I’m so excited to be getting our personal finances back on track again. A few months back, I read a post on Chrissie’s blog about how they started the Dave Ramsey plan. Being completely ignorant, I had no idea who Dave Ramsey was. So I googled for him and checked out his Total Money Makeover book from the library. Read it all in one night and started creating a budget. We have been living outside of our means for awhile – probably since I sold my hosting business back in 2004. We never curbed our spending yet we lost a good chunk of income. I have been feeling like we’ve been drowning financially (starting a licensing business didn’t help either).
The first part of Dave’s plan is to put $1000 away into an emergency account and create a budget and start paying cash for everything. So that’s what we did. Except I was fortunate enough to take it a step further (I had just come into a nice payment from KV) and create an escrow account at the same time. I put $1500 into emergency and $1600 into escrow and made our annual life insurance payment for each of us. That was a huge help getting us started with this plan.
I decided that I was going to start escrowing a monthly amount to cover things like – car insurance, life insurance, school fees, even Christmas – as those are items that end up being big chunks of cash when they hit. Automatic transfer is your friend… so each month I have my accounts setup to auto transfer the escrow amounts for these items into my escrow account. Then when the payment comes due, I just transfer the payment amount out and write the check. Started this in January and so far so good.
Paying cash for things has been hard sometimes. I have a set budget for grocery shopping and on my best week walked out having $15 in coupons – that is 10% of my weekly grocery money. Some weeks I can come under $150 and some I go over a little.. but the idea is that you have an “envelope” for your monthly grocery money and that is all the money you have to spend. So far I’ve been able to stick with the plan. It’s probably going to sound dumb but it’s really a rush to be on budget in the grocery store and walk out with an extra $10 dollars.
The next part of the plan is to start paying down debt and create a snowball amount. For us, we decided to focus on refinancing to get rid of our home equity loan. The loan comes due next year and if the bank called it, we’d never be able to pay the balloon payment. So I started looking at refinancing. Our plan was to be to take the difference of payments and roll that into the snowball. We were also looking to pay off the car and use that payment to help the snowball as well.
During this time, we were fortunate enough to be able to do some work on our garage which helped our appraisal IMMENSELY!! We worked our butts off to fix up our garage and this is the result. Nice, eh?
We had the house appraised at the beginning of April, and the numbers came in right where we needed them to be. Whew… We were able to wrap our HELOC into our mortgage and be able to take a little cash out – not much but a little that will go towards the credit card debt. We closed on our refinace two weeks ago. WOO HOO!!!!!
With our tax return refund this year, we were able to fully payoff of the rest of our car loan. The check just cleared this morning and I was very excited to login to the ford site and have it tell me the account has been closed. lol! No more car payment…
Through the refinance, we’ll actually have a little extra cash since they had to take 11 months for escrow and we had about 10 months of escrow with the other lender. So we should be seeing that 10 months of escrow money in the upcoming weeks which will go straight towards to the credit card. I’m hoping (if all goes well) to have our credit card debt fully paid off by June (we won’t have a mortgage payment (or car!) in May so that money will go straight to the credit card). After that we’ll be completely debt free outside of our mortgage and we’ll be able to start the next phase of Dave’s plan which is to put 3-6 months of living expenses into savings.
We are planning on saving up for a special anniversary trip next March. It’ll be our 15 year anniversary and I think it’s about time we travel somewhere alone again. lol!
I can’t tell you how much sitting down and preparing a budget helped me – both financially and emotionally. Having a plan made me feel so much better about our finances. For a lot of people, doing that 2nd step – paying down all debt but your mortgage – might take 2 years… we have been blessed and were able to do it in 3 months. A nice tax refund helped too. 🙂
I know of a lot of my own relatives are struggling with finances – some more serious than others. Finances can be a very hard subject to talk about with your spouse and honestly evaluate. I am very lucky to be on the same page with Rick on this issue. You need both people to be on board if this plan will work.
Big thanks to Chrissie!! If she never posted about starting the Dave Ramsey plan herself, I never would have done this.