Dave Ramsey’s Baby Steps Tutorial

One of the theories that attracted our family to applying Dave Ramsey’s approach to finances in is his plan called “The Baby Steps.” Rather than trying to fix all areas of your finances immediately, you work on a specific step, with focused intensity, solve the problem, and then advance to the next goal. Before we began the program we felt like we were attacking our financial issues in fifteen different directions, not one was effective, and long term success seemed nearly impossible. This new, single-minded strategy led us to a great point in our financial lives. Let’s look at each of the Baby Steps as defined by Dave Ramsey’s website.

Step One - $1,000 to Start an Emergency Fund. To start the process, scrape together $1,000 to use in case of an emergency while you are working your next steps. Begin a shopping freeze; eat only food from your pantry; sell extra household items; pick up short-term extra work to accomplish this goal as fast as you can. This emergency fund will help prevent you from accruing additional debt while you are working on Baby Step Two. For our family, this involved actually reducing our savings and applying the surplus to our Debt Snowball. While this step was scary at first, we were able to live with this level of savings for 30 months, rebuilding it a few times when life happened.

Baby Step Two - Pay Off all Debt but the House. List all debts but your house in ascending order. Pay off the smallest balance with focused intensity and make minimum payments on the rest. When you retire the first debt, apply the same focus to the next smallest debt, and so on and so on. Like a snowball rolling downhill,  your payment will become larger as it absorbs the extra money from the paid-off debt.  As an example, our family dealt with $55,000 worth of loans that took the shape of personal loans, medical bills, 401K loans, student loans and a second mortgage on our house. We spent 30 months cutting down our debt by following this plan, and we were so excited to make the last payment on our second mortgage in December 2010. At this point in the Baby Steps, many people find ways to make extra money through work and selling some of their personal property. The degree to which you are willing to sacrifice will reflect how much time you spend paying off your non-mortgage debt.

Baby Step Three - Build Your Savings to Three to Six  Months of Expenses. Now that all your debt is out of the way, calculate what it would cost to run your household for three to six months, accounting for  risk factors in your life such as illness, job stability or a growing family. Having several thousand dollars in the bank will add a feeling of peace that you may never have experienced.   You can  accomplish this in a short period of time on the heels of a successful debt snowball victory. This step took us approximately six months to accomplish,  and we were so excited to begin applying our knowledge towards creating a brighter future for our family.

Baby Steps Four through Six can be worked on at the same time.

Baby Step Four - Invest 15% of Household Income into Retirement. It’s time to plug back into investing after taking a break to complete the first three steps in the process. Between your Roth IRA, 401K, and  traditional IRA are several  options to build wealth for your long term use. The money you were using to attack debt can now go towards the future. We have found a wonderful financial advisor through Dave Ramsey’s Endorsed Local Provider (ELP) program that has taught us more about investing and work towards our long term goals.

Baby Step Five - College Funding for Children. Use 529s and ESAs (Educational Savings Accounts) to invest money for your children’s future. Ramsey doesn’t give a specific percentage or amount families should aim for, and leaves this to the discretion of parents. We personally want our children to pay for part of their college experience, but are still saving so that their contribution won’t have to cover the whole degree. 

Baby Step Six - Pay Off Your Home Early. In Financial Peace University, the video based class that we have taught for five years, Dave Ramsey shares that families who participate fully in the Baby Step Program with their spouse tend to pay off their homes in seven to ten years. When we began this process, we were trying to get out from debt that was causing us to lose sleep. Dreaming about a paid for house down the road wasn’t even  on the radar. Now, having applied these principles for nine years, we are a couple years out from paying off our mortgage. 

Baby Step Seven - Build Wealth and Give. At this point in the process you have zero debt, a paid for home, are investing 15% of your income for retirement, and have funded your children’s college account accordingly. Out of your income, you are called to live, give and grow wealth. With our target entry to this step quickly approaching, we have have a list of ways that we plan to live that are more extravagant than our life today. We want to take our children on a trip out of the country to solidify the connection between zero debt and amazing opportunities. We currently give 10% of our take home pay, and are looking to grow to a full tithe on our gross earnings. Growing wealth through additional investing in mutual funds and real estate is also on the table. We look forward with hopeful anticipation for how God might use us in new and exciting ways when we pay off our home and free up that monthly mortgage payment.

The nine week course Financial Peace University and Dave Ramsey’s book The Total Money Makeover delve deeper into each of these steps with detail and more actionable steps. This program did not feel sophisticated or heady enough to actually work when we first started. After living this system for almost ten years and teaching it for five, it’s clear that financial freedom is more about personal behavior than math. Building a plan, believing that it will work, and then following through is a sound way to make your financial dreams a reality. 

Saving on Everyday Purchases

One of the most profound and basic lessons that I have learned from teaching Dave Ramsey’s Financial Peace University is that money is finite. This concept sounds simple  to understand but is a difficult lifestyle to live. To reach our financial goals we’ve found that we must follow two steps: spend less and earn more. Here are a few ways to save money on everyday items.

Cash is King. When hiring services, negotiate a price and then always ask if there is a cash discount. We regularly save 3%  ON projects done around our house. We’ve found that most companies are happy to give us a discount, and if they are not, we can look at another bid or rest in the comfort that at least we checked before making the purchase. We have saved money on house painting, a stove from Lowe’s, window installation, landscaping, vehicle repair, and even our new mattress and box spring.

Work to purchase everything used. It is amazing what you can pick up at a thrift shop that will stretch your dollar further and further. Last week I made the following purchases (pictured above):

• Double Bottle of Contact Solution - $3 (Neighbor’s Inc.)
• Two Pairs of Children’s Shorts - $2 (Neighbor’s Inc.)
• Old Navy Women’s Jeans - $2
• Women’s American Eagle Jeans - $2 (DD’s Place - Thrift Shop)
• Lighting for our Porch - $10 (DD’s Thrift Shop)
• Two Pairs of Men’s Shoes for our growing son - $15 (Goodwill with 25% off coupon for donating)

We also try to look at Craigslist and online garage sales before making household purchases. Our money stretches so much further by taking a little more time and being mindful that second hand items can often be just as good as new purchases. With garage sale season coming up, there are plenty of deals to be had!

Shop with a list. Always. For every store. Impulse buying adds up quickly, and taking the time to write what we plan to purchase allows us to stay on track and not make frivolous purchases that detract from our financial goals. It is also helpful to be able to show our kids, if it’s not on the list, we’re not buying it.

Take advantage of lifetime warranties. This fall I went to zip up my Cabela’s Winter Jacket, and the zipper just fell off. I did a quick search and found, that without a receipt, Cabela’s will issue a gift card at the lowest price of the warranted item. For me, this was a $60 gift card for a jacket I wore for four years. I was then able to use that money towards a replacement. Jansport also offers a lifetime warranty on their products, and I’ll be looking into this at the end of the school year for two backpacks that have zippers that aren’t working properly.  Discount Tires has replaced tires that couldn’t be repaired but still had plenty of wear left. When something has broken, or you have been disappointed as a consumer, it doesn’t hurt to look into the company warranties.

Fix rather than replace. A few years back Ryan replaced the motor on our aging dryer, and it worked great. A couple months ago, he replaced the belt. Last summer we paved a beautiful patio with some DIY ingenuity at a fraction of the cost of hiring professionals. Between Google and Youtube,  you can learn an awful lot about fixing yourself  to save a few bucks.  

Find ways to discount the cost of items that are seemingly fixed. Sometimes we get into a rut of believing  that monthly bills are fixed prices. Negotiating on insurance rates, phone and internet service and even preschool is a legitimate way to save money. We receive a monthly discount on preschool because I pickup an extra couple kids. Opt for a more simplified cable option, or cancel it all together. Purchase modems, antennas or other supplies to bypass the monthly rental fee. There was a time when we even skipped our garbage pick up every other week because we weren’t filling our can. 

Take advantage of Ebates for online purchases. It’s a site that links to 100s of online stores (Target, Kohl’s, Amazon, Orbitz, Living Social), and offers a quarterly cash back rebate when you start your shopping experience with ebates.com and then make a purchase at an affiliated store. You can use coupons, discounts, in-store rewards and gift cards when making a purchase. After a few years of doing this, I’ve received about $175 cash back. There’s also a referral program, so if you decide to give this a shot, could you please use my referral link in the side bar?

For our family, we save the most money on all goods and services when we are intentional about looking for a deal and steering clear of impulse purchases. What are some of your money saving ideas?

Favorite Reward Programs

Many stores and businesses offer rewards programs to encourage consumers to continue shopping with their brand. Here are a few of rewards programs that our family utilizes, and I would love to hear about the programs you have found valuable.

Kassa Cash Back on Debit Purchases - A trend that started with credit cards is quickly becoming an industry standard with debit cards as well. Our credit union began offering cash back on purchases. This seems like a no-brainer to take advantage of for those monthly bills you use your debit to purchase. We earn 2% with a max return of $12 a month. Certainly not an amount to retire on, but it adds up to $144 a year.

ebates.com It may seem like I’m beating a dead horse with referencing this site, but it’s really a simple way to get cash back for purchases you’ll be making online anyway. You simply set up an account at ebates and search their site for participating stores. If you can use their cash back offer, you’ll follow the link which will lead you to the retailers store front. You make all purchases directly with the retailer and ebates will generate a ticket after the purchase is completed and apply it to your account. Quarterly they will send a check to your house. I’ve received $172 using this site for the past couple years. There are also incentives for referrals so if you’re going to check it out I’d appreciate you following this link on the side of the page.

Grocery and Gas Partnerships - This is another great rewards program for things that we need to purchase anyway. We don’t take full advantage of these programs because we primarily shop at Aldi which doesn’t partner with any gas stations, however, our local Knowlan’s has partnership with Kaposia Convenience. We get 5 cents off a gallon for every $50 we spend. Many Financial Peace University families have shared that this is a great way to save a few bucks each month.

Fantastic Sam’s - I was really disappointed when Fantastic Sam’s moved away from their punch card system. With a family of 5 someone was getting a free haircut every other month. Their current rewards program keeps track of all purchased haircuts and issues a $10 off coupon after spending $250 on cuts and products. In addition to building towards a reward, participants also receive regular coupons for discounts on products and services. Our family isn’t too picky about our hairstyles or seeing the same stylist and have been really pleased with the local service. 

Walgreen’s - It seems like someone is always in need of a prescription at our house, and picking up the medicine at Walgreen’s allows us to take advantage of their rewards program. After signing up, purchases build until reaching a “goal” and then a cash discount is applied on the next purchase. We are all about finding simple ways to discount purchases we need to make and this is a great fit for us.

Thrift Stores - Our local thrift store Neighbor’s Inc offers a punch card that provides a $10 discount after it is filled. Since prices are cheap, it takes awhile to fill the card but when I get a $10 shopping spree the money can be stretched awfully far. To my knowledge, Goodwill doesn’t offer a rewards program, but you can get a 25% discount coupon for a donation. Again, that type of savings can be a real workhorse when buying second hand items.

Kohl’s - This list would not be complete without giving a nod to the mother of all rewards programs. Kohl’s seems to be the holy grail of getting people to spend more to rack up their rewards points in the form of Kohl’s Cash. Their rewards programs offers $5 Kohl’s cash for every $100 spent. They also periodically offer Kohl’s cash in store or online, on top of their rewards program. Combine with coupons ranging from 10%- 30% and checking the ebates offer (today it is 6% cash back) there are plenty of ways to save at this store. We certainly take advantage of all of these rewards program but skip using a charge account.

None of these rewards programs will make you a millionaire, but there are plenty of simple ways to discount products that are going to be purchased anyway. I can’t wait to hear about the rewards programs that you love. Please add them in the comment section below.

Making Peace with my Kohl's Breakup

I loved Kohl’s. Everything is always on sale, and it’s a rush to head up to the register and earn Kohl’s cash and discounts on the pile of stuff that I place on the counter. And I loved my Kohl’s card back in the day. I mean 30% off!!! Who wouldn’t love that kind of discount on everything you need. I’d stock pile my lists, await my coupon and strut into the store prepared to do major damage with a tiny piece of plastic. 

Then I read The Total Money Makeover, and worse, so did my husband.

In the summer of 2007, we drew a line in the sand and decided that we were going to stop using credit. We weaned ourselves off of our Amazon sponsored Visa Credit Card that offered $25 gift cards for every $2,500 we spent. We cancelled all the random charge accounts we had opened to get an immediate discount or t-shirt. And then, we turned to that maroon card that was left. Ugh. It was so hard. In the end, my Kohl’s card was cut and closed as well, and I mourned.

When people begin cutting credit cards in Financial Peace, there is ALWAYS someone, usually a woman, who can’t wrap her heart around closing this account. I’ve heard, (and long ago presented) all the arguments. The 30% off coupon is too good to pass up. Kohl’s cash is amazing and you can’t give away free money. Right?

The answer that has made me most confident in my breakup my Kohl’s charge is the phrase, “It’s not you, it’s me.” As in, my thinking, behavior, and values have changed and this relationship just doesn’t fit anymore. 

When I am thoughtful about my spending at Kohl’s, I’ve come to see that we aren’t really talking about giving up a 30% discount, but more like a 10% one. I can logon to kohls.com any day and find the coupon on the front page offering me 10-15% off my purchase, WITHOUT using a Kohl’s charge. I can also sign up for their rewards program and emails that will offer me 20-25% discounts a couple times a year. Today I got a free $10 coupon just for Mother’s Day! I am also still able to earn Kohl’s cash at the same pace as those carrying a card. If I choose to make a purchase from home, I always start with ebates.com to earn an additional 1-10% cash back. Today the offer is 6% of each dollar spent! Of course I could save a bit more using a Kohl’s charge, but we’re talking about 10% of the purchase. 

Changing my behavior and shopping with cash and a budget saves me much more then 10% at Kohl’s with each shopping trip. Cash has allowed me to feel money in a way that the maroon card never allowed. I don’t overspend or pick up another few items outside of my budget to reach a certain dollar amount for more Kohl’s cash. When the money is gone, I’m done shopping. We are able to work towards our financial goals without getting derailed by a sale or coupon.

My values have shifted so dramatically since starting our total money makeover that I have a lot of peace with my breakup with the Kohl’s charge card. My husband and I are so focused at reaching our financial goals that chasing a discount feels more like a distraction than a tool. Truth be told, my Kohl’s cash often expires now because I don’t want to get sucked into buying something extra just to use the “free money.” 

The marketing department at Kohl’s knows exactly what they are doing, and they are excellent in that manner. I’d rather not chase money in that manor, and focus on having my budget reflect the bigger picture in my personal finance story.

Have you broke up with Kohl’s? What are your thoughts looking back on the relationship?

Keeping the Christmas Spirit Year Round

I love Christmas: the music, decorations, picking out the perfect gift, gathering with family, worshipping, receiving a thoughtful present, eating my mother-in-laws Christmas cookies, and of course finishing the Advent calendar. It is a time of year that our blessings are incredibly close and visual. We live in them for a month and it feels good.

Until that comfort that traditions provide begin to feel heavy. For me that happens right around December 27th. I knew it when we attended church on the First Sunday of Christmas and sung old hymns celebrating Emanuel, and it felt like an over played tune. Many of the songs were the same that were sung by a packed sanctuary just four days earlier. It’s amazing how quickly the build up can fade and we can turn our focus towards reclaiming space in our home and time on our calendar.

As I took down the tree and decorations this year I contemplated how quickly our family transitioned from anticipation to routine living. Last week at this time, our house was ROCKIN’. The elation of the coming Christmas was more then anyone could handle. There were plans, food, fun, melt downs, sugar and something beyond excitement. Today, the kids are quietly playing in their respective rooms enjoying space. I’m able to type in the middle of the day with all three children home. It’s a little jarring how quickly and all-encompassing this shift occurred.

The build up and diffusion makes me think of another Christ story. The events of Holy week are hitting me a new way today. While our family hasn’t turned into a riotous mob, the climate is totally different then last week. The parallel of anticipation, excitement and joy with the following week of irritation, normal and anger is hitting close to home. The human condition crosses cultures, time periods and faiths, and understanding that again and again is such an amazing gift.

We certainly can’t live in the heightened excitement of Advent for the whole year. We would run ourselves ragged, and there are so many good and important things that come from understanding “normal” and stability in the home. But maybe we can live with the awareness of how fleeting and unreliable our emotions are. When frustrated with our kids, spouse, family or friends maybe we could remember how quickly the entire climate of our lives can change in just a week. This seems like a tangible way to make Christmas a part of my everyday.

Teacher Gifts that Continue to Teach

A few years back we began making a change in how we approach gift giving to the teachers that impact the lives of our children. These (primarily) women share their passion, concern, strength and insight with our kids 183 days a year. They help to smooth out rough edges and allow us to see our kids in a new light. Knowing how much they give our family, it seemed odd to write a dollar amount next to a name and seek out a gift that would fulfill that line item obligation.

The elementary school the boys attend has a sister school in Tanzania that they were introduced to in first grade. Since then, we have decided to make a donation for both Christmas and the end of the year to the organization (Friends of Africa Education) that partners with the school. It’s not as glitzy as a cute homemade ornament or practical as a Caribou gift card, but I hope that it honors and celebrates the incredible work that these women do.

During our drop off drive this morning we discussed what a donation like this can do in a school in a developing nation and the gap between the “haves” and “have-nots” was cut by a titch. When I explained some of the costs of running a school and how donated money can help meet those needs, Kyle said, “Whoa. They must have like five ducky fundraisers every year.” 

Trying to find a way to describe the disparity between disposable income that can be used to generate extra funds for schools or organizations in our community and living on a meager wage in a developing country I went back to the, “if there were only 100 people in the world” speech to describe our unimaginable wealth by world standards. “By the simple fact that our family owns two vehicles, we are among the world’s richest people. If there were only 100 people in the world, we would be the richest person in the world.” A moment of silence filled the van that always feels like a victory, because the information is sinking is being absorbed in a new way.

My poet son, the old soul spoke up. “I wish there were only 100 people in the world. That way we could help them all. We could go to the same school. We could all take care of each other.” Now it was my turn for silence. 

Isn’t this the rub of living with wealth but being surrounded by those that seemingly have more? The math would be just the same if we recognized our wealth and how we could use it to help others, but there is still that relational gap that allows us to create categories of “us” and “them.” Kids don’t have this. Kids are amazingly open to “us” and “we.”

Our sons will drop off cards today with a little message inside thanking their teachers and sharing of the donation made in their honor. Even without knowing, they have once again blessed our family with a new insight and helped shape our children into givers and people who are able to look beyond themselves.

Legacy Binder Part Two

In my previous post I shared a template of the excel file created to give a quick overview of our family finances to those who would care for our family in the even of the death of either Ryan, myself or God forbid, both of us. Since we are not guaranteed tomorrow, it seems a loving gesture to lay out for our spouse or loved ones who would need to step in and assume the leadership of our family finances in the event of our death. Today I’m going to outline the physical structure of the Legacy Binder, what documents to include and who should see your the fruits of your hard work. Basically there are three tasks at hand: collect, store and share

Collect:

I felt a little like Jason Bourne locating and storing all of my documents in one place. I remember vividly the scene where he opens a safe and finds an assortment of passports, birth certificates, currencies and weapons. Before you rush to assume that you’re friends with an international hit woman, let me assure you, I am not. I found the collection part of this task to be kind of fun. I knew where all of these items were throughout the house. Having them safely stashed in one spot felt great.

I included the following items in our Legacy Binder: 

• “Irreplaceable documents” for each member of our family such as passports, birth certificates, social security cards, an adoption decree and our marriage license. 
• Life Insurance Policies for both Ryan and I.
• Notarized, signed wills for both Ryan and I.
• Mortgage Paperwork signed at our closing and the payoff document from our second mortgage.
• Vehicle Titles for each of our cars.
• Savings Bonds.
• A paper copy of the Summery of our Legacy Binder.
• Wills and Health Care Directives given to us by our parents and those who have asked us to care for their children in the event of their deaths.

Store:

The binder I used to gather all these documents is a simple accordion style binder that I  picked up in Target. It has 13 slots and each category of documents gets it’s own file. We’ve chosen to place the binder in our fire proof safe. The key is that those who would need access know where the Legacy Binder is and how to get it.

Share:

It was exciting to get all of this information together, and we felt it was important to share it with the Godparents of our children who would raise our kiddos in the event the death of both Ryan and I. We felt like it was important that they know the assets that are in place to care for our children now and what insurance policies would kick as well. The conversation was pretty awkward and unceremonious but the peace of mind I had was worth it. My hope is that we can briefly revisit this topic every year or so until the kids all reach age 21, at which point our wills state they would have access to our money without any oversight.

The peace of mind that comes from this act of love is worth an afternoon or two of tracking down papers and passwords. As the new year approaches maybe this project will be your first goal of 2015. I’d love to hear how this post lands with you and yours and what you plan to include in your family Legacy Binder.