Have I talked about the big emergency fund yet? I know that I mentioned step 1 very briefly. That particular emergency fund was a smaller amount of $1000 or so. I also discussed step 2, which was the debt snowball. Again, AMAZING step. But now on to STEP 3!
Step 3 is the BIG emergency fund. The big daddy. It’s supposed to be 3-6 months of savings. It’s a buffer between you and the unexpected. It’s to keep life on track instead of throwing it way off course when the unexpected financial crisis happens. It is said that 78% of us will have a major negative financial event in the course of a decade so the chances of you having one are pretty good. Again, this fund is for financial emergencies. These bigger emergencies would be illnesses or long hospital stays, car repairs, home repair, property repairs, asphalt paving (you’ll get that in a minute), or just plain old bill pay during job loss! Usually it’s something unexpected. Car registration fees do not come out of an emergency fund. Those are something you would prepare for and budget in. Now, you’re supposed to have this big emergency fund in place before you buy a house. However, some people already have a house before they’ve run into the Dave Ramsey program. That’s okay, just start the steps from the beginning and you’ll get here.
In my last post I eluded to the next step being about money going toward debt. However, I should just say that before you start this, you should have $1000 in savings just in case of an emergency. That is STEP 1. Anything else that might have been in savings will go toward this debt snowball in STEP 2. If you have an income that fluctuates on commissions like my good friend who owns a tree removal service company, you’ll want to have a bit more in savings for slower periods in your work. There are some weeks where he’ll have no work and other weeks where he’ll be really busy. Careers like his or those on commissions, etc. are examples of when to have a slightly higher savings to start.
On to STEP 2 – The Debt Snowball.
I know I’ve talked about cash purchases before. I’d like to just talk about how amazing it is again. I can’t urge you enough to get that snowball rolling. It is so amazing to see the debt dwindle.
We use cash only and we have a bit more in savings than you should with our constantly different income levels per month. But whenever we need to purchase something larger, we always have the cash. I’m not talking cars or anything, just an appliance, or a mattress….stuff like that. We decided to upgrade one of the beds in our house for guests. The old us would have put that on a 0% interest financing card and paid it off in little installments over a few years. The new us walked right into the store and picked out the mattress and paid in cash. It’s ours! Right now! No waiting! No owing! What a fluffy, happy, shiny, feel good feeling.
No matter the purchase (except for a house), cash is king. Another thing about cash, at the grocery stores I’ve run into a few instances where their machines were down and guess who was the only one in the store who could still purchase their groceries? Me! I remember when no one accepted debit cards, now everyone uses them without thinking about the dollar amount going on them.
I have some friends who say they could never do that because they’re too afraid of money getting stolen from their bags. How often have you had money stolen from your bag? Never? Then I wouldn’t worry about it too much! If you just can’t get past it, carry smaller amounts out of the house. The amount it saves you in the long run is worth it.
My new mattress is mine. My car is mine. Everything in my house is mine. And that last debt keeps dwindling. There’s nothing sweeter except maybe my children.
What are you waiting for?
In my last post, I talked about the debt snowball. Now, we’re still in this step a year later and many are in it for over 5 years! Some are only in this step for less than a year. However, if you’re in for the long haul, it’s the little wins that keep you going …. along with your blow money 🙂 The best part about that step is that you feel as if you’ve had a raise! You no longer feel like you’re living from paycheck to paycheck. You start to feel a burden lifted as you cross those debts off and cut those credit cards up. You can see the light at the end of the tunnel. Some see the progress and it fuels them even more to go hard core. I’ve heard stories of lawyers delivering pizzas at night for years to get rid of those student loans. People take on dog-walking and all kinds of out of the box ideas to help with that snowball.
If the snowball is going to take a while, don’t get discouraged. Keep a chart and mark off every $100 or $1000 paid toward debt each paycheck. Keep a marble jar where each marble represents an amount of money and remove it as you pay it off. WATCH YOUR PROGRESS. SEE THE DEBT DWINDLE. KEEP GOING! We’re still working on ours and we probably will be for another year. Hallelujah for that raise! We can do this!
For encouragement, listen to these debt free screams.
In my last post, you read about the book that changed our life. One of the first things we learned, that we had never thought of before, was that cash is king! We had used cards our whole life and never thought about using cash at all. So we hopped onto this cash bandwagon….drank the juice so to speak…. and threw our doubts of success to the wind.
The very first thing we did was call up our credit card company and cancel our cards. ALL OF THEM. Cut them up and DONE! No emergency card or anything. It was kind of scary but felt so good! We had been using them to build our credit back up after a business bankruptcy, so we had been using them A LOT. Problem was – every month we had a large credit card bill to pay and that was always painful! We never accounted for what we were spending or set money aside to pay the bill when it came due. So, we spent and borrowed and paid the large bill and had always nothing left. Another big kicker…studies show that when you’re using a card, ANY card, you spend approximately 25% more. Crazy!!! But it makes sense! You don’t really pay attention to what you’re spending when you’re swiping a card. But do this – go to Target WITHOUT your wallet, only your cash and see how closely you pay attention to what you’re spending then…you’re calculating every penny! I’ve done it and totally makes sense! I’ve been careful to avoid Target by the way, because I always spend money on what I don’t need there. However, I have gone there with only cash and ended up spending a good amount time standing at my cart sorting through what was necessary and what was not! That was a life changing experience in how important it is to use cash when spending. The only thing we use a card for is gas and that’s because I don’t like to leave my kids unattended in the car.
Now that we knew we needed to stick with cash, we had to figure out how to use it. How much cash? Where to put it? Luckily we had been using Quicken for a while so we were able to see what we had been spending on groceries etc. BUT, we wanted to lower that amount a lot. We just went with a number lower than we had previously spent and took the cash out of the bank. I got some cool envelopes on etsy.com to keep it all separate. Those aren’t mine exact envelopes, but you get the gist. We split our spending money into 4 categories….GROCERIES (basically anything you can buy at a big grocery store), MISCELLANEOUS, DATE NIGHT and BLOW MONEY. The blow money is money that my husband and I each get to spend on whatever we want, no questions asked. If you can’t have a little bit of fun money, it’s hard to stick with the process. The rest of our spending is bills only usually paid online. Whatever is left after bills are paid is what we take our cash out of. Now here’s the good part, whatever is left after the cash goes toward debt! To be continuted…..
Budgeting. It was always a dirty word in our house. When my husband and I got married, I had a job, an apartment, a car, and NO money. He had about $600 to his name. From there we worked hard and made more money…and spent it all every single payday…for 16 years. In all this that time we went through school, then graduate school, then had kids, then graduated, and lots of moves in all those transitions. Obviously lots of money will be spent on things like that. But we could have been saving so much in all that time! I don’t even want to know how much money we wasted on eating out and shopping.
Back to the “b” word. Budgeting was never really present in our life. We knew we were spending and should be saving but we never really had a good way of doing it. When my husband graduated from medical school and landed a good job, we went and bought a forever home and a new car! Stupid, stupid, stupid. We had so much debt from school yet we said, “we’ve worked hard and deserve to pamper ourselves!”, so went into more debt. And then more when we built his practice. It seemed like a good idea and that nothing could go wrong. Then the great economic depression of our time hit and we were in a world of hurt. We had no savings, and were tapped out each and every month with all our bills. We had to sell our house and then sell our practice and we also sold lots of fun things we accumulated. We moved and moved and moved looking for the right opportunity to be our golden ticket. And then we found his book. Continue reading
Welcome to Pull My Blog! I’m starting this blog in hopes of sharing my thoughts and lessons learned regarding budgeting and debt payoff. The posts will be random I’m sure but will always tie in with something regarding wise money practices. Honestly, I chose this domain name because it had some old power to it and was hoping to drive traffic to me that way. We’ll see if it works! Looking forward to sharing! Check back tomorrow for more content!