Numbers...Money...Debt

Let's talk about a few of my favorite things today...

There is someone that Tate and I invited into our home almost a year ago. I haven't really spoke about it because it can be a touchy subject for many while others talk about it freely. Tate and I do not talk about it freely. We actually kind of kept it to ourselves and if people asked about it...that is when we would talk about it.

I'm ready to share and talk about it for a few reasons. One...because this is my blog for documenting our life and all the great and not so great things that happen and Two...because I would like to 'pay it forward' and hope that someone else out there can benefit from it.

This 'someone' that we invited into our home was Dave Ramsey. For those that don't know, Dave is what we would consider our financial advisor even though we have never met him (I did call and talk to him on his radio show...loved that). I was introduced to Dave Ramsey about 2 years ago. I was given one of his books and didn't really read it and gave it back to the person that gave it back. Then about a year ago, I once again was introduced to Dave through a co-worker who was going through one of his classes and I decided to check him out. I am so glad I did.

A few things to keep in mind...

1. I have ALWAYS been a numbers person. My junior year in high school I knew I wanted to be an accountant...so playing around with numbers and doing math is my kind of fun :)

2. Tate and I had been already doing a budget and trying to pay down our debt before we were introduced to Dave Ramsey, but after learning more...we decided to accelerate it!

3. We didn't have a HUGE amount of consumer debt to begin with. Tate had scholarships for college (football) and took out student loans for 'spending' money (bad idea) and I paid towards my student loan all through college because I worked over 30 hour weeks in college. By the time we started Dave's plan, my student loan was already paid off, Tate's was already chopped in 1/2, we had a loan on Tate's car that was not too high and a few minor credit card purchases. I would say we had only had about $20k in consumer debt, if that.

Instead of actually going to one of Dave's Financial Peace classes, Tate and I decided to read some of Dave's books. The book that I read that really spelled everything out for us was 'Total Money Makeover'. I love this book and am actually considering reading again to just refresh myself with everything.

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What I like about Dave...is he has 7 simple baby steps to follow. I really liked that it was simple and laid out for you. All we had to do was follow these baby steps (and take on other habits he recommends) and we would be on our way to financial freedom. Dave is all about being debt free...which we are too. We have no desire to ever take out a loan ever again on anything! Not a car, no interest free financing credit cards, nothing. If we can't afford to pay cash, then we can't afford it.

Dave's 7 Baby Steps

Baby Step 1: Save $1,000 into an emergency fund
This is for emergency use only while you pay down your consumer debt.

Baby Step 2: Pay off all consumer debt
This includes every debt you have except the house. All credit cards, student loans, cars, etc. Pay off the smallest first and work up to the largest. Dave calls this the debt snowball.

Baby Step 3: Save 3-6 months of expenses into an emergency fund
Once you are debt free except your house, save 3-6 months of your expenses into a general savings account. Don't put it in a CD or something else that the money would be restricted. If an emergency happened (whether that would be the loss of a job, medical, etc.) you would need to get to the money right away.

Baby Step 4: Contribute 15% of your gross pay to retirement
Dave recommends to put your retirement saving on hold while you pay down your debt. Once that is paid off and you have your emergency fund, contributing 15% should not be a problem or feel like such a significant amount.

Baby Step 5: College savings
Dave is big on teaching your children good money habits. There are ways to get through college without having to take out loans. He actually has a whole program on just that. This step is to start putting away money for college savings for your kids in a 529 plan or education savings plan.

Baby Step 6: Pay off your mortgage debt
Imagine having your house paid! Does that not bring a smile and joy to your face?! We just think of how that money could go to better use than giving a HUGE amount of interest to a bank or mortgage company. Every year when I see how much principal vs interest we have paid on our house...I cringe.

*Baby steps 4-6 can be done in conjunction with each other*

Baby Step 7: Build wealth and give
Keep contributing to mutual funds, retirement and give

Since we already did a budget and were paying down debt, you may wonder what we did different once we took on Dave's plan.

What we did & continue to do...

1. We started the baby steps. We follow them just like the say and in that order.

2. We started Dave's envelope system of cash for food, gas, personal and recreation. I use an excel sheet that I found online that uses Dave's plan and the amount we budget every month for those 4 categories get taken out the bank account every month and put into a respective envelope. We only spend what is in that envelope each month for those categories. I was hesitant to start this, but it's working great for us.

3. I listen to Dave's radio show everyday at work from 1-4. It makes my afternoon go by really fast and I learn so much information from other peoples stories. I also love the phone calls of the people that are on baby step 7 or even just finished baby step 2.

4. Have monthly budget meetings. Tate and I sit down once a month to go over the budget for the next month. It's awesome to do this together. We both are on the same page when it comes to our finances and have the same goals. We look forward to our future even more now...

Tate and I hit a HUGE milestone in our finance journey...we just finished BABY STEP 3 and we can't believe how much this plan works for us and how happy we are that we are following it. We currently have no consumer debt, have 3-6 months worth of expenses sitting in a regular savings account and I have started to contribute to my 401k at work. We are just beyond thankful and blessed that we found this!!!! This also means we hit one of our 2013 goals...and we did it 1.5 months ahead of schedule!!!!

Some of Dave's daily tips that he puts on Twitter, Facebook and Pinterest

Since we are currently expecting, Dave recommends putting the baby steps on hold until mom and baby are home from hospital healthy and well. He advises to just to save save save until that day and then use that savings to put towards whichever baby step you are on.

We plan to just keep saving until I head back to work from maternity leave. At that point, we will be contributing the full 15% to retirement funds, contributing money to a college savings for our lil' guy and then putting extra money each month towards the mortgage (baby steps 4-6). Considering we just bought our house 3.5 years ago, we have a big mortgage to pay down and it will take awhile.

This plan is working for us and it may work for you. I was not paid or asked to talk about this. I just love doing this stuff and if this is working for us, it may work for you. There are many people all over that are using Dave's plan and your church just may be offering his class.

*The average American has more consumer debt then we did and takes about 18-24 months to pay off with Dave's plan. I feel lucky we had already been making some smart decisions before being introduced and it didn't take long to get to the end of baby step 3.

To really follow Dave's system, I would definitly recommend reading his book or attending a Financial Peace class.

 

It really does take sacrafice, discipline and hard work. But the reward is amazing!