My aunt gave me the entire Dave Ramsey series when I was still in high school, and I did what any normal kid would do... I pushed it to the back of my mind. A couple of years, marriage, school, house, children, and a lot of debt later, I got to a point where I was just overwhelmed, but I remembered my aunt discussing Dave Ramsey.
I decided to listen to the audio book (that I loan for free from my local library) and set out on a mission to help our family become debt free, and live like no one else.
Dave Ramsey's plan is made up of what he calls "baby steps." The idea behind the baby steps is that looking at your entire journey can be a daunting task, however breaking them down into baby steps helps to see the larger, more attainable, picture. Today were going to talk about the baby steps! :)
Baby Step 0 - This one isn't listed in Dave's book per say as a baby step, but after researching and looking throughout the #debtfreecommunity - it is a VERY important step. You need to sit down, and figure out a written budget. Write down your income (if it varies, average the last six months), what bills need to be paid, and find out how much extra you have left over each month. For us, I sat down and looked at bank statements to figure out the average we had been spending over the last few months and honestly, some of the numbers were shocking.
Baby Step 1 - Save $1,000, and save it FAST! One of the large reasons that many of us are in debt is because we have no savings (or we don't want to touch our savings), we when an unexpected expense happens we think it is easier to but it on a credit card or take out a loan. Sell what you can, cut back where you can, and get $1,000 and put it away fast, and do not touch it unless it is a true emergency.
Baby Step 2 - This is where you start paying off that debt! After you have made your budget, and saved your $1,000 you are going to list all your debts from smallest to largest (except your mortgage.. that comes later), and start to attack the smallest debt. This is called the debt snowball, because after you have paid the lowest balance, you are going to roll whatever minimum payment you were making on it plus any extra, and throw it at the next smallest debt. A great tool we used was a website called undebt.it! This allowed us to put in all of our debts, their minimum payments, their interest rates, and what we were able to pay a month and actually see the snowball. We loved playing around with it how just throwing an extra $100 a month towards our debt would help our debt free date move up closer. We were also able to see how the debt avalanche (paying off highest interested rate first instead of lowest balance) would work, and shocked to see that it only brought our debt free date up one month! We decided to go with the debt snowball as we felt it would keep us motivated to see quicker results.
*Side note... I had to realize at this point that this is a journey, and every ones journey is different. Tyler and I have about a four year journey on Baby Step 2. While I love the #debtfreecommunity, when we were first starting it was very disheartening to me to see people becoming debt free quicker than I would be. I finally had to have a reality check... in four years, I will be 32 years old. While I would love to be debt free now at 27, how amazing would it be to be 32 and have no debt except my home?! I had to realize that comparison was the thief of my joy, and learn to celebrate with those who had a different journey than my own!
*Side note 2.0... We found that for our family, adding in "sinking funds" in our budget also helps. This is for items/purchases that may not be needed monthly, but that we want to be prepared for. We set aside money monthly for our car taxes, gifts, and vacation. We plan to start a sinking fund for home and car repairs soon, as these are things that come up that would hinder our debt snowball and we would like to have money set aside for these!
Baby Step 3 - Now that you've paid off all of your debt, you are going to on your fully funded emergency fund. This should be 3 - 6 months of expenses for your family. This means sit down, look at your budget, and what amount would it take for your family to live comfortably for 3 - 6 months if an emergency cause you to not have an income? Throw all of your money that you were throwing towards debt into this account.
Baby Step 4 - 6 - I am listing all of these steps together, because these three can be (and in my opinion, should be) completed together.
- Step 4 - Contribute 15% of your income towards your retirement. Dave Ramsey has some great ideas and tools about where to invest this and it be tax free. To be honest, we have not looked into this much yet.. but it is definitely something that the closer we get to this step we will do more research about where to save our money to! The goal is to be able to retire a millionaire.. and honestly thinking about that gives me chills.
- Step 5 - Contribute to a college fund for your children. Again, Dave has some great ideas about where to put this money... but it is not something we have researched so far. He also does not tell the exact amount to save. This step is a personal choice based on what you feel your child/children will need for their education. It is something we haven't discussed and talked about much yet.. but I will update when we do!
- Step 6 - Pay off that mortgage! Put every extra cent you can above your retirement fund, college fund, and monthly bills towards your mortgage and pay it off.
- Save, and pay cash for a home remodel - We live in a 2 bedroom / 2 bathroom home. We would love to remodel our home to be three bedrooms and give us a bit of extra space.
- Save, and pay cash for a family vacation - I would love to take the girls to Disney World and do/enjoy all the things knowing we aren't racking up on debt. Tyler may disagree about the destination though... #girldad
- Random acts of kindness - I love seeing these on the internet. While I know some can be done for small amounts, I want to be able to have large amounts to give and make people's day
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