It's been a year now that we have been using Dave Ramsey's Financial Peace budgeting.
An amazing year.
I cannot say enough good things about his system.
I cannot give you a dollar amount on how much of our debt we have paid off in this time. But I can tell you that we went from about six credit cards down to 2. That's not how many we had, that's how many we were paying on. I think we cut up about 10 cards out of our wallets. And we still have a ways to go on paying off those last two cards, but we are making progress.
For a quick rundown on the principles:
1. $1000 in an emergency fund. FIRST!!! Without this you are going to fail. The washer and/or dryer will break down. Car repairs will pop up. Unexpected doctor or dental bills. You name it. So the first step is to have this money in an emergency fund.
We already had this. We've always had this. But I would never allow us to touch it. So it was like not having it. It was my safety net and you had better not touch it. Rather stupid in the end because we would then use a credit card for whatever emergency would pop up because I could not use that money. (I'm over it now.)
2. Pay off all credit card and other debt. Start with your smallest balance. This sounds backwards to many advisers, but there is a crazy logic in it. You start making progress quicker which keeps you motivated because you can SEE the bills being paid off. I had 4 bills paid off within 2 months by concentrating heaviest on the small bills. It rocked.
3. Invest after the bills are paid off.
You also work on a 0 balance written budget and use a cash envelope system. When the money is gone, you are done. End. Of. Story.
Making a budget is difficult at first. You have to give yourself a good three months to really even know everything that needs to be on it. And then you need another three to really dial it in and have it working.
One year into our zero dollar budget it runs smooth as silk. I do still have little things that pop up that I realize I missed. An example would be hubs satellite radio. I kept forgetting to budget for the service as it is only 2x a year and billed directly to a card. I just recently caught this and started budgeting for it.
I think the thing that is the hardest for people new to this system is the cash aspect of the budget. There are certain things you are supposed to start doing only in cash. Why? Because it is proven over and over that you spend less when you pay cash. I can testify that this is true. But getting started in a cash system is inconvenient. Its much easier to swipe a card at the grocery story or pump than to stay within your limit with the cash in your pocket. You have to pay much more attention to what you are doing. And GO IN at the gas station??? GASP??? How could I possibly do that? I have kids in the car!
Whatever. I've already said it all and proved its all crap. Give it a try for three months and see if you arent rolling your eyes at yourself. And there are prepaid gas cards that you can have. You put your allowance on it and then use it at the pump. But when the money is gone...its gone. This is why it takes a while to dial in the budget...because chances are you don't really know how much you are spending REALLY on gas or groceries or whatever. So you have to know that you are bound to fail the first few months, and accept that it is okay...its a transition period while you get it all together.
I do have to admit that we have tailored the system to our own lifestyle. We do not follow it 100%.
First, we do use our cards for our online purchases. But we already have the cash to pay it off immediately. I opened our new account here at the same bank the big card was from so I can just go over there and make cash payments (its our emergency account bank, not regular checking/savings bank) and pay it all off when the bill comes in. I love it.
On that note, I do highly recommend you have two banks. Some people think I'm nuts.
Have you ever seen what happens when your identity is stolen and they hit your bank account? The bank freezes everything. So if you have an automatic deposit on your paycheck, and your accounts are frozen...guess what? You aren't paying the bills. Or buying groceries. And it stays that way until the bank is done with their "investigation". It is not quick.
So we use our credit union as our major bank with checking and savings, the girls savings and my extra account for our some-day China trip. The emergency account is kept in a bank across the street. If we ever do have one of the banks get hit, we can operate out of the other bank while everything is under investigation and being worked on.
The other big difference we have (and that our instructors tried extra hard to get us to change our minds on) is investing. We had been investing for almost 10 years before we got into debt. We have our advisers and our funds and insurances etc all set up on automatic payment straight from the government. Its money we never see and pretty much never think about.
Dave Ramsey would have us stop all those investments and pay that money on the debt to get out of debt faster and then reinvest. But then we would have to pay all over again on our front load funds. That would be a huge waste of money. And the paperwork involved is a pain.
So yes, we are paying interest on debt that we could get out from under quicker if we would stop the investments. We are still not willing to do that. The investing is invisible in our lives and we choose to leave it that way. We got ourselves into the debt mess and the penalty we are paying is the interest. We asked for it. We are taking it in the pants like big boys and girls and moving on. (Do not get me started on all the commercials asking where the publics bail out is!!!! We were not duped into debt...we signed up for it. Be an adult and pay the bills.)
A big shout out of Thanks to Dave. Because of him, this is a good Christmas.
We have recovered from our $7300 loss on our home. We did not have to borrow anything to handle this and have put all the money we did use back where it came from.
We recently had a large,unexpected car repair bill. Due to our budget, I was funding a "car repair" virtual envelope that covered the whole bill. No credit card or emergency account needed.
Our Christmas envelope has been funded all year. This means I've been able to shop all year and have the money for Christmas in cash.
We paid off 4 cards and one vehicle.
We made a big move and didn't have to use credit or emergency funds for any of it. (Government handled the hotels and movers.)
My hubs needed a mess dress at the last minute and I as able to come up with the $400 it cost with very little shuffling. It did not hurt. A year ago it would have killed us.
To anyone out there that needs to get out of debt, or just needs to fine tune their budgeting skills, I highly recommend Dave Ramseys Financial Peace University. It can truly change your life. It's really not hard, even though there is a learning curve and a time frame that you have to get through while you dial it in. You CAN rule your money and tell it where to go...instead of letting it rule you.
And what could be better than that?