This story is part of CNBC Make It's Millennial Money series, which profiles people around the world and details how they earn, spend and save their money.
In January 2020, Marek and Kothney-Issa Bush, both 28, had a lot going for them: The couple started the year completely debt-free, having paid off the last of their $125,000 debt in 2019. They earned a combined income of $56,000 and had settled into life in a tiny home community in Lake Dallas, Texas.
But then the coronavirus pandemic hit.
By March, their lives had dramatically changed. Kothney-Issa had lost both of her jobs working at a restaurant and a bar. And the national retailer where Marek worked as a theft and fraud investigator shuttered all of its locations. He'll get paid for the next two weeks, but after that, he doesn't know.
"It could be way worse than just losing our jobs for a few weeks or a month," Kothney-Issa says. "It could be way worse if we're not taking this seriously. It's been a roller coaster of emotions, to say the least."
'Oh my gosh, I'm not making any money'
The Bushes estimate that they've lost about half of their monthly income so far, due to the effects of the pandemic. At the start of the year, Marek earned a $36,000 salary for his full-time job. Kothney-Issa worked as a server at a local restaurant, and she was on track to bring in around $20,000 a year. She also tutored on the side and was preparing to get certified to teach in Texas, where the couple moved in October 2019 after living in Florida for several years.
Before the pandemic, the couple enjoyed having some wiggle room in their budget after spending two years cutting every possible expense and working multiple jobs to pay off $125,000 worth of debt. They were still careful with their money, buying clothes at Ross and hitting up happy hour. But the Bushes were able to put around $600 per month toward discretionary spending like dining out.
Here's a look at their typical monthly budget, as of January 2020:
- Savings: $740 (5% of Marek's paycheck went into his 401(k) and the couple put an average of about $600 a month into their emergency fund)
- Insurance: $696 ($460 for health insurance, $24 for dental, $137 to cover both cars and $75 for one month's worth of the $900 annual homeowners insurance payment)
- Discretionary spending: $600 (Includes anything extra, such as dining out, drinks, movies, clothing, etc.)
- Housing: $590 ($500 for the lot for the tiny house includes water, sewer, trash and laundry; $90 for utilities includes Wi-Fi, electricity and propane)
- Giving: $500 (They give a $300 tithe to their church and $200 to Kothney-Issa's sister, who is a missionary)
- Groceries: $350
- Unexpected expenses: $200 (Includes household supplies, home and car maintenance, etc.)
- Phone: $145
- Gas: $130
- Gym: $20
Losing their jobs forced the Bushes to cut their spending dramatically. They dropped their budget for discretionary spending from $600 to $150 ("If that," Kothney-Issa says), eliminated all spending on unexpected expenses, canceled their gym membership and are temporarily taking a break from saving. They were also able to put a pause on the insurance for one of their cars, so they're only driving one for now. Donating to their church and supporting Kothney-Issa's sister is a top priority for the couple, so they're keeping it in the budget for now.
And thankfully, they don't have to worry about car payments or a mortgage since they finished paying off those two big debts last year.
Here's a look at how their revised spending will break down for April 2020:
- Insurance: $568 ($460 for health insurance, $24 for dental, $84 for one car. They don't have to worry about homeowners insurance this month because it's paid annually.)
- Discretionary spending: $150
- Housing: $590
- Giving: $500
- Groceries: $350
- Phone: $145
- Gas: $130
In many ways, cutting back wasn't difficult for them. "Throughout the whole debt process, we learned how to not spend money," Kothney-Issa says. "Now we're able to snap back and do the exact same thing that we were doing before and not really feeling the pinch of it."
But it's still a difficult and uncertain time. "When I got those two jobs, never once did I think that I would be back in a position where I'm like, Oh my gosh, I'm not making any money," Kothney-Issa says.
The Bushes have about $5,000 in an emergency fund, but they're determined not to touch the money unless they absolutely have to. Instead, they plan to look for work in industries that are still hiring, such as logistics or security. Ironically, their primary financial goal before the pandemic was to build up their savings.
They also plan to lean into their YouTube channel, Living Tiny with the Bushes, which they started in September 2019 to share their experience paying off debt and living in a tiny house. They were able to monetize the channel last month, bringing in around $500.
"This is something that we can do from our home," Kothney-Issa says. "Hopefully people stay at home and adhere to the rules and maybe watch our videos."
Still, the future is unclear. "We gotta keep fighting financially and keep striving to get to a more stable place, because a lot of the things that we feel security in can be gone in an instant," Marek says.
'Our first two years of marriage, we just spent money'
Marek and Kothney-Issa do wish they had more in their emergency fund, but they don't regret the time they spent paying off debt, even when it meant sacrificing savings. Eliminating it well before the pandemic turned out to be a major blessing, they say.
During their debt journey, they only kept $1,000 in savings. "My thought process was always, Well, if an emergency comes, we have all these side jobs. We can just not pay toward debt for that month and just put that money toward whatever emergency may pop up," Marek says. "This situation has really shown us that the emergency could be not having any jobs at all."
The couple first met in middle school, but reconnected during their sophomore year of college. They got married in 2014, the summer after they graduated. Despite lingering student loans, they lived well, taking elaborate vacations and renting a two-bedroom 1,100-square-foot loft in Jacksonville, Florida, for nearly $1,200 a month.
"I was telling him, We need to buckle down and start getting out of debt. And he was like, No, we're young. Let's live it up," Kothney-Issa says. "So our first two years of marriage, we just spent money."
Between credit card bills, car payments and financing their lifestyle, the debt started to add up. They ended up about $70,000 in the red, spread across 12 accounts. "Every large piece of furniture that we had was all on payments," Marek says. "You couldn't sit on one thing that we weren't making monthly payments on."
They knew they needed to make a change. After laying it all out, they realized they could be completely debt-free in about four years, by 2021. But that wasn't fast enough — they wanted to do it in two.
Kothney-Issa worked as a server to earn money on the side while paying off debt.
To accelerate their debt payoff, the couple not only cut every possible expense out of their budget — goodbye Netflix, goodbye nice restaurants, goodbye travel — but they started picking up as many side jobs as they could. Kothney-Issa worked as a server and earned almost as much on the side as she did teaching. Marek found pizza delivery to be particularly lucrative and hopped from chain to chain, figuring out where he could earn the most.
They were so busy hustling, Marek's delivery shifts became one of the only times they could hang out. "I would ride in the car while he delivered pizza, that was our time together," Kothney-Issa remembers.
Marek brought in extra income delivering pizzas during the couple's debt journey.
In the midst of this, they decided to buy a custom-built tiny house for $55,000, bringing the total amount of debt they would eventually pay off to $125,000.
But all of the sacrifices paid off. As of 2019, the Bushes are completely debt-free. "It still feels unreal, like, How did we do that?" Marek says. "It almost feels like a dream."
'A return on investment in the future'
Sharing an 8 ½-foot-long home for an extended period of time might sound like a nightmare to some couples, but the Bushes are loving it.
"We've actually been having a blast in the tiny house doing the self-isolation thing," Marek says. "I don't think there's a better time to spend quality time with your family or your spouse than right now, nor a better time to talk budget and talk money than right now."
Kothney-Issa agrees. "It's a silver lining, I guess you could say," she says. "I definitely feel like, Well, shoot, we do need income and it would be great to be able to work right now. But I'm glad that we get a little break from that and get to spend time with each other."
Part of making a tiny home work at any time is designing one to fit your priorities, they say. For Kothney-Issa, that meant sacrificing a larger living room for more space in the kitchen. For 6'5" Marek, the ceilings needed to be high enough so he never had to crouch.
While the home didn't necessarily help the couple get out of debt, they knew it would help them stay out of debt. "It was really more of a thing to build income off of and have a return on investment in the future," Marek says.
They don't have plans to move out of the tiny house anytime soon, but when they're eventually done living in it, they plan to rent it out on Airbnb as another source of income.
How they can make the most of a difficult situation
CNBC Make It spoke to Barbara Ginty, a certified financial planner and host of the "Future Rich" podcast, to provide insights on what the Bushes are doing well and offer additional tips for how they can make the most of a difficult situation.
First and foremost, paying off debt put the Bushes in a good place. "The fact that they paid off all of their debt is phenomenal," Ginty says. "It really sets them up to be a lot leaner now and stretch their dollars."
Here's what Ginty recommends Marek and Kothney-Issa do next.
They should make their emergency fund last as long as possible
After cutting out all discretionary spending, Marek and Kothney-Issa believe they can live on just over $2,000 a month, which means their $5,000 emergency fund will only last two and a half months on its own. They're trying to hold off dipping into it for as long as possible, which Ginty encourages. "That's absolutely the right move," she says.
Despite the pandemic, the Bushes are smart to continue to search for ways they can make money right now. Even if they can't scrape together the full $2,000 each month, Ginty recommends aiming to cover at least 50% of their expenses between YouTube income and other gigs they're able to pick up. That will allow them to stretch their emergency fund for five to six months.
They're also smart to avoid touching their retirement savings, which is "ultimately the last place that you want to go" for cash in an emergency, Ginty says. Because they're young, they have ample time for their investments to recover. "You don't get this time back," Ginty says.
They should consider a Roth conversion
Although things are tight right now, Marek and Kothney-Issa can use this as an opportunity to take advantage of the down market and their drop in income by converting Marek's 401(k) into a Roth IRA, known as a Roth conversion, Ginty says. The $14,000 they're converting would count as taxable income for 2020, but paying taxes now allows them to withdraw the money tax-free in retirement.
The current situation makes this an advantageous time for a Roth conversion for two reasons, Ginty says. First, because the market is down, the value of their 401(k) is down from its peak, so they will pay taxes on a smaller amount. Second, because of their reduced income, they're likely in a lower tax bracket this year than they were before.
However, this strategy isn't right for everyone, Ginty says. She recommends it for the Bushes because their debt journey shows that "they're willing to make sacrifices time-wise and budget-wise to accomplish financial goals." If they get hit with a large tax bill next year because of the conversion, they'd likely be willing to pick up side hustles for a few months to pay it off. Not everyone would be willing to do that.
There are a few guidelines and restrictions to follow when doing a Roth conversion, so anyone considering one should consult a tax professional first, Ginty says.
They should try to keep their spirits up
During this crazy time, "the key is to remember not to panic, things will get better," Ginty says.
Now is not the time to start hoarding money under your mattress. Stay in the market. "You had good investments three weeks ago — they're still good investments," Ginty says. "They're just going to go down… but they're going to get better."
The Bushes are hopeful that they'll make it through. For now, they're focused on doing whatever they need to avoid taking on debt. "I would risk my life to go out there and work wherever to not have to go back into debt," Kothney-Issa says. "That's a feeling that I do not want to ever go back to."
Marek agrees: "Once that burden is gone, you want it gone forever."
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