We started through the Total Money Makeover steps 7 years ago. I'm going to share the baby steps, plus our Total Money Makeover success story.
It was 12 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. 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 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.
Even though I had confidence in my ability to be frugal for the rest of my life, I honestly didn't think I'd ever make it to some of the higher-end steps of the Total Money Makeover.
So now, 7 years later (and now 12 years later) — on the other side of a wedding, a honeymoon, combining finances, combining debt, buying a home, and selling a home — where exactly are we on Ramsey's 7-step plan?
Where We Started 12 Years Ago
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
- $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.
Total Money Makeover Steps + Our Progress in 7 and 12 Years
Below, I'm going to outline each of the Total Money Makeover steps (called Baby Steps), plus what progress we've made on them both 7 years later, and then 12 years into the Total Money Makeover.
Baby Step #1: 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. In fact, I no longer recommend you save up just $1,000 before going gazelle intense on your debt payments (read about that in my article on what is the best strategy for paying off debt).
Pssst: If you're needing to boost your income in order to get your $1,000 saved fast, then check out these 32 Legitimate Ways to Make Money at Home.
Baby Step #2: 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.
Psst: wondering how Dave Ramsey and Suze Orman's plan to pay off debt differ? Check out Suze Orman vs Dave Ramsey.
Baby Step #3: 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.
Baby Step #4: 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.
Baby Step #5: Fund College (Nope)
7 years later, this was my update:
“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.”
But 12 years later? We have a 5-year-old!
Still, we haven't touched this one…so we should get to it.
Baby Step #6: Pay Off the Home Mortgage (Check!)
When I first wrote this article, 7 years after reading the Total Money Makeover, we were between this step and Step 7.
In fact, here's the original update:
“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. Refinancing our mortgage means we're on track to pay it off at over $100,000 interest savings to us!
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.”
But now, 12 years later?
Well, we moved 2 years ago for my husband's job, and sold our home. That means we paid off the mortgage, and put the equity money into our savings account. We haven't purchased a home since, so we're officially 100% debt-off (though, we are paying rent! Thankfully, in a pretty low-price part of the country).
Baby Step #6: 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.
7 years after reading that book, when I originally wrote this update, I wrote this update,
“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.”
Now, 12 years later, having sold our home and renting in a pretty reasonably priced location? I can say that we're saving money like crazy. In fact, we're hopeful that when we purchase our next home? It will be in cash.
Do Dave Ramsey Baby Steps Work?
I think I've shown above that yes, if you work the baby steps, the baby steps will work.
But I would like to leave a word of caution on that $1,000 Emergency Fund (here's my article on emergency fund example amounts).
Before starting on a “gazelle intensity” towards debt repayment, Dave Ramsey advises you to save up $1,000 for an emergency fund so that when Murphy comes knocking on your door while you are trying to get out of debt, you will not have to go into more debt by charging the emergency to your credit card. And since getting gazelle intense—meaning taking all of your other savings to pay off debt, most of your income, extra job income, and basically “all money you have above and beyond the $1,000 in anything except retirement plans…”—leaves you financially vulnerable, then saving up an emergency fund is a good idea.
What happens if you need to dip into this $1,000 emergency savings?
After paying for the emergency in cash, you temporarily suspend putting all money possible towards your debts, and build your emergency savings back up to $1,000. Then, you get gazelle intense again.
I love Dave Ramsey and his debt snowball philosophy for paying off debt. I think it makes good sense, and enjoy reading all of the stories from people like you and I who decide to get focused on getting out of debt and find themselves out of a $50,000 hole 13 months later. Truly inspiring.
While Paul and I were working on a few of our own debts we sold extra televisions, books, game systems, my old laptop, etc. I picked up extra income with some freelance writing, and trimmed our fixed bills down quite a bit in order to free up some more cash.
However, it occurred to me that if Paul and I had started our debt-free journey with only $1,000 in emergency savings, right now we might be more in debt. If you remember, my car died after purchasing our first home together. Fortunately we had more than $1,000 in our emergency savings, and were able to find a replacement within two months by paying cash for a used car. Paul carpooled to work for about as long as he could, and we had moved further away from our jobs at that point so taking a bus or metro was much trickier (we did eventually become a one-car family for 2.5 years). Granted, if both of us could have changed our work schedules permanently, then we could have figured out a way to carpool together until getting out of debt.
Perhaps that is what Dave Ramsey means by gazelle intensity and focus. If I am going to do a complete, fair review of the debt snowball, then I need to add in the extra things that Paul and I could be doing in order to be more intense in our efforts.
We could've been more intense about our debts, but our Number Two goal was to get married, and to do so without going into any debt whatsoever. So we were concurrently paying cash for our wedding to save us from going into more debt, and shedding these older debts.
We could've eloped and put all of the wedding savings towards our debts (we thought about doing this, but in the end we both wanted our wedding day).
Perhaps I could've figured out a way to carpool with someone else (I did eventually carpool with a coworker who tore his Achilles tendon, and who couldn't drive for a few months, so we split the gas costs).
We could've postponed our purchase of a home and use our down payment money to pay off our debts, though the first time homebuyer’s credit was certainly a part of our debt-free plan (it was an $8,000 check we did not have to pay back), and we were planning on buying a home anyway at the time that we did. And we are definitely keeping more than $1,000 in our emergency savings account — without which I would feel too vulnerable — so technically, we could throw that money onto our debts as well.
We could've also temporarily stopped contributing towards our retirement plans and used that money to pay off the debts. However, I'm a very long-term thinker and planner (have you noticed?), and so I wasn't comfortable with this idea, especially since we saw the end in sight.
All in all, Paul and I are satisfied with shedding most of our non-mortgage debts by April, having no wedding debts, and no honeymoon debts. And while we don’t completely agree with Dave Ramsey’s $1,000 emergency fund while paying down debts, he has certainly been a part of our journey towards this point.
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?