Saturday, February 22, 2014

Starting Step 1 of Dave Ramsey's Baby-Steps to Financial Peace


I am so excited to be writing my first post about our journey to financial peace! We are currently about 2 months in and we are 100% dedicated! We are still finding things here and there that we need to tweak a bit in our budget, and I wanted to share some things that we have done up to this point.

What to do once you have committed to taking the Dave Ramsey steps to financial peace?

As we all know, most new things take some getting used to at first.  That being said, we wanted to attack this new thing in our lives like anything else.  We knew the uneasiness would come at first, like the feeling you get when your alarm goes off at 4:45 A.M., the morning after you've committed to wake up and work-out before work every morning. That is the point where you ask yourself, "why did I say I would do this again?"

We promised we would get through that rough period until the new behaviors turned into habits, however long it took.  Surprisingly, it did not take that long at all.  Don't they say it only takes 14 days of doing something to start a new habit?  Well, perhaps they are right!  For us, the first month we pulled out the cash for our expenses and put it into the corresponding envelopes, we were hooked. 

I want to share the things that we did a little differently (sorry Dave) and the things that we think help make the process easier on this blog.  So, to begin I have created a list of things we did when we started and the things we tweaked a little to help us stick to the plan. Did I mention that I LOVE making lists?  The only thing better than making lists is crossing through completed tasks on lists.... :)

How to Start:

1.  Make a budget

Yes, it seems pretty obvious, but it is the most difficult part of getting started.  It takes time and it takes effort if you are not on top of your finances.  Had we ever made a budget before? Yes.  Had it ever been done with as much research and purpose before? No.  CHALLENGE ACCEPTED

We created a spread sheet in Excel for the year to help us track every dollar and our progress along the way. First, calculate your monthly income.  If you have two incomes calculate a total monthly income. This can be hard if you have commission-based income or get paid by the hour, but my only advice on that is to use the lowest amount you have made for your budget.

Next, list out all debts.  We had student loans and credit cards that we had to login online and see what the balances were because we had no clue on most of them. We listed out all of the names, total amounts, minimum payment amounts, and interest rates. Our first page on our spread sheet is labeled DEBT.  On the debt page we put all of this information so we could update it as we went and we could TOTAL it all up. This part is scary, but it must be done and it is the first step to being on top of your finances!

The second page of our spreadsheet is our budget.  We input all of our fixed expenses for the month, such as mortgage, car payments, student loan payments, etc. We researched our variable bills such as electricity and water and created an average for each variable expense.  In the summer our electric bill was almost double what is was in January when we began.  So, we used an amount that was a little bit more than our yearly average for the budgeted amount.  Our thought was that from now until the summer, we will be using less than the budgeted amount for electricity, which will be in our account ready for the months when it is more.  On variable expenses we wanted to be overly cautious and set the budgeted about higher than we thought it would be so we could build a good cushion in our account for months that it was higher.

As we listed out many of our fixed expenses, some things just didn't settle right with us so we decided to make some changes.  For instance, our T.V/Internet bill was about $200 a month!  We use our internet all the time for working at home and watching Netflix, but we almost NEVER watched our TV channels.  We both agreed that we did not watch the premium TV channels we were paying for enough to justify the cost per month and we could keep our $9/month Netflix as long as we sacrificed elsewhere.  Our thought was, since we would be entertaining ourselves at home a lot while we get out of debt, we need something to help keep up entertained, something inexpensive....That something is Netflix. That day we called and downgraded our TV package to include only basic channels.  That small change saved us $85.00 per month!

We tried to think of all expenses that could come up.  We looked through our online banking to see what we had spent money on in the past year and figure out if we had forgotten anything important.  One thing we left out was money spent on tolls.  We live right in the middle of 3 toll ways and it impossible to get certain places without taking one so we added tolls to the budget.  We also added a small amount each month for gifts.  Everyone will have little situational budget items that need to be addressed and possibly added in to the budget.  The best way to figure out what your items are is to research your spending history. 

Finally, the hardest part of the budget is coming up with spending limits for things like groceries, gas, and entertainment. For our gas budget we tried to get as exact as possible by calculating the number of miles we drive in the month and adding cushion to it for places we drive other than work. The grocery budget was difficult for one reason, we are always in a constant battle to save money and eat healthy.  We decided it would be tough but if we got crafty enough, we could manage to do both :)

We set our grocery budget for $300 a month (for just the two of us).  Our goal was to go to the store for groceries two times a month and spend $125 each time. The $50 left over was to be used during the weeks that we did not go to the store to pick up items we ran out of frequently like eggs, milk, and bread.  We knew it would be difficult because we are very picky (compared to most) about our groceries.  We like to buy organic when possible and we don't buy hardly any "convenience" foods that are highly processed.  Eating fresh organic food is more expensive than eating boxed pasta, plain and simple.  That being said, we have made it work and have even CUT our grocery budget after the first month all thanks to our new friend ALDI (more on ALDI to come). (:

My husband and I had a few conversations about our "entertainment" portion of the budget and finally came to the conclusion that we DID need some sort of entertainment budget.  Now, I will tell you that Dave would not agree with that part of our budget and we understand why, but this is our thinking... 

We wanted a budget that we knew we could stick to for a LONG time.  We thought that if we had $0 for entertainment then we may stray from the budget and do something like go out on a "binge date"  where we may go and spend $50 on dinner one night "because we deserve it".  So, if it makes any sense at all, to help us stick to the budget, we added entertainment to our budget.  The amount we set for entertainment is enough for us to do one thing on the weekends. 

For example, our favorite thing EVER is to wake up on Saturdays and go to breakfast at one of 3 places by our house.  We have a LOT of coffee and sugar, and get to sit down together after a long week and have a leisurely meal together.  It is also our "cheat" meal because it is the only time that we eat that many calories in one sitting :) sooo worth it!

BUT after two months into the process, the entertainment budget has evolved into something a little different.  Now, we do still go to eat breakfast a couple of times a month, but the remaining amount is often spent on unbudgeted or unforeseen expenses, like Valentine's Day. 

At the beginning of February we set a small amount for Valentine's gifts to each other of $20.  Each of us took $20 out of our "entertainment" budget and bought a small gift.  Also, I went to the store and bought some steaks and a bottle of wine for our Valentines dinner at home, which also came out of the fund.  That is just one example, but I know there will be more throughout the year.  Those expenses, whether it be a birthday dinner out with our friends or an unforeseen doctor visit and a prescription antibiotic, will always come out of our entertainment budget.  Sorry entertainment, you are first to go! This actually makes it more of a "how cheap can you be" game, which is really fun! If we go to eat anywhere we always share an entrée and we always drink water (for health and budget reasons), which means that we ate out yesterday for only $13.  Not bad at all!

After we were all done discussing how each dollar would be spent we completed our budget and put everything else toward our DEBT!  (Note:  We already had saved our emergency fund and had a cushion in our checking account, which is Dave's baby-step #1).
Our budget:

Savings $                 250.00
Mortgage $             1,162.00
Utilities $                 335.00
Gas $                 150.00
Cars $             1,156.00
Min Debt payments $             1,400.00

TV $                 116.00
Tolls $                   40.00
Groceries $                 300.00
Netflix $                     9.00
Entertainment $                 215.00
Car Insurance $                 200.00
Gifts $                  25.00

 $           5,468.00


 2.  Put Any Remaining Funds Toward Debt

After we had our budget set, we used the left-over portion to add to our debt payment each month.  The awesome part is, each month it continues to grow.  After we received our tax refund from the IRS a few days ago we were able to pay off a debt in full, which decreased our expenses almost $150 per month! That means, next month we have $150 MORE to put towards debt.  Awesome.

Dave recommends that you attack your debts in order of smallest balance to largest.  The idea is that you can work to get lots of small victories in the beginning, which will help propel you to the end. I think that is a great idea, but I do think you may choose to pay off the debt as you like if you think another way will work best for you.  We chose to pay off the debts with the highest APRs first. 

3.  Use Dave's Debt-Reduction Spreadsheet

This is an awesome spreadsheet that you can use to see when you will be out of debt and track your debt-snowball payment each month.  You can find it online for free!  It allows you to input all of your debts and the interest rates.  You tell it how much you will be adding each month on top of the minimum payments due and in which order.  It will tell you when you will be out of debt and how much interest you will have paid when it is all said and done.

Seeing these calculations really helped us tweak our budget even more.  We were able to see if we added just $100 extra per month what effect it would have on our overall "debt-free" date. Since it knows the order of the debts you are paying off, it calculates the payment you need to make each month for you and adds the extra payment you add each month by paying off more and more debt.                                           
                                                 It.  Is.  Awesome.  Thanks Dave!

4.  Get Some Envelopes, Go To the ATM, and GET STARTED ALREADY!


Once you have done all the above, you should know the exact amount of cash you need each month.  We had all of our bills already set up on automatic payment so we only had to take out cash for the following things:  Groceries, Gas, Entertainment, Gifts. 

On the first day of the month we go to the ATM and take out $665.  We put the cash into corresponding envelopes and I draw lines on them so we can write down each time we spend money and what is left in the envelope. 

We DO NOT use our debit cards anymore (and no credit cards of course, as we no longer even have them available to use).  Not even for gas.  It was a little hard to get used to at first, especially for my husband, but we did it and now we are happy to use cash.  We think it really helps you SEE the money you are spending.  $300 doesn't seem like much when you slide your card real quick, but when you hand over $300 in cash you actually SEE it and FEEL it

5.  Reevaluate and Change Your Budget When Needed

Sit down each month and track your expenses.  We have a page on our spreadsheet where we keep track of our variable expenses, like electricity.  It helps you see how they change from month to month and determine where you can improve and make any needed changes.  You will not get it exactly right the first time, and that is OKAY!

6.  Help Keep Yourself Motivated

Staying motivated hasn't really been an issue for us yet since we are new to the program, but I can see that it could be in the future so I wanted to address it now.  Right now we are a little consumed with the project, so we are motivating ourselves without even knowing we are doing it.

For Valentines Day my husband bought me Dave's book called, "The Total Money Makeover" and a couple of nights a week he reads some of the book out loud before we go to bed.  It helps us make sure we are on track as a couple and it REALLY motivates us to keep going.  Also, at work I listen to the Dave Ramsey radio show on  There are so many people on there who call in and tell their story that I get pumped each time I hear them.  One day we WILL call Dave and tell him our success!

(Note:  We do realize there are other things we need to address our budget, like our car payments.  WAY too high!  But don't you worry, we are working on making even more changes!)

 Well that is all for today.  I have so many tips and tricks to share with you all after only 2 months into this experience!  My mind is just swirling with all these things to share and they can not get on the page fast enough!  I can't explain how just starting this journey has made us feel about our future.  We couldn't wait to make our first big payment!  I already feel like weight is being lifted off of my shoulders one dollar at a time! I cannot even imagine how great it will feel to be DEBT FREE!
I hope this first post helps anyone who may need a little help getting started on the path to financial peace!
Are there any other weird people out there?  Any tips you can share with us?

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