Financial Preparedness, Part III

In the previous installments of this series, I've covered Dave Ramsey's Baby Steps One and Two. Today I'll discuss budgeting.
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Budgeting. The dreaded "b word". Few words can cause simultaneous consternation and boredom like the word "budget" can.

Budgeting causes wailing and gnashing of teeth, but it's the only way you can take control of your money. And it's definitely the only way you're going to accomplish Baby Step One (saving $1,000) and Two (paying off your debt).

Hubby Dear, being the sexy geek that he is, put our finances into Quicken for years. He'd categorize all of our expenses and enjoyed shocking me with some of the facts of our excessive lifestyle.

"Hey honey, did you know that we've spent $2,500 on dining so far this year?", he'd say. My hair would stand on end, we'd promise to do better next month, and then promptly forget all about it.

Then I started listening to Dave Ramsey. We've been following a budget for 16 months now and seen the power of writing out a budget ahead of time and sticking to it. Budgeting has allowed us to make sure we have extra money each month that we can put towards savings or debt.

So how do you make a budget? It's one of those things that can be intimidating to approach, but it's not really that hard. Sit down with your honey and decide how much money you will spend on each category of life during the next month.  Look back at what you have been spending, think of anything you can do to economize, and then write the resulting number down. Don't forget to keep some money in your budget for prepping. It's not officially part of the Dave Ramsey plan, but as I heard directly from the man himself, he's OK with that.

Here is a link to Dave's online budgeting forms:
http://www.daveramsey.com/tools/budget-forms/

This is a great place to start. Dave's book, The Total Money Makeover, also has a bunch of these forms and much more information on budgeting.

You might wonder what is a reasonable amount to be spending in each budget category. You can plug your monthly income into this calculator and get an idea of what your food allowance should look like, for example.

When Hubby Dear and I were first married, our goal was to spend about $75 dollars or less on food and toiletries per week. That was OK for a couple of childless twenty-somethings in the 90s, but that would definitely not work for us today! Sometimes people (usually men) think you can feed and clothe a family for pennies. If you can manage that, more power to you, but try to be reasonable in what you allow for each category in your budget.

The first month you try budgeting is going to be tough. You'll want to meet with your spouse frequently and review how things are going. It does get easier as you go along, I promise!

If you're not already budgeting, take the time to learn how. Then tighten up your spending and put your plan into action. It's the key to getting debt free and moving on down the road towards financial preparedness.

Read much more about the Baby Steps in The Total Money Makeover. You can buy it on amazon.com or daveramsey.com. You may also be able to listen to Dave on his syndicated radio show. I love me some Dave Ramsey!





Coming Soon: Financial Preparedness, Part IV: I'm debt free, so now what?

Financial Preparedness, Part II

Previously, I discussed the first Baby Step towards financial freedom: a starter emergency fund of $1,000. Today I'll pick up with Baby Step Two: Paying off all your debt except your mortgage.
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Debt will drown you.

In America we have this idea that debt is OK and a natural part of life. This attitude has only been around for the last 60 years or so. Credit cards as we know them did not exist until 1950 when Diners Club was introduced.

Credit cards may be convenient, but I think having real money in my pocket is even better! Some people try and play the system. They will charge up a low interest rate card and use OPM (Other People's Money) to invest and hopefully turn a profit. Others use credit cards for frequent flyer miles or rewards points and promise they will pay off their card faithfully every month.

I was one of those people, too. That was until I realized that until you are debt free, you cannot truly have financial freedom. Dave Ramsey often quotes Proverbs 22:7: "The rich rule over the poor, and the borrower is slave of the lender." This is very true and the more debt you have, the more true it will become for you.

What if you lost your job? What if that monthly payment got lost in the mail and all of a sudden your cushy interest rate gets jacked up sky high? What if you decide to have a mid-life career change and you have to go back to school? What if you get tempted at Pottery Barn and charge up way too many useless knick-knacks? Debt puts far too many "what ifs" in your life. Preparedness is about getting rid of as many "what ifs" as you can and debt has no place in the equation.

So what is the best way to pay down your debt? There are several schools of thought about this, but I subscribe to Dave Ramsey's plan. Baby Step Two is paying off all your debts, in order, from smallest to largest. Once you have paid off your smallest debt, you add the amount you were paying for the first debt to the minimum payment of your next highest debt. This is called building a debt snowball. Over time, the amount of money you will have available to attack each successive debt will grow, enabling you to pay off those big debts like vehicles and student loans.

Some people object to this plan and say you should pay off the debt with the highest interest rate first, regardless of how much it is. This does make sense in that you will save money in interest if you follow that plan all the way through. The problem with that isn't the math, it is you (and me and every other person out there who thinks it's more fun to spend money than pay down debt). If you pay off your debts smallest to largest, you will build momentum. You get quick gratification as you swiftly move through your debt snowball. If you start with the debt at the highest interest rate, you may stagnate if it happens to be one of your larger bills. It's like going on a diet and not seeing any change in the scale for 2 months. I'm much more likely to stick to my diet if I'm consistently losing a little bit every week rather than losing a big chunk all at once at the end of the two months.

This is the Baby Step Hubby Dear and I are currently on. We've been working our debt snowball for the last 18 months and we'll be done by the end of this year, having paid off nearly $80,000. Gulp. Momma knows how to shop.

Although we are not yet done with this Baby Step, we are already starting to have a greater sense of peace and control over our income. We have gotten rid of all of our credit cards and only use cash and debt cards.

Get rid of your debt! Pay off those bills permanently and don't get back into debt again.

Read much more about the Baby Steps in The Total Money Makeover. You can buy it on amazon.com or daveramsey.com. You may also be able to listen to Dave on his syndicated radio show. Dave's the man!


Coming Soon: Financial Preparedness, Part III: The Dreaded "B" word.

Woohoo! Dave Ramsey says I'm right!

Hubby Dear and I have been going back and forth a lot on the subject of prepping. Honestly, it has descended into flat-out fights several times. Hubby Dear and I are the kind of couple that usually make people sick because we're so lovey-dovey even after over a decade of marriage, so that is very unusual. It was after one of those fights that I got all steamed up and emailed Dave Ramsey. Little did I know that I would quickly get a reply from Dave's producer, Lara Johnson, and actually talk with the man himself live on national radio.

In case you do not know who Dave Ramsey is, he is THE financial guru. His slogan says it all: "Debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice". We have been following the Baby Steps as set out in his best-selling book, The Total Money Makeover, for over a year. I knew if anyone could solve this problem Hubby Dear and I have, it would be Dave.

When we put our problem before Dave, he was impressed to hear how much debt we had paid off in the last year. Lee told Dave that he didn't want to spend money on prepping until we paid off the remainder of our debt. Dave Ramsey told Lee that it would be fine to set a budget for prepping as long as we stick to it. Dave noted that preparedness obviously must be something important to me since I was willing to call in to a national radio show!

After he stated his opinion on our question, Dave asked me why I felt the need to, in his words, "store up a bunch of food in the basement". I briefly explained my reasons for prepping. Dave said he wasn't worried about ever having trouble feeding his kids, but said what did he know - he stocked up on certain kinds of ammo when Obama came into office.

Overall, I was very satisfied with the call, even though Dave isn't a prepper. Hubby Dear and I are finally on the same page with our budget and I get to spend money on prepping.



* By the way, they said our location as Kansas City. I'm proud that I was quick witted enough to give a phony location. I didn't break OPSEC! ;)

The Marriage Ref - Dave Ramsey!

Well, Hubby Dear and I still aren't seeing eye to eye on spending money on prepping. So I called in the big gun - Dave Ramsey! I'll be speaking to Dave on his radio show around 1 pm central time on Monday. We'll see whose side of the argument Dave falls on!

Love and the Married Prepper

Hubby Dear and I have been together quite a while and we rarely disagree over much of consequence. My new preparedness "obsession", however, is another story.

I'll admit it - I can have a pretty anxious personality. I am a glass-is-half-full, anything-that-can-go-wrong-will-go-wrong kind of gal. Hubby Dear thinks "prepping" is just another one of my neuroses and that I should just chill out and stop worrying.

The other facet of his argument is that we are working hard at becoming debt free. We have paid off something like $50,000 in the last year. Our only remaining debt is a lease we have on Hubby Dear's vehicle, and we are saving up the money to pay that off this fall. I agree that getting debt free is really important. Heck, that would count as financial preparedness, wouldn't it?

The problem is that Hubby Dear doesn't want to spend money that I thought we had budgeted for prepping. He'd rather put it towards paying off his vehicle. Here's how I see it: if we spend the money to prep, it will delay paying off his vehicle for a month at the most. If SHTF between now and then, however, those few months I was able to prepare might make the difference between survival and, well, not surviving.

Hubby Dear just doesn't think the SHTF will occur. I hope he's right. In the meantime, we'll be prepping. I used a little bit of wifely persuasion to help him see my way. After all, a happy wife equals a happy life! ;)