Not Keeping up with the Jonses- Making the Halfway Mark in your Debt Snowball

I am more than thrilled.  12 months into starting Dave Ramsey’s Baby Steps’ Plan my husband and I are more than halfway through our debt snowball. What does that mean exactly?  It means that we have paid off more than half of the total amount of debt we started off with as of July 2014.

What is a debt snowball?  A debt snowball according to Dave Ramsey’s baby steps is when you list all of your debts (not including your mortgage) from smallest to largest and start paying them off in that order (regardless of interest rates).  You make minimum payments on all debts except the smallest and you throw all the money you can at that smallest debt.  When you knock out the smallest debt you take the amount you were throwing at that debt add it to the minimum payment you were making on the second smallest debt and work on that one.  You continue to use this method until you have knocked out all your payments.

For more visual learners, it looks something like this. . .

Debt                      Debt Amount                Payment Amount
1. Credit Card 1        $1,000                           $500 plus any extra at the EOM
2. Credit Card 2        $2,500                          $150
3. Student Loan        $5,000                          $180
4. Car Payment         $8,000                          $400

When you pay off debt number 1 after 2 months your revised snowball looks like this. . .
1. Credit Card 2       $2,200                            $650 (500 +150) plus any extra
2. Student Loan       $4700                             $180
3. Car Payment        $7354                             $400

It’s an amazing simple process.  I only wish I had begun it sooner.  Now we just have to keep trudging along.  2 debts left.  I feel so much lighter than I did a year ago.  I feel smarter (for having started this plan).  I feel more in control of my life and I definitely feel more in charge of my finances.   It is possible tp regain your finances, to take back control of your life.  You just have to take the first step.

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Not Keeping Up with the Joneses- If you’re Broke, do something about it!

I’ve recently witness a few situations which leave me a little flabbergasted.

Case Number One: The case of too much house.

We recently had some friends we know move into a bigger house.  It wasn’t unreasonable for them to want to move.  Their family had rapidly expanded and they felt they needed the space to accommodate the expansion of family.  They sold their old house and moved into the new house. It was only when tax time came around that they realized they might be in over their heads.  The housing market in our area right now is booming and most houses have gone up considerably in value.  The rise in home values is great, but it also comes a bigger tax bill.  These friends do not have an emergency fund in place and when they were hit with the increased tax bill discovered that they were drowning in a lack of funds.  Despite this money problems the friends have not seemed to change their lifestyle to accommodate for the problem.   They don’t seem to have cut down on extra curricular activities or outings and they haven’t picked up an extra job that we know about.  They continue mini vacations and shopping sprees, and then vent about how stressed they feel.  I think “trapped” is one of the words that was used.

Case Number Two: We’re financially strapped considering a move and career change.

In one of the groups I’m in a lady posted about moving to Texas from her current location.  She lives in California and would like to be closer to some family.  Her husband has a good job at which he makes $100.000 /year.  She said that between their mortgage, two car payments and medical bills it’s hard to make ends meet, because California is just expensive.  Her husband is older and doesn’t want to move unless he can get a job paying the same amount.  I don’t blame him, in fact I totally agree with him.  What I don’t understand is, if you can barely make ends meet how are you going to finance a trip to Texas to check things out?

It wasn’t too terribly long ago that I could have been one of these two people.  It seems like forever ago and yesterday that I felt like I was drowning in debt and would never live life without a payment plan.  Let me tell you a secret. . .The truth is you don’t have to be one of these people and if you are one of these people you can change your situation.  My journey started by reading The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness by Dave Ramsey.  I will never forget reading about people who felt “sick and tired of feeling sick and tired”.  This resonated with me.  Thinking about finances and paying bills had been sucking the life out of me and I didn’t want to live that way any longer.  I shared the book with my husband and got us started on our own money make over.

I will warn you, it’s not easy and there are times that we falter and don’t stick exactly to our budget.  There are times when I feel like we don’t make progress with our debt because mayhem happens and we have to cash flow something instead of attaching our debt.  (But even being able to cash flow unexpected things like a $1000+ car repair bill wouldn’t have been possible without this plan). When I look at our progress over the past year (and really we didn’t even hit the plan hard until January) and see that we are almost to the half way mark (meaning half of our debt is GONE!) I get a little fluttery.  I feel so much more relaxed.  I actually enjoy life more knowing that I can and will be debt free soon.  I no longer stress and obsess over money like I did for so many years.  And recently a friend commented on how relaxed I seemed, and I shared what I was doing with her.  I feel blessed and you can too!  You can change your spending habits.  You can make a budget (Dave Ramsey makes it easy with his FREE budgeting tool http://everydollar.com) You can pay down your debt and become debt free.  You just have to take the first step!

Learning to Live on a Budget

My husband and I are weird.  I mean really weird.  We live in a small 1950′s house that isn’t perfect and requires us to do manual labor on a fairly regular basis.  Our newest addition to our vehicle fleet was a 1990′s Chevy truck and our newest vehicle by age is from 2004.  We don’t do flashy.  We don’t care if our lifestyle impresses our friends and neighbors.  My husband and I try to live within our means, pay off debts from past mistakes (of which there were many) and look forward to a debt free and prosperous future.

This journey isn’t always easy and we stumble and bumble along the way, but we have each other to report to, so we stay in line for the most part.  If we want something we wait until we have the money to buy it.  We sacrifice, a lot, but we’ve already paid off around $10,000 in debt and for the first time in almost 14 years I don’t have to stress about if there will be enough money to make sure all the bills will get paid.  A huge weight has been lifted off my shoulders when it comes to finances and I can see the light at the end of the tunnel and that light is debt free living!

For us this journey started with Dave Ramsey’s book The Total Money Make Over (http://www.daveramsey.com/store/books/dave-s-bestsellers/the-total-money-makeover/prodtmmoclassic.html).  The book resonated with me so loudly as I read about how people, just like me, “were sick and tired of being sick and tired” when it came to their finances.  I decided to take the plunge and try Dave’s plan.  His babysteps are:

1. Save $1,000 Emergency Fund
2. Pay off all debt using the debt snowball
3. Build a cushion of 3-6 months of expenses
4. Invest 15% of your income into retirement
5. College Funding for the Kiddo’s
6. Pay off that House
7. Live and Give like no one else.

(You can find out more about Dave and his plan here at his website http://www.daveramsey.com/home/?snid=home)

The biggest challenge of Dave’s method is the budget.  It challenges you to make your money work for you instead of it just magically disappearing after each payday, but it works.  If you sit down and write down where you want all your money to go and then follow that plan over the months, your money starts listening.  You don’t have to figure out where it went anymore because it all has a place to go.  For me being a bit of a nerd, writing the budget down is the easy part.  Sticking too it is sometimes a little more challenging.  It took a few months to catch on as sometimes unexpected expenses do arise and when that happens you have to go back to the drawing board and rework all the numbers, but if you stick with making a budget and living off the budget I promise it helps!  Dave has made budgeting even easier with his new budgeting software Every Dollar (http://www.daveramsey.com/everydollar/?ictid=ag43). Check it out, it’s FREE.

Now, I won’t lie and say I follow Dave’s plan perfectly because I don’t always.  I went a little out of order on my debt snowball and my emergency fund might be a little bigger than $1,000 but in my case we have expenses that come up quarterly or yearly so those expenses have beefed up our emergency fund so that we have them when the payments come due.  I’ve also learned how to work a little magic with money since starting Dave’s program, so often the money earmarked for the quarterly expenses can stay in the savings account and I can wiggle the expense out of the monthly budget.  This plan really has changed my life.  Stress has decreased drastically and my husband and I fight less about money because we have a common goal we are working towards. Communication is key!  So I present this challenge, if you were like me and are “sick and tired of being sick and tired” when it comes to your finances, give it a try.  It can’t hurt any worse than what you’ve already done…

Peace and Blessings!