The 2% Rule to Get Debt Free Fast: An Innovative Method to Pay Your Loans Off For Good by Alex & Cassie Michael
As the summer winds down, families turn their attention towards returning to work or starting a new school year. As this new phase of the year begins, consider this an opportune time to analyze your personal finances and evaluate where you and/or your family stands financially. This blog post marks my sixth finance-related book this year. I’d love to share some of my thoughts on this journey thus far before getting into my latest book review.
When I started this blog earlier in the year, I wasn’t too sure what I could expect to get out of reading a book a month on finances and investing. But I felt it would be a step in the right direction for managing my finances. I’ll admit that I was already in a fairly stable financial situation, but my confidence in managing my finances and making sound investment decisions has skyrocketed. I won’t claim to be any sort of expert, however, here are just a few of the small changes I’ve made this year that have made a big difference in my approach to my finances:
- Tracking my income and expenses: Prior to this journey, I only had a general sense of what I was spending my money on each month. Now, I track all my expenses using my online banking statements, and created an excel sheet that tracks my income and expenses. This lets me better see where I can cut back, and how much I am able to save from month to month.
- Budgeting: This goes hand in hand with the first bullet. After tracking my income and expenses, I am able to create a budget that works for me. There is no ‘cut and dry’ budget template that will make sense for everyone. By tracking your expenses, you’re able to create your own categories of expenses and gain a better understanding of where you want to allocate your money.
- Automate savings: This is a big one to help make your saving and investing effortless. I have set up my finances to automatically allocate 20% of my paychecks directly into my investment accounts. Additionally, whenever I receive an unexpected, large sum of money (think tax returns, bonuses, gifts), I automatically place 75% into my savings/investment accounts. This number may seem high, but it’s money that you weren’t necessarily counting in the first place, so put it away and watch that money grow!
- Reading about finance: I think this last one is just as important as the first three. In addition to reading a book a month, I read articles, blogs, and magazines on finances to make more informed decisions. The world of finance becomes more and more accessible as you continue to read up on the basic principles!
I hope this is a good starting point for most of you. If you’re finding yourself in a difficult financial situation, then this latest book might help!
In the 2% Rule to Get Debt Free Fast: An Innovative Method to Pay Your Loans Off For Good, Alex and Cassie Michael detail their rather harrowing experience of finding themselves in a $100,000+ debt, and being able to claw their way out in just a few short years. You may find yourself scratching your head, like I did, upon hearing about some of the ways they managed to create such an enormous debt load for themselves (minimum payments on credit cards, taking on additional loans, poor car buying decisions, etc.), or perhaps you can find their story all too relatable. Either way, rest assured that you can in fact get yourself out of this precarious financial situation! The Michaels detail their escape from their financial black hole using an easy to follow process. Here are some of the most useful tips:
- Use the ‘2% Rule’. This is the cornerstone of their book- reduce your monthly expenditures by 2% each month, and look for ways to add 2% to your income each month. With this newfound extra money, put that directly into paying off your debt. The authors note that this rule was the crux of their plan to escape their debt. Paying it off in five years. As you continue to parse through your budget and find ways to reduce your expenses by 2% each month, you’re able to pay off a greater percentage of your debt each month. This rule is reminiscent of the notes in Millionaire Next Door about playing good financial offense and defense, and finding creative ways to both expand upon your sources of income and reduce your expenses. For readers who are already debt-free, you can still use this rule to pad your savings and investment accounts!
- Set up biweekly mortgage payments. This method adds one additional full payment towards your mortgage each year, drastically reducing your interest payments over the lifetime of a mortgage. Instead of 12 full payments a year, this pays out 26 half-payments per year. The Michaels also advocate rounding your mortgage payments to the nearest $100 amount, which will also help knock off several thousand dollars of interest over that same time.
- Build your emergency fund. It’s always important to have a cash balance readily available for emergencies. This money is not to be used for vacations or other big items you crave. To amass this, the authors recommend a few things, such as aiming for a penniless week, selling unused household items online, and having a garage sale. Once you have this fund, you can then start to build to 3 to 6 months of savings.
If anything, this book provides hope for individuals/families in even the most dire of financial situations. With some careful planning and a commitment to small monthly changes, anyone can crawl out of a poor financial situation and become financially stress-free.
This book is a highly accessible account on how to reduce your debt load. If you’re overwhelmed by your current financial outlook, there are some solid tips to get the ball rolling to reduce your financial stress. I found their main point about their 2% rule to be highly beneficial; this sets reasonable expectations and provides measurable results.
The book also provides various thought exercises, tips on communicating finances with family members and spouses, and appendices detailing DIY projects, grocery store suggestions, and a goals sheet to reduce your monthly expenses.
The authors are not financial gurus, and don’t claim to be; part of their appeal is being relatable to many families struggling with their finances. It was an incredibly easy read, perhaps too anecdotal for my tastes, but a few good pointers nonetheless.
Star rating: 1.5/3 stars
Where I’ll go from here
At this point, I feel rather comfortable with my budgeting and financial goal-setting, but am still on the hunt for tips on how to improve. I have my sights on a few different books for next month, so stay tuned for next month’s post! As always, I’d love to hear your thoughts in the comments section below.