Resourceful-Mom

Dave Ramsey’s Baby Steps Are Not For Babies

When I first heard about Dave Ramsey, I was a recently divorced mom with a new job.  Needless to say, I was determined to enjoy my new single life.  I was blessed with friends that would support my foolish spending habits, payday loans and shutoff notices that consistently took me by surprise. Murphy visited my home often.

If you’d asked me why I was in such financial straits I probably would have given you an “If it ain’t one thing, it’s another” which basically means I had no clue.  It would make for a better story to tell you that during this time I was unemployed and down on my luck but that’s not the truth either.

Before all of my financial problems, I was an unemployed mom in school full time discussing divorce.  That period of my life was difficult as I had to pull money from all sources to stay afloat until I completed school.  In retrospect, that period of my life only lasted about 6 months.

What’s funny is things didn’t actually get bad until things started looking up.  Just before my divorce was final, I got a job with a salary that was above anything I had ever murmured to God.  With my new found freedom and a salary to boot,  I managed to get myself into more financial problems than I had during unemployment.

I was all too happy to find out about Dave Ramsey as his integrity based straight talk  helped me swallow my fear and face the mess I’d created.  I made a budget and I stuck with it.  I answered my cellphone when creditors called and I paid them when I said I would.  Once a year I ordered a copy of my credit report and, as I paid off bills, I’d request that the information be updated.  Within 4 years and, while on Baby Step #2,  I bought a home and walk into it debt free.

Success story, right?  Wrong.  There are 7 Baby Steps and I only made it to Baby Step #2.  I made it that far because I’d latched onto the thought of debt freedom but not “Living like no one else so that, later, I could live like no one else”.   I was concerned about improving my credit score and Dave Ramsey gave me the plan of attack to get my finances in order so that I could get a house.

The credit score, the collection calls and the surprise cutoff notices were all signs that I was a poor money manager.  Not completing all of the Baby Steps meant I never really placed the blame of my financial woes where they belonged….squarely in my lap.  My spending habits were only slightly altered so when my credit score improved, as a result of becoming debt free, I used it to qualify for more loans and obtained more monthly payments.

Fast forward to today, my salary and debt are larger.  I wish I could say that I swore of credit cards but that wouldn’t be truthful.  I wish I could say that I have regularly spent every dollar on paper before the month begins but that’s not the case.  As a matter of fact, at this very moment, I am enrolled in Financial Peace University and it is so much harder for me now.  What happened?  I mean if Dave Ramsey is all that he says he is, why am I needing to go through this again?  I hinted at it a little earlier, I didn’t finish the Baby Steps so, in essence, I didn’t get full control of me.

The biggest lesson in going through the Baby Steps is the lesson of self discipline.  You could easily call them Self Discipline Steps but it wouldn’t have the same following.  You have to get gazelle intense because you are running from you.  And, if you’ve ever tried to run from you in the past, you know you are always just over your shoulder.

A lack of self discipline means you don’t get promoted at work, your relationships don’t improve, there are dishes in the  sink and the bills are past due.  It affects every part of your life and, what you have or don’t have and to what degree  can be easily traced back to your inability to discipline yourself.

Each level of the baby steps is another level of discipline.  You are in total control of your money and every time you take another step in the plan, you have more money to be in control over.  Every day that you keep your promise to yourself  by sticking to your budget, keeping an emergency fund and finishing the next step in the plan, the more integrity you have and the better you feel about you.

Let’s go through the first few steps so that you can see what I mean.

First, you have to create a budget.  You can’t do any of the other steps if you don’t first know where you are and how much money you have available. When I budget, I tell my money what to do instead of wondering where it went.  I spend every dollar on paper on purpose before month begins.  I do not try to make the perfect budget for the perfect month because neither exists.  I give some, save some and spend some.  All Dave Ramsey quotes, right?

My personal experience is I have less guilt in spending money when I create a budget.  I can pay my tithes, my bills and come up with a reasonable amount of “mad money” for me to spend as well.  I save for big purchases, use the envelope system for things that I can pay for using cash and I leave my debit card at home.   At the end of the day, I don’t feel like I work for everyone else because I’m getting a piece of the pie as well.

Baby Step 1 – $1000 in a Money Market account for emergencies ONLY

I use any and every extra dime I can find to go towards funding my $1000 emergency fund. Once funded,  I do not pull money from it for a new dress with plans to put the money back when I get paid, I do not use it for the day after Thanksgiving sale and I don’t have a pity party to justify blowing it – no matter how many people I can get to come to the party.

I don’t collapse under the pressure because, if I’m including myself in my budget, I’ve allotted some money for me to enjoy.  I also don’t dip into my emergency fund for nonemergencies because I no longer want to be a slave to debt so I am ready when there is a real emergency.  If  I want to go shopping, I put it in my budget and save for it.  The Day after Thanksgiving sale happens every year around the day after Thanksgiving so I have an opportunity to save for that as well.

Through this budgeting, I learn to plan for my purchases so I have less budget busting moments.  Before I can keep promises to anyone else, I need to start keeping promises to myself and I promised myself that I would save $1000 for emergencies only.

Baby Step 2 – Pay off bills smallest to largest

Pay attention now.  I have a budget so I know where my money is going, I have $1000 in savings and now I’m applying any extra money I can find towards my smallest bill until it’s paid.   Once I pay off one bill, I apply that whole payment to the next smallest bill and continue in this manner until all of my debt is paid.

My budget is working, I’m not only taken care of my responsibilities but I’m consciously taking care of myself and I still have $1000 in savings. Let’s just say that I pay $500 per month on credit cards, furniture and car payments.  Once I’ve paid off these bills, I have an extra $500 per month to manage.  But don’t start spending that money yet, roll it over to Baby Step #3 (see what I mean by self discipline?)

Baby Step 3 – 3 to 6 months of expenses in savings

OK so, my budget is still in effect, I still have $1000 saved for emergencies, I’ve paid off my debt and now I can start putting money to the side for 3 to 6 months of expenses.  I know that sounds like a lot of money but remember, I’ve paid off all of my smaller debt so my expenses would included what I spend monthly on my mortgage, HELOC and/or 2nd mortgage (we don’t tackle these until later), food, utilities,  insurance and anything else I pay monthly.

So, if I was out of work for 3 to 6 months, how much money would I need to maintain my lifestyle.  Now that you have that amount in your head, put the $500 and any extra money you can find into savings until you fully fund your emergency fund.  Remember, you already have $1000 saved so this step shouldn’t take you long.

I’d go further but, as you can see, the baby steps build on each other and, as I stated earlier, I haven’t made it past Baby Step 3.  Today, if you are like me, your spending habits haven’t produced the results you want but with Dave Ramsey’s Baby Steps, you can gain control without feeling like all you do is pay bills. Depending on how gazelle intense you get, you can “Live like no one else so later you can live like no one else” faster than you think.