How To Pay Off Debt And Save Aggressively – Path To Financial Freedom

The shift to remote work has led to a newfound perspective on work, family, and personal finances. Free agency and solopreneurship are on the rise. Now more than ever, anyone can work two remote jobs at once. In this post, I’ll share tips on how I used my double income to pay off debt and save and invest aggressively. I hope by sharing, it will motivate you to start your OE journey and change your life.

Tips on paying off debt fast

By being a career polygamist, you’re already on the accelerated path to financial freedom. Forget about cost-cutting and extreme frugality. After paying off your debts, you deserve a guilt-free vanilla latte every day and a fancy vacation or mini-retirement every few years. Let’s dive in.

1. Keep upgrading to higher-paying jobs and avoid lifestyle creep

At a minimum, I interview every six months, ideally right before my performance reviews. This has three purposes: it keeps my interviewing skills sharp, I get a price check on what I’m worth, and I go into pay raise discussions armed with job offers. This simple act led me to work two jobs at once. Remember: businesses behave this way when acquiring customers, renewing contracts, and negotiating terms. By knowing your worth, you can confidently ask and get the pay you deserve.

On the flip side, I try to avoid lifestyle creep by practicing “zero-based” budgeting by taking a page from corporate finance. Every six months, I review all my expenses and see where I can cut back and where to splurge a bit more. I don’t cut to the bone, but I do budget in my splurges. I try to keep my discretionary expenses relatively flat as a percentage of total expenses. Once you’ve done this for a while, you’ll notice there are three big expenses: housing, education, and healthcare. I get creative on how I can lower them, like refinance my mortgage, use my jobs to pay for my upskilling, and snag jobs with fully paid health benefits. With two incomes and keeping expenses flat, you’ve now generated extra cash to pay off debt fast.

Again, no need to go frugal crazy. Just stay reasonable. Keep in mind the growth rates of income and expenses are all relative. Your job is to widen that cash-flow gap.

2. Set up a direct deposit and pay off debt automatically from a new bank account

I’ve got a simple mindset – I live off my primary (J1) income and pay off debt with my secondary (J2) income. To do this consistently, I rely on automation to mindlessly pay off debts without any derailment. Ditto for saving and investing. Now onto the practical details:

First, set up your secondary (J2) direct deposit to a new bank account. Then, from the new bank account, set up your bill pay or log into each of your debt servicers to change your autopay to the new bank account.

You’ll have three options when setting up autopay — pay the minimum, set a predetermined amount, or pay the full balance. Since you have two or more incomes, you can set up autopay to pay the full balance. Rinse and repeat until you’ve paid off all your debts. The majority of our community members pay off their debts in 3-4 months. Join and learn how they did it.

3. Use the avalanche method to pay off debt fast

Given my double income, I used the debt avalanche method to help prioritize which debt to pay off first. This strategy applies to most consumer debts, such as personal loans, medical bills, and even student loans — the exception is my mortgage, which is considered a “good” debt with low rates and tax advantages. Mortgages should be the last debt you pay off if you’re in the fortunate position to do so.

The way a debt avalanche works is that you pay off one debt at a time, usually with the highest interests first. For all other debts, you’re making the minimum payments. For me, I set some extra payments until the target debt has been paid off in as few billing cycles as possible. Once the target debt is paid off, I then pick another debt to start the same cycle again. Since you have two incomes, wiping out debts will be easier than with only one source of income. Success begets more successes, you can do it.

Tips on saving and investing aggressively

1. Set a target savings rate using automation

A savings rate is the percentage of your disposable income that you set aside rather than use for consumption. To get your savings rate, divide your savings by your disposable income and multiply by 100. Theoretically, if you use my system, you should hit at least a 50% savings rate. Experts say that you should ideally have a monthly savings rate of 20%, allotting 50% for essentials and 30% for discretionary spending. But those experts did not factor in a double income, you should aim higher to accelerate your path to financial freedom.

Based on how many simultaneous jobs you’re able to hold down, you can then figure out the right savings rate after household expenses and future outlays — as well as develop strategies to help you stick to that savings rate. This is where automation comes in handy again. For me, after paying most of my debts, I switched to direct depositing my J2 paychecks to my brokerage account. It never hits my bank account. That way I’m not tempted to spend that money. They’re earmarked for investing and buying income-producing assets.

2. Prioritize savings goals with loved ones and a neutral third party

Now that you’ve paid off your debts and saved up, it’s important to start talking about money goals and what financial freedom means to you and your family.

For starters, set up an emergency fund to cover unexpected big expenses, such as a medical emergency. That way you don’t need to disrupt your financial plan by dipping into other savings or investments.

Next, brainstorm with a fee-based fiduciary financial advisor on how you should deploy your money into income-producing assets through double-dipping in retirement savings, other tax-advantaged accounts, and taxable accounts. Looking to buy a house? Now is the time to start planning for that big investment.

If you are not confident in handling your finances, it may be best to seek help. Wealth management will help implement and oversee your long and short-term financial goals. Just beware that most charge 1-2% fee of total assets under management.

While paying someone may seem like an added expense, think of them as a necessary sounding board to prevent you from harming yourself, financially speaking. I wish I had done this earlier but that’s a story for another day. Here’s the deal: With a double or triple income, the savings rate is more important than investment returns in your path to early financial freedom. Have a plan. Work your plan.

3. Have a business owner and investor’s mindset

As you make more and climb the tax bracket, you’ll notice you pay more taxes on each additional dollar you make. This is a good thing. Seriously, this means you’re winning at the game of life. In order to put more money to work for you instead of the IRS, you should look to tax-advantaged accounts like 401ks, IRAs, HSAs, solo 401ks, and real estate investments.

After that, you should look into investing in other income-producing assets such as stocks, bonds, real estate, gold, crypto, or even buying a business. Some can be more tax-efficient than others. However, as an investor, I’m always reminded that taxes are a secondary consideration when making investment decisions. Don’t let the tail wag the dog when it comes to tax efficiency versus investment risks.

Finally, it’s important to understand that the US tax code rewards business owners. Thou shalt be a business owner, even if you’re just a company of one or a solopreneurship. The kind of business write-offs and expenses a business owner can book is way more advantageous than a W-2 employee.

Key Takeaways

Having two or more incomes is like owning a personal ATM. This will allow you to pay off debt fast and start saving and investing aggressively. Quick recap:

1. Mind your Js and how much you get paid by always interviewing
2. Budget your splurges and have expense controls
3. Use automation to pay down debt and save for a house or investing
4. Have a gameplan and path to get out of debt with the least mental resistance
5. Set savings goals and formulate a long-term investment and financial independence plan
6. Think like a business owner and investor

That’s it, folks. Don’t squander this golden opportunity with frivolous lifestyle creep. Secure the flag first and then go celebrate.

What if you’re able to hold down three jobs simultaneously? Now the math gets even crazier!

Got tips or a get-out-of-debt story to share? Comments below.

This article was written with the assistance of Alicia Conner