It was 7 years ago when I first moved to Houston to be with my now-husband, Paul. One of the things we quickly discovered we loved doing together was going to Half Price bookstores and browsing the shelves for hours. He’d get lost in history and DVDs, I’d browse the financials and cookbooks, and we’d meet up in biographies.
I had not even started my blog at that point, but had been financially-minded and passionate my whole life.
Then one day I spotted Dave Ramsey’s Total Money Makeover. Paul saw me pull it off the shelf, and quickly endorsed it, saying his older brother was all about Dave Ramsey. Since it was half the normal price, and I love(d) to read about anything to do with money, I took it home.
I gotta say, I devoured it that weekend.
The stories of people not only paying off massive amounts of debt, but also saving up huge sums of money for their future stretched me beyond the realm of what I thought possible for an average person.
And hey, I had debt at that time as well. I was 25, with approximately $17,000 left from $36,000 in student loan debt. So the book really spoke to me.
So now, 7 years later — a wedding, a honeymoon, combining finances, combining debt, buying a home — where exactly are we on Ramsey’s 7-step plan?
Where We Started
To give you the quick and dirty rundown, in 2009 Paul and I got engaged and combined our finances. This included combining our debts. Together, we had $25,000 remaining ($10,000 in student loans at 1.25% interest, $12,000 in car loans at 6.325% interest, and $3,000 for an engagement ring at 0% interest for 12 months). We decided to have this paid off by the time we got married (April, 2010), as well as pay cash for all the other things going on at the time, like the wedding, honeymoon, and putting a down payment on a home.
Our 7-Step Plan Checkup
- Save $1000 Fast (Check!): We had this one accomplished very early through some strategery. We set out to eradicate the last of our $25,000 in combined debts before walking down the aisle. Since buying a home together was on our to-do list, we took advantage of the free-and-clear $8,000 first time homebuyer’s tax credit offered at the time. We put $7,000 of this money onto the car loan debt while taking the other $1,000 to help replenish our savings account after plunking it down on our new home purchase. This turned out to be very important, as my car died one month after we purchased our first house.
- Pay Off All Non-Mortgage Debt (Check!): Paul and I actually used a hybrid approach of both Dave Ramsey’s Debt Snowball and Suze Orman’s debt repayment plans (pay highest interest rate debts first) to pay off this debt. So we got gazelle intense on our highest-interest loan first (the vehicle) and worked our way down from there using the debt snowball. We were officially debt-free on September 1, 2010. Woohoo! To celebrate (and, well, actually because the volcano in Iceland erupted two days before our wedding so our paid-for, 11-day honeymoon to Austria had to be postponed), we went on our honeymoon in November. It was magical! Not only was it already paid for by the money we had saved plus some wedding gifts, but we also had no debt except our mortgage. Ooh-la-la!
- Finish the Emergency Fund (Check!): From September 1, 2010 onwards, we’ve been stashing cash in savings. We have over a year of expenses saved up in our emergency savings account now.
- Maximize Retirement Investing (Check!): The thing is, retirement savings are so important to me that we continued to max out our two Roth IRAs (annual contribution is currently $5,500 each, or $11,000 total) throughout all of the previous steps — while we were saving the $1,000, paying off debt, and finishing the emergency fund. I just refused to compromise our future for the other steps. What Ramsey really wants is for you to invest 15% of before-tax (gross) income (without including your company’s match) annually toward retirement. We are currently saving/investment more than 15% of our gross income towards retirement.
- Fund College (Nope): We don’t have children. Not yet anyway. So this step was not something that I chose to take. I’m a planner, but saving money towards a potential college education of a potential child was just too much for me! Paul is currently attending college full-time, and fortunately for us he earned full tuition + textbook cost reimbursement + a housing allowance through his post-9/11 GI Bill.
- Pay Off the Home Mortgage (Nope…But Perhaps): Right now, Paul and I are between this step and Step 7. We’ve got more than one year savings in an emergency fund, and a mortgage that is not crazy with the zeroes. Honestly, paying off our mortgage is probably attainable in the next few years. We’ve refinanced it to a 15-year mortgage instead of the original 30-year mortgage we had taken out, so we’re already on track to pay it off at over $100,000 savings to us in interest. But there are lots of “what-if’s” with this one. Like, what if we want to move? While we’ve loved living in this home for the last five years and don’t have plans to move at the moment, we’re not sure that it’s our forever-home. Another factor in this is that we don’t get to take a tax deduction on the interest paid. The loan amount is low enough (we live in Houston, TX) that we pay too little interest, so we have to claim the standard deduction. So we’re not getting that economic benefit anymore. Finally, we would essentially empty out our savings and then some to take this step. So we’d start from scratch on building up the emergency fund, leaving us financially vulnerable for a period of time. See why this step definitely is going to take some more thinking and planning on our part?
- Build Wealth Like Crazy (Working On It): Since we’re not sure if we want to pay off the mortgage or not (nor are we in a position to…yet), we’re kind of in this stage. We’re saving money, and have an investment account outside of our retirement/savings. To be honest, our savings grow a lot more slowly than they used to, since I’m now working for myself and Paul can be considered underemployed after a 5-month stint of unemployment, but we’re still headed in the right direction and that’s what counts.
Ramsey’s whole thing behind doing all these steps is “if you live like no one else, later you can live like no one else.” Fortunately for us, my ability to add frugal decadence into our lives and to manage our money really well has meant that we are definitely living our lives like no one else. Granted, we also made lots of sacrifices in the beginning (fulfilling the first part of his quote). But they were never sacrifices we weren’t willing to make for the greater good of our future finances…and BOY has it paid off. For example, I never would have been able to quit my day job over two years ago to pursue my writing and business full-time without those early sacrifices! What a change in quality of life we’ve been able to buy ourselves by smart money management and a bit of sacrifice.
Now it’s your turn. Where are you in Dave Ramsey’s baby steps?