It’s been 10 years since my husband, Scott, and I first read Dave Ramsey’s book, The Total Money Makeover, and agreed to follow his plan to get out and stay out of debt. We couldn’t have known at the time how our lives would change as we fumbled our way through the plan. At first, it felt incredibly overwhelming, but to make it seem doable for regular people like us, Dave divides the plan into 7 “baby steps.”
- Save $1000 to start an emergency fund
- Pay off debt using Dave’s “debt snowball”
- Save an emergency fund of 3-6 months of expenses
- Invest 15% of household income into retirement
- Start a college fund for children
- Pay off home early
- Build wealth and give generously
First, Ground Rules
Before we could consider going down this road together, we needed to lay down 2 important ground rules. First, we both had to be 100% on board for all financial decisions going forward. Second, no finger-pointing or blaming for past decisions that got us into this mess. Agreeing to move forward together with open communication prepared us to build a monthly budget, each of us armed with full veto power. By the way, we held on tight to this veto power throughout the entire process and it reared its head in the most unusual ways, up to the day we made the final payment on our home.
Dave recommends basing your budget on 4 pillars of necessities: food, shelter (including utilities), transportation, and basic clothing. We started building our budget by listing out what we needed to spend on necessities (4 pillars), and then by going through our non-necessities to look for opportunities to save. The painstaking process of going through our bank account, line by line, shone a bright light on where our opportunities to attack our debt was hiding. Except now, it was staring us in the face.
This was when s$%t got real. Careful to remember our ground rule about finger-pointing, we sorted through each of our transactions as we sat in silent judgment of the other’s spending (You spend how much on convenience store junk every week? That Cub Foods bill can’t all be groceries, what else is getting in the cart?). We discussed each category of our spending- groceries, clothing, dining out, etc.- and agreed on how much we would realistically spend each month. Which we would later change many times over.
Push the Envelope
Dave recommends using cash for all purchases (except mortgage payments, paying the electric bill, etc.), which we did- that is, until we didn’t. He also recommends using an envelope system. For example, we had envelopes for household expenses, necessary groceries (no more expensive steaks, magazines or other willy-nilly impulse buys), personal care (haircuts/color), clothing, gifts, dining out and vehicle repair. Each month, we put the amount of cash in each envelope that we had agreed to spend. For us, some envelopes were intended to build over time, such as vehicle repair and gifts (we started saving for Christmas in January), while others we knew we would blow through each month, such as groceries.
Speaking of blow, one of the best things we did- off the plan- was to give ourselves a set amount of “blow money” each month that we could spend on whatever we wanted without the other one knowing about. Take that, ground rules! Let’s say I wanted to throw a magazine into the cart at check-out? Blow money! Scott got a hankering for a steak? Blow money! It saved our sanity and probably our marriage.
With our monthly budget in place and our envelope system set, we began our new life of, gasp, living within our means. Stay tuned as we take our first baby steps together.