Welcome to the first post in the new “Finances” category! It was only a matter of time before we turned our sights on tackling our debt. Financial freedom is an integral part to a simpler, low-stress, and joyful life. Anyone who has ever wondered where groceries were coming from, had creditors calling around the clock, or had the electric turned off knows all too well that there is zero peace when stressing over money. Getting our finances under control and significantly reducing our non-mortgage debt are goals of ours this year. After reading a lot about Dave Ramsey’s Total Money Makeover System, it made perfect sense to me. So we’re tackling our debt and finances using Dave Ramsey’s debt snowball method and Everydollar budget system.
Dave Ramsey’s Total Money Makeover System
I requested and received Dave Ramsey’s Total Money Makeover for Christmas. I read it in one day. Luckily for me, I love data and numbers and budgeting. When your finances are overwhelming, numbers and budgeting seems terrifying. Believe me, I know. But what’s even more terrifying, in my opinion, is not knowing where you stand with your money. Budgeting and finances are not new to me. I learned so much in my early twenties from Suze Orman’s The Money Book for the Young, Fabulous and Broke. I shudder to think what my finances might look like if it weren’t for that book. But even though I learned the importance of never missing payments, budgeting, and understanding interest rates, I didn’t learn how not to waste money or rack up debt.
Now, thanks to our more minimalist lifestyle, we’re determined to minimize our debt and spending. The allure of a debt-free life beckons me. And one specific line Dave Ramsey uses throughout his book inspires me:
Live like no one else, so you can live like no one else.
While most people we know are eating out all the time and charging crap they don’t need, we’re buckling down, further shifting the programmed consumer-driven mindset of buy buy buy, and tackling our debt. Eventually we will be able to reap the benefits of significantly increased disposable income. By living like no one else now, we can live like no one else later. Sacrifice now. Enjoy the shore house and travel later. That’s our plan. But that doesn’t mean we’re not enjoying ourselves now. In fact, we booked a trip to Hawaii for this coming December. But we’re going without adding a single dollar to our debt. Keep reading to see how.
Using Dave Ramsey’s EveryDollar Budget
So the plan is to significantly reduce our debt, but also to finish our kitchen renovation, go to my brother’s in Washington state for Thanksgiving, go to Hawaii for seven days, and have some semblance of fun and a social life. This isn’t an exercise in suffering. But in order to do all this we had to face our spending, agree on a budget and agree to work together, something Mike and I aren’t always good at.
It took some convincing but I got Mike on board. It’s both a blessing and a curse that he always left me solely responsible for handling the finances. But for this to work, I needed him to be invested (pun intended). So we set a date and sat down with the free version of Dave Ramsey’s EveryDollar budget online.
The unique thing about the EveryDollar budget is exactly that: you budget every single dollar. But more on that in a moment. Here’s how we approached our budget:
- First, we listed everything we spend money on regularly throughout the year. Much of it was obvious: credit card and student loan bills, utilities, living expenses, groceries, insurance, eating out, etc.
- Second, we thought about more random and infrequent expenses: haircuts and grooming, clothes, medical expenses.
- Lastly, we thought ahead: take Christmas for example; we all know it’s coming every year, but every year we find ourselves scrambling with the expense of the month of December. This is poor planning. So we included a line item for Christmas. And vacation, Cooper’s annual vet visits, random gifts, six month car maintenance… everything we could think of that we spend money on in a given year.
Once we debated (at length) and eventually agreed how much we should budget per category per month, there was fortunately money left over based on the figures we entered for our anticipated income. So what to do with the rest? That’s where the debt snowball comes in!
Using Dave Ramsey’s Debt Snowball Method
So you may have been told that the way to approach debt is to rank your bills by monthly interest rate totals and tackle whatever debt has the highest interest rate first. Makes sense. That’s the debt where the most money is being wasted on interest. I’ve tried this in the past. But to be honest the past few years we just sort of got into the habit of paying more than the minimums to most of our bills without really getting anywhere. There was no concentrated effort on a particular debt and we just sort of spread money around since we were still charging things. For every $300 we paid to a credit card, we charged $300.
Dave Ramsey wants you to focus on one debt at a time, so you rank them, but NOT by interest. Following his method, you rank your consumer debts from lowest balance to highest balance. That’s right — forget if you’re paying a $100 minimum payment to a credit card that accrues $65 monthly interest. Make the minimum payments only on all but the debt with the lowest balance (#1) and then put everything else you have toward that one debt, including all your remaining money from your EveryDollar budget. Concentrating your efforts in this way will knock out debts much faster and help you gain momentum. Once the first/smallest debt is paid off, all that extra money will “snowball” into what you’re already paying monthly toward debt #2 and then #3 and so on and so forth until you’re making huge monthly payments to larger debts.
Does it Work?
You decide how intensely you want to tackle your debts, but the method stays the same. Mike and I started out strong. We took some money from savings, smashed a piggy bank and rolled coin and attacked the first debt in our snowball. We paid off my Chase credit card the very first month we started and are already onto debt #2 (one of my four student loans.) The minimum payment is like $11 or something. We paid around $400.00 at the end of February.
Mike and I started out January 1 with $47,602.02 in total non-mortgage debt. By February 2 our debt totaled $44,492.37. And on March 1, our debt stood at $43,519.27 We paid off $4,082.75 of debt in two months!
We couldn’t have done this without Dave Ramsey’s Total Money Makeover, EveryDollar budget, and debt snowball method. He gave us the tools to help us stay focused and make paying down debt a challenging, yet fun, “game.” We don’t always come in under budget, but we certainly try. We could also probably tighten our belts even more, but for now, this works for us.
We’re going to continue using Dave Ramsey’s debt snowball method and living minimally now in order to live the life we want later, whatever that looks like. Even if we were to continue reducing our debt a conservative average of $1,000.00 a month, we’d be consumer debt-free in less than four years. Factor in bonuses and raises, tax refunds, and yard sales and we’re looking at living debt free sooner.
Not bad for two people under 45. That small shore house in our favorite beach town looks more realistic every day…
