around $115,000 — although that number can fluctuate depending on how many overtime hours they pick up, and what Ryan brings in doing bike tuneups as a side hustle.
When they sit down to do their monthly budget, they set micro-goals — like paying off $5,000 a month in debt — and check in on long-term goals, like paying off their debt in full by Christmas 2019. That way, even with income fluctuations, they've managed to maintain a strict budget that allows for that steep monthly loan payment.
Here's what their zero-based budget looks like: Categories like food ($400), rent ($1,100), or transportation ($125) are "fixed" expenses that remain the same month to month. Everything else falls under "extras" which include their phone and internet bills ($30 apiece). They also put money aside for emergencies, like car repairs. And they include $50 ($25 each) for "fun money" in the budget to spend as they wish.
After allocating funds into those categories, every extra penny goes towards debt, says Kayla. In most months, they put about $4,500 toward their balances. Any extra income from side hustles or tax refunds also goes to reducing their debt; their largest payment was $68,000 Ryan inherited from his grandmother.
Having grown up without any real financial stability, Kayla says the desire to create security for her family has motivated her to maintain this tight budget for so long.
Each time the Andersons reach one of their micro-goals, like paying off one of their loans, they have a micro-reward.
"It seems like such a small thing, but we go and we find the fanciest root beer we can find and we split it," says Kayla. "We just talk about how far we've come, and we look back at our numbers and we dream about the future. That has definitely been a big motivator to keep us on the path."
The Andersons have also shared their major updates and successes with their Instagram followers. Their most recent post shared that they've met their microgoal for the month of June: getting under $30,000 of debt.
They plan to go big when they become debt-free. "We're going to get a keg of root beer," Kayla says. "We're just going to celebrate with our friends and family who have supported us through this whole crazy journey."
The Andersons expect to pay off their student loan debt by the end of the year, which will free up $4,000 a month. But they say they plan to continue their frugal lifestyle and zero-based budget to achieve other savings goals, including a $25,000 emergency fund, their daughter's college fund, a down payment on a home, and their own eventual retirement.
"I think that some of our categories will be a little more robust," Kayla says. "I imagine our pocket money and our clothing budget will increase. … I can't wait to be debt-free so I can buy fancy shampoo that costs more than three bucks."
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