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Thursday, May 22, 2008

Total Money Makeover

I've really been wanting to share about this for several weeks now, but just haven't had time! When my friend Erin was here visiting a couple months ago she mentioned this great book The Total Money Makeover by Dave Ramsey. She described a little bit what it was about, and I asked Kevin if he'd be interested in reading it with me. He was interested so we went ahead and found the book on Amazon. As soon as we got it, I plowed through the entire book in a week because everything Dave Ramsey says about money is so exciting! Finances has been a big struggle in our marriage, as it is for sooo many couples, and I've really been seeking a way for us to come to a mutual agreement about how to spend and save our hard-earned money. And finally FINALLY we're getting there!! So in a nutshell here are the main ideas of the book....

Dave's motto is this: IF YOU WILL LIVE LIKE NO ONE ELSE, LATER YOU CAN LIVE LIKE NO ONE ELSE. This means if you work really hard now, making all kinds of sacrifices in your spendings and work your way to financial freedom, then later you can live a life of peace and security that other people don't have!

Dave's approach to saving is to tackle one thing at a time. Instead of spreading your money so thin among several different things and just gradually paying off expenses, use focused intensity to become debt free, including your house! He lays out 7 Baby Steps to follow, in order, to achieve your own Total Money Makeover!

Baby Step One: If you've got NO savings, build yourself a mini emergency fund of $1000 FAST. Get some momentum going and do whatever you can to get this $1000! Stop buying unnecessary stuff, sell extra things you have around the house, deliver pizzas for awhile, etc.

Baby Step Two: Pay off all debts (everything except house at this point). List all your debts starting with the smallest $ and working to the biggest. You get momentum going by knocking off the small ones first and feeling like you're accomplishing something. You work with "gazelle intensity" (Dave's common phrase) to pay off those debts. It means a LOT of sacrifices in spending--could be not eating out or shutting off cable or not buying clothes, etc.

Baby Step Three: Build up your fully-funded emergency fund. (3-6 months worth of pay)

Baby Step Four: Start saving for retirement. (15% of income)

Baby Step Five: Start saving for kids' college.

Baby Step Six: Pay off your house.

Baby Step Seven: Build wealth. (with investments)

Kevin and I are both on board for this money makeover challenge! We're VERY blessed that our van was our only debt, so after reading this book we decided to shuffle our money around and pay off the van right away! So that's done already, and now we're on to Baby Step Three of building our emergency fund back up again! We're going to live on a budget. We've tried before, but since we both weren't really into the budget, we never stuck to it. But this time we have a different attitude and a different approach. Dave suggests saving for things so you can pay for it right away in cash. Tuck money away for your future car, future house repairs, future car repairs, etc. We've never been ones to put everything on credit card, but I'm not sure the money was always there either. Now we're going to try a cash budget. I found a small coupon-sized expandable organizer at Target (something like this one) that I can stick our money for different categories like hair cuts, groceries, household items, diapers, clothes, etc. and when the money's gone, the money's gone! We find a way to live without! And we don't have to keep track of every receipt! This system will help us to know exactly how much we have saved towards various things since that's so hard to keep track of in any general savings account. Sure, we won't be making interest, but at least we know it won't get spent if we already have it designated for something specific. We'll give it a try anyway! Next month will be our first month trying the cash budget, as it took several weeks to figure out a good budget, adjusting things here and there. But now we're ready, ready to start this new lifestyle as we prepare for the future!


paul said...

As Christians, I think we need to be careful not to let future "peace and security" be what drive our financial decisions. (Luke 12:16-21) In our culture, I think that peace and security can become idols. We need to watch out for that and submit all our plans to the Lord for his honor and his glory, recognizing that true and lasting peace and security is only to be found in the redeeming work of God through Christ.

Sharon said...

I am a HUGE Dave Ramsey fan!!! HUGE! I am so excited for you & Kevin that you're doing this.
Since starting this, for the first time in our marriage, we actually have a little in savings, plans for our finances, and we're truly on the same page w/ each other since we do the Monthly Cash Flow sheet together.
His plan is working for us. I am so happy you two are finding it to be a good experience, as well!

In Light of the Truth... said...

You're right, Paul about peace and security. Dave is a Christian and his book is NOT about how to be wealthy so we can have things and happiness. He's helping us learn how to be responsible and mature with the money God has given us! It may not be necessary for someone who is already extremely disciplined with his money, but for us, it's a great help!

Sarah said...

Thanks for the little preview of Dave Ramsey's book. I want to read it, I just haven't motivated myself yet. I added you to my blogroll, I hope that's alright!

The Fischer Family said...

Thanks Sarah for the book review! Money is a struggle for us a lot too! I tend to shut down during "money talks" because I just get so nervous about not having what we'll need. So I need to run and get this book! Let us know how you do. Maybe I can gain my confidence through seeing your success!

Sarah said...

How cool is that?! I live in Waterloo! We lived in Cedar Falls for a year, and then bought a house in Waterloo. Did you go to UNI?

BP said...

I thought you would be talking about Dave Ramsey when I read your note on TT! We read the book at the beginning of the year and it is so very exciting. I've seen many bloggers talk about it too. We are currently working on the snowball. We will pay of my husband's truck in the next couple of months and then do his student loan. I have an expandable organizer like you mentioned too. It works SO well! I also love to empty it out at the beginning of the next pay period. I put all the extra change in a can and have already taken money to be deposited twice. Once it was $29 and the other $22 I think or something like that.

crystal said...

It sounds like something I would be interested in. We struggle with money alot. I am so happy that you and Kevin are able to work together on this. It really sounds like yall are excited and doing good with this new plan.

Many Blessings

crystal said...

It sounds like something I would be interested in. We struggle with money alot. I am so happy that you and Kevin are able to work together on this. It really sounds like yall are excited and doing good with this new plan.

Many Blessings

Karen_thrifty said...

About a year ago, my husband and I took Dave's Financial Peace classes through our church. We were finally able to stop arguing so much about money and get more on the same page. I can see now that God used the FP classes to prepare us for where we are now. In the past year, my husband has been laid off for 4 months!!!! We still have our emergency fund in place!! It is so awesome! To think that a family (like us) that doesn't make much money can do so much in a short amount of time is awesome! Everyone needs to get on board and change their finances and legacy.

Julie said...

I want to buy this book SO bad!!! We are saving for this book; how funny is that?! I guess it's a good start! Thanks for all of your notes, they help until I can get mine in the mail!

So proud of you & Kevin for working together on this; that is SO important in a marriage and we struggle with it a lot so, I know how difficult it can be!!

Love, Julie