Dave Ramsey support thread - June 2011 (for everyone interested in the DR method!!)

[cody82414]

We are here to support each other now while we live like no one else, so that in the future we can live like no one else.

The Baby Steps:

Pre-Step 1: Get current on your debts and do a budget
Before you begin the baby steps, you must be current on your bills and, if you aren't doing one already, begin doing a monthly budget.

Baby Step 1: Save $1000 cash in the bank
Start your emergency fund. If your income is less than $20,000, make that $500.

Baby Step 2: Get out of debt
With Gazelle intensity and using the debt snowball, pay off all your debts.

Baby Step 3: Finish the emergency fund
With the money you were paying towards debt, now with no debts, you can save 3-6 months of expenses into a fully funded emergency fund.

Baby Step 4: Save for retirement
Saving 15% of your income didn't seem possible before, But with no payments, you'll be ready for retirement and not have to take a job as a Wal-Mart greeter.

Baby Step 5: Save for College
Instead of taking out student loans, your kids will be eternally grateful you thought ahead and had a plan for their higher education.

Baby Step 6: Pay off the house

Baby Step 7: Build Wealth and Give It Away

---------------------------------------------
Expanded Baby Steps:
0.1 Commit to NEVER borrow $$$ EVER for ANYTHING other than possibly a house
0.2 Talk with spouse and get him/her on the same page as you concerning finances
0.3 Do a written budget
0.4 Temporarily stop all retirement contributions
0.5 Get current on the basics (You MUST have Food, Utilities, Shelter, Basic Transportation)
0.6 Amputate "toys" (bikes, boats, ATV's etc) if they will keep you from completing the snowball within 12 months
0.7 Cut lifestyle (Cut CATV, Cellphone, Regular phone "extras", Internet, Eating out, etc) and/or take a second job if $1000 EF will take more than 30-90 days. (depending on income)
0.8 Get current on ALL bills.
1.0 Save $1000 in Baby Emergency Fund (EF)
1.1 Chop up CC's. (You have an EF now, no NEED to keep those CC's!!!)
1.2 Get Health Insurance NOW (chances of getting sick w/major medical bills are larger than that of death), especially if you have children.
1.3 Get Life Insurance NOW if you have debt/your family couldn't make it financially if you died. Especially important if you have children! Social Insecurity only provides a small amount of coverage if you have dependents.
1.4 Amputate cars that you can't pay off within 24 months (you have an EF to fix "bondo buggy" if something should happen)
1.5 Consider raising insurance deductables to $500 or $1000 and dropping full coverage on paid for "bondo buggy" (you have an EF ya know)
1.6 Draw up a will.
1.7 Get Long-Term Disability Insurance.
2.0 Do debt snowball, paying all your debts from lowest BALANCE to highest.
2.1 You can take your first vacation since finding Dave if you can pay cash for it. (no using the EF!!!)
3.0 Save 3-6 months EXPENSES in EF (FFEF)
3.1 Start replacement car fund.
3.2 Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI.
3.3 Start furniture or other non-essential stuff replacement fund.
3.4 Move up in car if you still feel the need to (must pay cash for it!, you can only buy NEW if you have a net worth over a million dollars)
4.0 Start contributing 15% of your paycheck to retirement.
5.0 Save for kids college fund.
6.0 Pay off the house early.
7.0 Live like no one else since you have lived like no one else! Give, Build Wealth and Have Fun!

Here's a link to some of dave's budgeting forms - check them out if you need a place to start with creating a written "zero based" budget.
http://beta.daveramsey.com/tools/budgetForms

"What can you do when you have no payments? Anything you want!" - Dave Ramsey

[Kim1013]

I'm still here. This will be the beginning of month 3 since starting DR's TMM. We have exhausted all of our extra money beyond our EF so debt payoff is going to slow down. I am very happy with how far DH and I have come and am excited for our financial future. DH and I are going to sit down tonight and work out this month's budget. Our children have started their new daycares so things/finances should be back to normal.

[cody82414]

I'm still here. This will be the beginning of month 3 since starting DR's TMM.

I love your siggy!
VERY inspirational

[Spanelli8706]

Kim, I hope the new day care will work out and you'll get a relief from the associated stress! Kim & Cody, you have both done great so far! Keep it up!

[Spanelli8706]

For those of you who know the Dave Ramsey methods and read his boks, etc. in what order does he say to do the expanded baby steps? Is there any specific method? For example, as of June we are on baby step 3 (building or 3-6 months ER fund)!!!

But on the expanded baby steps- we have already had a will made by a lawyer and have already purchsed life insurance, yet we don't live by a strict written budget and we haven't started saving for the kids college yet. (DH & I both had mutliple college scholarships and neither of us ever had student loans, so I don't have much experience on how to go about saving for college) Hopefully this makes sense. I have a general understanding of DR's thoughts and guides, but haven't read any of his books or anything.

Thanks for any help and hope I wasn't too confusing. lol.

[Kim1013]

Thank you Cody and Elizabeth. You both are very inspirational to me. I love hearing about your get-out-of-debt methods. Congratulations Elizabeth on graduating to step 3!!!!!!!! I'm not sure I can help you on your question. I would definitely save the 3-6 month emergency fund before preceding onto the expanded baby steps. We have a chunk of money for our children's college fund in CDs right now but I'm sure there is something better out there. I need to do a lot more research. I would check out DR's website where you can listen to some of his old radio shows or the FAQ section. Sorry I couldn't be more help.

[SariniLynn]

For those of you who know the Dave Ramsey methods and read his boks, etc. in what order does he say to do the expanded baby steps? Is there any specific method? For example, as of June we are on baby step 3 (building or 3-6 months ER fund)!!!

But on the expanded baby steps- we have already had a will made by a lawyer and have already purchsed life insurance, yet we don't live by a strict written budget and we haven't started saving for the kids college yet. (DH & I both had mutliple college scholarships and neither of us ever had student loans, so I don't have much experience on how to go about saving for college) Hopefully this makes sense. I have a general understanding of DR's thoughts and guides, but haven't read any of his books or anything.

Thanks for any help and hope I wasn't too confusing. lol.

Well, let's look at these one at a time:

* Will - Good, you've done this. Dave says do it NOW, regardless of where you are in the baby steps, so you're set.

* Life Insurance - Ditto. Assuming it's a term life plan, at roughly 10x the person's annual income, you're set. Incidentally, Dave does say that once you've finished the baby steps and are building wealth, you don't necessarily have to keep the life insurance. You become "self-insured"...

* Written Budget - Hmm. So you paid off $22k in debt without a written budget? That is impressive. However - a written budget does help you meet your goals, by showing you where your money is going. Those goals go beyond paying off debt to building wealth as well. But hey, if your method is working for you, I say go for it. (Dave would disagree and tell you to write it down already. )

* Saving for College - This is actually Baby Step 5, so shouldn't be on your radar yet. Once you have your fully-funded emergency fund, then you start contributing 15% of your income toward retirement (Baby Step 4) and begin saving for college (Baby Step 5) simultaneously, with your snowball money. Whatever income is left over, or whatever income is freed up after you cash-flow college, goes into paying your mortgage off early (Baby Step 6).

For details on the how of saving for college, you might start here: Real Debt Help - Get out of debt with Dave Ramsey's Total Money Makeover Plan - daveramsey.com

[cbrown022904]

never mind was looking in the wrong place... found the books

Thanks
cheryl

[shashabell]

Why am I having trouble with baby step #1? I am just set on getting Step #2 done for some reason - probably because I'm obsessed with my credit report showing Zero balances on my credit cards.
Baby Step #5 is started because my FIL left money to my son which is in an account that we cannot touch right now. I need to research the way it's set up because according to what I heard from Suze Orman, this can effect my son getting financial aid for college since the account is in my name as well as his. Going to have to talk to a financial advisor before I go before the judge and ask him to change the way it's set up. Any suggestions? I thought about 529 but then what if my son doesn't even go to college? He'll be out all of that money. There must be another way to handle this.

[Spanelli8706]

Thanks for responding SariniLynn & Kim!