A couple of years ago, I posted about how my wife and I had embraced the Dave Ramsey plan. (For my earlier post, see http://amusingbeam.blogspot.com/2010/03/daving-it.html .) I thought I would give an update about how that has gone.
For those that don't know, Dave Ramsey is a financial guru who says we should spend less, save more, and not use debt to live beyond our means. As he freely admits, this is hardly revolutionary. As WE freely admit, we were doing anything but living within our means.
When we began this program in March, 2010, we had well over $100k in non-mortgage debt. Paying all of that off would be very close to impossible on how much extra income we had. So, we had to do a few things that might be considered "extreme":
1) We sold our new car (cost us $1k to do so) and bought a used truck with cash. Total expenditure: $5k. Debt reduced by: ~$20k.
2) No vacation in 2010. We didn't take any.
3) Second job. Because I'm crazy, I did my normal job, plus went to law school, plus worked as a clerk for a term, and as a research assistant, to pay some extra debt off. Earned: ~$5k.
4) Sold our beautiful house. Honestly, our house rocked. We bought it on short sale in the housing crisis, and it had most of what we wanted a house to have (especially with the addition of the theater room). As many of you may realize, though, people with big houses are often not as "rich" as they seem. Like many, we were house poor (but we needed to stay at least 2 years because of capital gains). We recently downsized to something with half the square footage and a third the payment.
We have also done the normal things. For two years, Dee has kept track of three spreadsheets detailing all of our income and expenses. We moved to online payment, which is faster and easier to keep track of. We each got an allowance, which we could use in whatever fashion we wanted, but things that had to come out of that were entertainment and eating out. Most importantly, when we didn't have the money to do something ... we didn't do it.
There are some things that I disagree with in the Dave plan. First, I don't think you should still be giving to charity if you can't pay some of your own bills. (Luckily, we never faced that dilemma.) Second, his "pay the smallest first" mindset is good, but there were other considerations, at times, that made us pay something else off first. (Yes, interest rate is one of those; another was whether it was a secured interest -- I would prefer to own my car outright because then I have something.) Third, once we had achieved a solid mindset of "think in terms of total debt," we actually found it much better to get a single credit card and use it for major expenses, assuming we could pay it every month; that credit card is a Marriott rewards card, and now we get to have multiple nights free a year.
So, how have we done? I won't give the numbers, but I will say that it is likely we will be debt free (excepting our house) by either late this year or very early next year. That means no car payment, no revolving credit card debt, no student loans, and no hospital bills.
We will then be able to follow the rest of the baby steps (paying off the debt is #2 of 7), starting with getting a 3 to 6 month expense fund saved up, then socking money back for retirement. We haven't decided if we want to pay off our current mortgage (as Dave suggests) or go down some other investment routes, but we will definitely stay in the black.
I feel very proud of both my wife and myself for downsizing. We could definitely have continued to make the payments for as long as we wanted to ... but we couldn't be anywhere close to "gazelle-like" in paying off our debt. Dee had to give up her beautifully manicured lawn and the wonderful kitchen that looked like it came out of a cooking show ... and I have to leave my theater room behind. (sniff) But, you know ... live like no one else so that you can live like no one else.
So, if you are still struggling with debt, consider the Dave Ramsey plan. For us, it was really hard for about 3 months, but after about 2 weeks we felt in control of our money and our future. After the 3 months, we had changed our mindset, so it was easier to say no, or to not even ask the question because we both knew it wasn't in our budget.
Good luck!
For those that don't know, Dave Ramsey is a financial guru who says we should spend less, save more, and not use debt to live beyond our means. As he freely admits, this is hardly revolutionary. As WE freely admit, we were doing anything but living within our means.
When we began this program in March, 2010, we had well over $100k in non-mortgage debt. Paying all of that off would be very close to impossible on how much extra income we had. So, we had to do a few things that might be considered "extreme":
1) We sold our new car (cost us $1k to do so) and bought a used truck with cash. Total expenditure: $5k. Debt reduced by: ~$20k.
2) No vacation in 2010. We didn't take any.
3) Second job. Because I'm crazy, I did my normal job, plus went to law school, plus worked as a clerk for a term, and as a research assistant, to pay some extra debt off. Earned: ~$5k.
4) Sold our beautiful house. Honestly, our house rocked. We bought it on short sale in the housing crisis, and it had most of what we wanted a house to have (especially with the addition of the theater room). As many of you may realize, though, people with big houses are often not as "rich" as they seem. Like many, we were house poor (but we needed to stay at least 2 years because of capital gains). We recently downsized to something with half the square footage and a third the payment.
We have also done the normal things. For two years, Dee has kept track of three spreadsheets detailing all of our income and expenses. We moved to online payment, which is faster and easier to keep track of. We each got an allowance, which we could use in whatever fashion we wanted, but things that had to come out of that were entertainment and eating out. Most importantly, when we didn't have the money to do something ... we didn't do it.
There are some things that I disagree with in the Dave plan. First, I don't think you should still be giving to charity if you can't pay some of your own bills. (Luckily, we never faced that dilemma.) Second, his "pay the smallest first" mindset is good, but there were other considerations, at times, that made us pay something else off first. (Yes, interest rate is one of those; another was whether it was a secured interest -- I would prefer to own my car outright because then I have something.) Third, once we had achieved a solid mindset of "think in terms of total debt," we actually found it much better to get a single credit card and use it for major expenses, assuming we could pay it every month; that credit card is a Marriott rewards card, and now we get to have multiple nights free a year.
So, how have we done? I won't give the numbers, but I will say that it is likely we will be debt free (excepting our house) by either late this year or very early next year. That means no car payment, no revolving credit card debt, no student loans, and no hospital bills.
We will then be able to follow the rest of the baby steps (paying off the debt is #2 of 7), starting with getting a 3 to 6 month expense fund saved up, then socking money back for retirement. We haven't decided if we want to pay off our current mortgage (as Dave suggests) or go down some other investment routes, but we will definitely stay in the black.
I feel very proud of both my wife and myself for downsizing. We could definitely have continued to make the payments for as long as we wanted to ... but we couldn't be anywhere close to "gazelle-like" in paying off our debt. Dee had to give up her beautifully manicured lawn and the wonderful kitchen that looked like it came out of a cooking show ... and I have to leave my theater room behind. (sniff) But, you know ... live like no one else so that you can live like no one else.
So, if you are still struggling with debt, consider the Dave Ramsey plan. For us, it was really hard for about 3 months, but after about 2 weeks we felt in control of our money and our future. After the 3 months, we had changed our mindset, so it was easier to say no, or to not even ask the question because we both knew it wasn't in our budget.
Good luck!
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