about this blog
Comparing Jenny Craig to Weight Watchers is no different to comparing Dave Ramsey to Suze Orman. They’re all different, they all work, but finding the right one for you can be a challenge.
Or maybe you can apply principles from different sources, add a few tricks and tools of your own, and climb you way out of debt and start building wealth. That’s the approach that has worked best for us. That's what this blog is all about.
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Do You Use Envelopes for Budgeting?
You know at some point you’re going to need new tires for your car, but do you have money set aside when that day arrives? You know you’re going to need new shoes and clothes eventually, but can you afford them without using your credit card?
We can, because we budget for these kinds of events – with envelopes.
We have a concealed, fireproof safe with six envelopes set aside for occasions, wants, necessities, and unexpected purchases that come up. Each week we put cash in these envelopes so we always have cash on hand, and seldom have to touch our savings.
It’s a simple, effective method, and we rarely have so much cash on hand that we’re missing out on accrued interest because we spend the cash as needed.
We won’t share the amounts we stash away, but we will share what envelopes we have and what they’re for.
Fun - $XX
Concerts, plays, movies, date night, etc.
Misc. - $XX
Printer cartridges, birthday gifts, haircuts, unexpected purchases
Car Repair - $XX
Tires, oil changes, air filters, etc.
Groceries - $XXX
Food, toiletries, household items
Home - $XX
Mulch, plants, paint, fertilizer, etc.
Clothes - $XX
Clothing, underwear, and shoes
Our Next Car - $XX
Saving up for a good used car (Note: this is a virtual envelope – an online savings account)
This may not work for everyone, but it’s made a huge difference in the way we spend money. Also, my wife and I also have a weekly allowance which also helps. Let us know your thoughts; we’d love to hear them.
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We paid off our last credit card!
On May 1st, 2011 my wife and I paid off our last credit card. It took us 17 months to knock out over $12,000 of credit card debt we accumulated over the last several years. We could have paid it off sooner but we received a vacation to Hawaii (air-fair and hotel) for our 20th wedding anniversary and spent a little over $3,000 cash on this trip. It was well worth the delay!
We read Dave Ramsey’s “Total Money Makeover” in December of 2009 and committed to his methods in January of 2010. Whether you’re a fan of Dave Ramsey or not his methods works, and we are proof of it. It just takes a lot of discipline, and if you’re a couple you both have to be on the same page.
Our next goal is to pay off our SUV, which we hope to do in less than a year. And we just refinanced our house to a 15 year mortgage and our plan is to make an extra payment per year to pay it off even sooner.
All financial goals are possible through budgeting!
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Our Big Debt Board
My wife and I started Dave Ramsey’s “Total Money Makeover” on January 1, 2010. We quickly knocked out Baby Step 1, built up a $1,000 emergency fund. From there we moved on to Baby Step 2, paying off our debt. We used Dave’s “debt snowball” method and it was amazing to watch it in action as we paid off one balance after another.
One of our most powerful tools is our “big debt board.” We had an extra dry erase board, so I listed all of our debts on it and we marked them off as we knocked them out. The board’s located near the garage so we pass it at least 2 times a day. It’s a great visual reminder that helps to keep us motivated by seeing the progress we’re making.
We currently have one credit card left with about $2,000 on it. After that we have my wife’s SUV, and then the house. We are slowly but surely getting out of debt and it feels good!
What motivational tools do you use?
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Suze Orman’s Money Class on PBS
Iconic financial adviser Suze Orman, has a new PBS special that airs Tuesday, March 8th at 7:00 p.m. (ET) entitled “The Money Class.”
In the current economy she says we all have to go back to class to learn about what she calls the “New American Dream.” She says to “live below your means, but within your needs” with this example: If you can afford a 2,000 square foot home, buy a 1,500 square foot home. She then reminds use that our pensions and 401k won’t be enough for retirement.
More information can be found on PBS’s website. Also here’s a prom video for the special. Suze Orman’s Money Class airs Tuesday, March 8, 2011, 7:00 p.m. ET (check local listings).
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Grownups with an Allowance
It may sound silly, but having a weekly cash allowance is a great way to live within your budget.
My wife and I are in our late 30’s and we each get an allowance of $25 cash a week. This is our money to go out to lunch, dinner, or to spend anyway we please. By knowing that we have a limited amount of cash each week makes us think twice before spending it.
We spend the bulk of our allowances over the weekends. Weekdays we brown bag our lunches nearly everyday so that helps a lot, but it’s rare that we don’t spend our entire allowances each week. We’ve learned that paying cash is a great way to see how much you spend, and are willing to spend.
For things like a concert, clothing, groceries, car repairs, etc. we have money set aside for all of these. Our weekly allowances are mainly for everyday purchases. This may not work for everyone, but we have been using this approach since January of 2010 and it has made a huge difference in our spending habits.
Thoughts?
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A year later…
What a difference a year can make in someone’s life. As you know from a previous post, Jason and I have been in the process of paying off our debt that we have accumulated over the last 20 years of marriage. We married young and didn’t have really anything to our name, so our early debt was just basics like groceries, gas, and clothes for our daughter, nothing extravagant like a big TV or new furniture. Heck, our first car was a hand me down from Jason’s mom.
But as the years went on, our habits didn’t change. We still didn’t have any big extravagant purchases, but just bigger expenses for our family. For one, our daughter needed braces and we didn’t have any dental insurance, so how else were we going to pay for them? Another trap we fell into was the incentives from so many stores that give a discount if you apply for and then use their credit card. I had cards for so many stores at the mall, it was ridiculous.
Well, we have now closed all those credit cards and have paid them off. I am no longer tempted by the discount. I think the reason why is because now we have a budget for clothes and pay cash. We are saving on the interest that could accrue if the bill got misplaced or lost when it came due. To me it is worth the little extra to know that I am not falling for their “credit trap”.
Oh yeah, and about those other big expenses that come up like braces… well, the first step in the snowball is an emergency fund. I no longer worry about a surprise because we have that set aside for those occasions.
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The Debt Snowball Explained
What is a debt snowball? A debt-snowball is a method for paying off debt if you owe money on more than one account (i.e., credit card, auto loan, student loan). Basically you pay off your debts starting with your lowest balances, and proceed until you have paid off your largest debt.
These illustrations may help you understand the power of a debt snowball. In this scenario we’re working with $30,000 in debt – imagine how fast you could pay this off!
You want to throw every available dollar towards your lowest balance - this will start your debt snowball. In this example we’re going to use $350.
You have this extra money each month because you understand, and have created a budget to live on.
Once “credit card one” is paid off, add your debt snowball payment ($350), to the minimum payment from “credit card one” ($25) and start paying off “credit card two” with your new debt snowball payment!
$350 + $25 = $375
Once “credit card two” is paid off, add your original debt snowball payment ($350), to the minimum payment from “credit card one” ($25) plus the minimum payment form “credit card two” ($115) and start paying off “credit card three”
$350 + $25 + $115 = $490
Once “credit card three” is paid off, add your original debt snowball payment ($350), to the minimum payment from “credit card one” ($25) plus the minimum payment form “credit card two” ($115) plus the minimum payment form “credit card three” ($225) and start paying off your “auto loan” - that’s a major debt snowball you have there!
$350 + $25 + $115 + 225 = $715
Once your “auto loan” is paid off, add your original debt snowball payment ($350), to the minimum payment from “credit card one” ($25) plus the minimum payment form “credit card two” ($115) plus the minimum payment form “credit card three” ($225) plus the minimum payment form your “auto loan” ($400) and start paying off your “student loan” – now you have a debt snowball avalanche!
$350 + $25 + $115 + 225 + $400 = $1,115
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who’s that guy?
Ever heard of Dave Ramsey? I’m going to guess your answer is yes, and if not and you continue to get to know this blog you will.
David Ramsey is a financial personality. He’s an author, host of his own radio and TV shows, and a motivational speaker. In my opinion Dave is not a genius, he’s just a realist when if come to finances, and he’ll show you how to “Live like no one else, so later you can live like no one else” - love that quote!
Mandatory Reading:
Amazon: The Total Money Makeover: A Proven Plan For Financial Fitness (2003)
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about the authors
Hi, I’m Jason Meredith, my wife Amy and I paid off over $8,000 of debt and took a very nice vacation in 2010. At the beginning of 2011 we owed $4,000 on our last credit card, and around $10,000 on Amy’s SUV.
This blog is “another budgeting source” for getting out of debt by showing you how we did it, and continue to work towards our personal goal of being debt free – and never borrowing money again.
