I’ve always been interested in personal finance. I remember when I made slightly more than minimum wage through high school and college and thought, “how could I ever afford to save for a car”? My mom paid for most of my first nice car when I was 18 and I remember feeling horrible while its value dropped like a rock, wondering how I could afford my next one.
During my first couple years out of college and working, I often browsed the bookshelves at Barnes and Noble, seeing Suze Orman’s books all over the place. Because of her presence in bookstores and on TV, she was the first “personal finance mentor” I looked to. As I listened to her, I started feeling like she didn’t have as much of a strategy as I was looking for. Her advice seemed to just say, don’t buy what you can’t afford. Okay, well how am I supposed to afford it? She didn’t motivate me or help me figure out which direction I should go in.
Finding Dave Ramsey
As I kept searching for a personal finance mentor, I read magazines, read blogs and looked for podcasts online. Right before I turned off my expensive cable TV subscription, I caught a few episodes of Dave Ramsey‘s Fox Business television show. I quickly gained interest in him after a show where Dave’s guest was Dr. Meg Meeker. Their discussion was about a new book of hers at the time called, Strong Fathers, Strong Daughters: 10 Secrets Every Father Should Know. I haven’t read that book (although I’m sure it’s really good), but this helped me gain interest in Dave because of his passion for being a good, Christian person. That book seemed like a very awesome thing to promote and Dave’s willingness to focus his show around its topic inspired me. I’m a Christian also, so that helped a lot in my looking up to him as well. Perhaps, Dave just reminded me of my dad, who was a really good role model to me and who isn’t here anymore. Now that rapport was established, I looked deeper to find out Dave’s TV show was about life and money and that he had a radio show as well, which was actually a much bigger deal. His shows were very personal, where he took calls from people and tried to help them through their struggles. His advice was very compelling. I pretty quickly became a fan and a regular listener.
Finding Dave was a major turning point in my adult life. Up until that point, I didn’t have a plan, financially. Once I started listening to his show, I learned about his strategy, which consists of the 7 Baby Steps. It applies to everyone, no matter what their situation is. It is a solid strategy. It’s built on such a solid foundation. Much different than what I feel Suze Orman’s strategy is, which is, “don’t buy what you can’t afford”. Her strategy is just very “non-strategic”, in my opinion.
Dave motivated me to see personal finance in a very strategic way. He motivated and inspired me to think ahead. I started to think, “What is possible? Could I really be wealthy someday?” The answers I started telling myself were, “yes, I think I can”. I got motivated to change my future. I was going to go big or go home. So I jumped on board.
Dave’s Baby Steps
To start, here are Dave Ramsey’s baby steps, as described on Dave’s website:
- $1,000 to start an Emergency Fund – An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen.
- Pay off all debt using the Debt Snowball – List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first.
- 3 to 6 months of expenses in savings – Once you complete the first two baby steps, you will have built serious momentum. But don’t start throwing all your “extra” money into investments quite yet. It’s time to build your full emergency fund.
- Invest 15% of household income into Roth IRAs and pre-tax retirement – When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth.
- College funding for children – By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now.
- Pay off home early – Now it’s time to begin chunking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments.
- Build wealth and give! – It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It’s really the only way to live!
My Walk Through Dave Ramsey’s Baby Steps
Baby Step 1 – I started the baby steps immediately after finding Dave Ramsey and listening to his radio show. This was in the early spring of 2010, right around two years ago (Wow, has it only been that long?). I had a bunch of money in the bank from saving throughout 2009 (read more about it here). This means that I was completed with baby step 1 immediately after starting the plan.
Baby Step 2 – This was the big one. Dave’s baby step 2 says that I am to get out of debt, as fast as possible. I agreed with him, but was scared to write a check out for all but $1,000 in the bank. I was a bad Dave Ramsey follower throughout baby step 2 because I held on to my savings. I thought and thought about it but decided that I wanted to just save up for my debt and pay it down one debt at a time, in full. I also decided to pay my car off first, which was against Dave’s plan of paying them off smallest to largest. I went against it because my car payment was MUCH higher than my student loan payment and I wanted that payment gone first. That was the plan I stuck to.
Here were my debts:
- My car – $13,000
- My student loans – $5,000
- Total – $18,000
*For reference, I had about $10,000 in the bank at the time. That meant I had a net worth of about -$8,000. Not terrible. Much better than a lot of 26 year old’s.
That spring, I planned a vacation (I wasn’t very serious yet about Dave’s plan yet, obviously). A week before the vacation, I had to have emergency dental work done to the tune of $1,800. So I ended up spending about $4,500 that month (about $2,000 more than I earned, which came out of my $10,000 in savings). So I was now further behind. After that whole thing, I got really fired up. I had started paying attention, only to end up getting backtracked. I had made no progress at all. If I was going to make it out of debt and start getting ahead, I needed some big lifestyle changes. So that Memorial Day weekend, I got Gazelle Intense (as Dave Ramsey would call it). I made big lifestyle changes.
I basically just stopped spending money, with the challenge of seeing how much I could cut. I had been using Mint.com to track my finances for a few months at that point, so I knew what my cost of living was. People started noticing that I was now a cheapskate. I stopped buying everything that wasn’t essential. I stopped going to stores.
I also kept working really hard at work. Our company was doing well and so was I. As I cut my expenses, I started making more money. This helped a lot. I grew that $10,000 (which was down to $8,000 after the dental work) up to $12,000, which was my car balance in October 2010. When I finally had enough in my account to cover my car balance, I wrote a check and paid it off. The check was right under $12,000. I then owned my car. It was an AWESOME feeling.
I moved right on to my student loan. My plan was to have it gone in four months, by February. Well, my company did well that year and so did I, so my end of the year bonus allowed me to pay the loan off before the end of the year. I was debt free only 9 or 10 months after getting on Dave’s plan. It felt great.
Baby Step 3 – I kept my head down and kept focused after becoming debt free. It was the start of 2011 and I set a goal to have a 6 month emergency fund in the bank by May 1st of that year. That gave me 4 months. Pretty crazy goal, huh? Well, after a lot of hard work and persistence, I achieved that goal. I really had motivation and momentum now. I had built my savings back up to over $10,000 in just four months after being debt free (some of which was carried over from my end of the year bonus).
Baby Step 4 – After baby step 3, I decided to do a sub-step, which is an option on Dave’s plan, called Baby Step 3b. It’s a step in which you pause before starting retirement savings to save up for a down payment on a house. I’m doing that and considering going further than a down payment to save for the entire house. I’m still contemplating if I am going to do that or not. If I choose to, I may put off retirement investing until then, which will be 2-3 more years. If I choose not to, I will move into the baby step 4. I’ll be making that decision in the next few months, hopefully.
Baby Step 5 – I don’t have kids so at this point, I won’t be doing college funding.
Baby Step 6 – I don’t have a mortgage, so I won’t be working to pay that off early.
Baby Step 7 – Since I’m still working toward buying a house, I won’t be focusing on the last baby step until after my house is taken care of. But I do look forward to building wealth and setting a bunch of it aside to become a giver. I hope to be very giving someday. In the meantime, I’m trying to do my best.
The Future Continues to be Exciting
That’s my long, but personal story of how I got where I am, in just two years after finding Dave Ramsey. At this point, I’m getting more into blogging and following blogs than listening to Dave, but his help in the beginning will always mean a lot to me. He helped me change my future and that fact continues to be exciting! I don’t think it will ever get boring.