My Dave Ramsey Journey
I wanted to blog about my Dave Ramsey’s journey and how it changed our family’s life. No longer do we stress about money! We know where it is going to go every month. Like Dave says “you are in control before the month starts, but as soon as you write that budget it will tell you what to do.” Every month I do a monthly budget and break it down to each pay period. I like to live life a little loosely so I keep a slush fund for things that may come up in the month. The budget makes sure I get every goal set in the budget before I start adding the slush. Usually, it's about 50 dollars.
But before I ramble about how much it has changed our lives I want to get the basic foundation of the plan. Dave breaks it down into baby steps. I like to think of his plan as a proactive approach to finances other than the reactive approach.
The Baby Steps
Baby Step 1 -1,000 Emergency fund. This is a very small emergency fund but it should cover most emergencies not forecasted in your monthly budget. If you find yourself in an emergency that is over 1K you will stop all debt payments and just pay the minimum till you can cover that emergency. The goal is not to go into more debt once you commit.
Baby Step 2 - Pay off debt! Everything, except your home. After you have your 1K you will start paying off your debt. You will pay off your smallest debt to your largest debt. NO interest rates do not apply here. The reason being you will get more traction every time you pay off a debt. As dave says, “Attack the littlest debt with a vengeance”. If you have any savings over the 1K you will put it on the debt. I know this one is a hard one. Don't do it unless you are committed to the plan, it will help you get out of debt faster.
Baby Step 3 - 3 to 6 months’ worth of expenses in a savings account. Yes! This way when an emergency happens, you don't have to take out credit cards or loans to get you through. You just pay with the savings and pay it back. We are finished with baby step 3 and now that I have it stored away I will do whatever it takes to not take it out.
The next steps you will do all together. Steps 4-6
Baby step 4 - 15% of gross income into retirement. That can be your employers’ 401(k), A SEPP(self-employed IRA) account or a regular IRA. This sets you up for the future.
Baby Step 5 - Save for kids college. You can put aside 2,000 a year per child. Dave recommends you put this into mutual funds so it can grow tax-free under a product called an ESA (Educational Savings Account) This is something a financial advisor can help you with.
Baby Step 6 - Pay off that House! After you have completed baby steps 1-3 and have 4 and 5 in place. Anything extra will go to your house. Usually, people have their house paid off in 7 years after they have finished the baby steps.
Baby Step 7- Build wealth! This can be a mix of things if you are into real estate you can purchase rentals (with cash) Vacation homes, put extra money into the stock market (mutual funds.) This is where you really live like no one else.
The Tools You Will Need
So what tools do you use for this plan??…. BIGGEST ONE is the budget. First of all, you have to know where your money is going. Sticking to the plan, at first we had a really hard time saying no to things. We loved eating out but that gets really expensive.
Another one that I learned was delayed gratification. I really sat and thought about things before I purchased them. I would look for ways to purchase it cheaper or just go without. Just recently we needed to purchase a coat rack for my son’s room. We were just going to go out and buy him one. But we waited and my husband came up with a great idea. He had some pinewood out in the garage he stained it and put 7 hooks on it. We already had one in the laundry room, it only had 3 hooks. So we moved the small one to my son’s bedroom and put the big one in the laundry room. Saved us about 30 dollars in a new coat rack. When you put your money on paper it really makes you think about if you really need it or if it can wait.
Dave’s plan really changed our lives. We cash flowed preschool for my son, a week-long vacation, and saved up money for my husband’s slow time. Without this plan, I wouldn't be able to do my side business because I would be working full time. We would be a slave to all our cars and my credit cards. My husband wouldn't be able to start his own business. Being debt-free has given us the freedom to make choices out of facts and wants for our lives and not out of fear. Never again will I take out debt for anything. If I can't pay cash for it I don't need it. If I really need it I can save up for it. The book that started it all for us ‘The total money Makeover’ By Dave Ramsey himself. Check him out!
I know everyone has different views on how finances should be handled. I wanted to share how this adjustment changed our lives. I still work with women who have debt, this is a non-issue. I used to give people loans every day. This was something that touched my heart and I will be forever grateful. If you have any questions I’m willing to answer.