I used to think I always handled money pretty well. I started saving when I had my first job back in 2004. I have always known it is important to save. So here is how we used to handle our monthly income.
- Pay bills–minimum payment on any loans
- Put money into Emergency Savings
- Put money into Travel, Household, Car, Boys Toys, & Gifts Savings
- Rest of money is for groceries, gas, entertainment, etc.
I always tried to give us $1000 per two weeks for the last bullet..$2000 per month. Seems like a lot but we sure went through it.
As you may have noticed, we haven’t started putting towards retirement yet. The retirement conversation happened probably every other month. Our excuses were: we wanted to meet with a financial advisor before we made a decision, we wanted to pay something off first, and most recently we said we will start at the New Year. Well, I was asking some friends what they use (Roth IRA, TSP..) and they mentioned they don’t put anything towards retirement because they are following Dave Ramsey’s baby steps. I thought it was odd that whoever this Dave Ramsey guy was wouldn’t have them putting towards retirement. I decided to check out these baby steps anyway.
His method made so much sense to me. Focus on one thing and only one thing and put all you can towards it. Minimum payments weren’t getting us anywhere and we did not want to be paying off loans for the rest of our life.
Baby Step 1–Save 1,000 dollars as fast as you can for an emergency fund
We accomplished that immediately because we already had over $1,000 in our emergency fund.
Baby Step 2–Pay off all of your debt with the Debt Snowball method
Step 1 was so easy, whoo hoo! Step 2…well this is going to take us much longer. Hence, this blog.
I always knew it made sense to pay off one debt then take that payment and put it towards the next debt so you are putting more money towards it. However, I have most often read about or been told to pay off the debt with the highest interest rate. Well, when your highest interest rate is on a $20,000+ loan, it is a little discouraging, which is why I like Ramsey’s method. Pay off your lowest debt first and work your way up. Now that seemed doable.
- I am going to take out the remainder of our emergency fund that is above $1,000 and put it towards debt. Some might argue to not do that. I feel comfortable enough to have just $1,000 dollars in there.
- I am not going to put any money towards those other savings accounts or retirement.
- We are going to try and live as frugally as possible.
- All extra money goes towards our debt.
When it comes to living frugally, I do not have much experience. Like I said, we always had a budget but we could still spend pretty freely with that budget.
Each month I am going to be sure to create a spending budget. Every month is going to bring along different expenses. For instance, this month we have to get oil because both of vehicles need oil changes. Fortunately my husband knows how to do the oil change so we can save some money there. My husband is also deploying in a week or so for 6 months. He needs to have a specific attire while he is there so we do have to get him a few clothes.
When I first crunched the numbers I was expecting to live off the same amount every month. That is only going to lead to discouragement which I found out real quick. Therefore, I think it is going to be crucial to create a new budget every month. Otherwise, insanity might step in and everything could fall apart quick.
It is going to be tough but we are ready to reach some goals and crush this debt! I will go over our goals soon. Until then…