To date, I have never heard Dave Ramsey’s radio show or listened to a podcast. My Dave experience is limited to reviews from other bloggers, The Total Money Makeover and the Financial Peace University CD’s , both checked out for free from my local Schertz library. I have to say, I love me some Dave.
Dave Ramsey’s methods are very easy to follow: save an emergency fund and make a realistic budget so you can stop using credit (this is key, you MUST stop borrowing money), then use the “snowball” method to pay off all debt except your house, then save 4-6 months living expenses, then fund your retirement,then fund your kids college, then pay off your mortgage, then invest to your heart’s content in your debt free, fully paid for, millionaire next door lifestyle. Pretty sweet sounding, right?
Reading Dave’s step by step plan lit a fire in me to get on track with paying off our car and student loan and stop using our credit cards, even though we paid them off every month. Life is simpler when lived forwards, not backwards. We set up a new checking account just for gas so we would have a debit card to pay for gas at the pump, as this was the main reason for using our credit card. We started setting aside money in savings accounts and envelopes for expected expenses, such as medical costs or car repairs, instead of lumping it all together into one savings account. We brought our savings account down to $1000 (the first emergency fund you set up in step 1 of Dave’s plan) and sent the rest to our van loan. We plan for expenditures. We budget money in little envelopes for clothing, home improvement, medical, donations, miscellaneous, and groceries. We use online savings accounts for vacation, car repairs/new car fund, my self-employment taxes and gifts/Christmas. I know it might sound complicated, but I like having little places to put the money designated for different purposes. Dave says it best: “Tell your money where to go, or you will wonder where it went!”
We had been using the “snowball” method to pay off debt in the past, so this was not a change for us. Basically, you gather all your extra money after you budget your necessities, and send it to the smallest debt to get it paid off first, while sending minimum payments to your other debts. Once the smallest debt is knocked off, send that amount to the next smallest debt, get it paid off and send the now larger amount to the next debt, and so on. Watching your debt go away is encouraging, so paying off the smaller debts first is more motivating than taking longer to pay off the larger debt that happens to have a higher interest rate, for those that argue paying off highest interest ratesfirst is better to do. The point is to get out of debt as fast as you can, so it does not matter which rate is higher, just get out from under paying interest all together!
So far, it has been working great for us! We paid off our van this past week, fourteen months after we bought it. We are saving to purchase my husband a new car, and still have one student loan to pay off. We already had the 4-6 months of living expenses in the bank from the sale of our first house, and we have not touched that. Dave does recommend using it to pay off your debt sooner and then rebuild it after the debt is gone, but I did the math and the time table is the same both ways, so I chose the safe path of keep salary replacement in the bank and take longer to pay off debt. We only one debt left to go, a student loan, before we can proudly say we are debt free (except for the house, since the equity in the house outweighs the debt of the mortgage). We have more control over our money than ever, and I really feel a sense of peace and freedom in our finances, that we have a destination and a map how to get there, not just a sense of “someday”. We have to decide how to spend our resources, whether time or money. Sure, we do not have smart phones or cable, but I would rather have two paid off cars right now, because that is what works best for our family now. That is really the key, setting financial goals and coming up with a workable plan (i.e. a real budget) to get there.
I highly recommend checking your local library for Dave Ramsey’s books (I read Total Money Makeover and Financial Peave Revisited for free this way) or CD’s of Financial Peace University to review Dave’s information for free. He has a website here and many of his items can also be found on ebay or Amazon. Our neighbors took the Financial Peace University course after reading Total Money Makeover and they loved it. Which ever steps you take towards financial freedom is better than no step at all, these steps just happen to be simple to follow.