Growing some green.

Just look at all that green!  Do you think that's going to grow into a twenty- or a fifty-dollar bill?

The peas are budding.  The tomatoes smell amazing.  The petunias appear to be a richer shade of purple every time a new one blooms.  The girls are loving our little garden in the sky.  It was a little difficult to convince them that we didn't need to water all the plants last week when we had a lot of rain, but they'll be happy when the sun is out again and we can get back to spending more time outside.

I'm so close to the $6k mark.  I hate being this close without quite making it and having to wait two more weeks!  It does, however, give me some motivation to work a little harder and earn a little more for the next paycheck.

Speaking of motivators, I've been listening to Rebound.  Rebound is a podcast by a couple who is working to pay off their debt.  It's always fun to hear what kinds of inexpensive fun they've come up with lately and hear what challenges and successes they've encountered in their journey.  They're doing a giveaway of some Dave Ramsey schwag right now.

Kid quote of the week:  (In response to my suggestion that my daughter drop her attitude.)  I DO NOT.  HAVE.  A.  BANANATUDE!!!

Planning ahead for spontaneity (but only a little)

One envelope that I have found to be essential to my budget is my Use-It-For-Anything-I-Darn-Well-Please Envelope (Dave Ramsey refers to this as "Blow Money"). In my first few bi-weekly budgets, this envelope served as Mistake Money. If one of my envelopes for essentials like groceries or gas was short, I had a little extra to supplement those needs. It also allowed me a little bit of wiggle room as I was learning to cut back on non-essentials like dining out and impulse purchases at my budget's retail nemesis: Target.

Over the past few months, I've gotten better at sticking to my budget and can now easily manage with a quarter of the Blow Money that I used to budget. Fairly often, I have money leftover at the end of the budget period that I carry over into the next period.

Why is it important to have a little money without a specific destination? For me, if I don't plan for a little fun, the this-debt-is-impossible-and-I'm-never-going-to-beat-it anxiety and depression can begin to take hold. Having even a small amount of cash that can be used for anything allows a small amount of freedom and flexibility within an otherwise strict budget.

How is your budget? The link below will take you to a simplified version of DR's budgeting software. It gives recommended percentages for spending each category that were really helpful when I first started budgeting. It made it obvious to me where I needed to make major adjustments.

lesson learned.

The envelope system only works if I put money in the envelopes!

I've mentioned all the overtime I've been working lately and how much it's helped me jump-start my debt snowball.  Unfortunately, I didn't make time to do my budget.  I was reading The Total Money Makeover: A Proven Plan for Financial Fitness last night and was scolded by Dave Ramsey himself with something I've heard him say so many times.  He essentially says that we don't have time not to do a budget.  Erg... There he goes being right again.

So I ended up stupidly using my debit card, then backtracking and figuring out from my reciepts which envelopes that money would have come out of, then figuring out how much cash I needed to pull out of my account and place in each envelope.  Basically, I created a lot more work for myself by not doing my budget and getting cash.

It was a good slap on the wrist.  I don't think I'll be making that mistake again.  It was a pain...

the baby steps

I've mentioned that I'm following the incredibly simple debt-reduction plan taught by Dave Ramsey.  To give you an idea of what exactly that plan is, here is a list of the seven "baby steps" he teaches as a means to get out of debt and build wealth.


Baby Step 1
$1,000 to start an Emergency Fund
Dave frequently refers to this Emergency Fund to as "Murphy Repellent," meaning that Murphy's Law ("Anything that can go wrong will go wrong.") seems to apply far less to those who are prepared to deal with the unexpected.  It is crucial to keep perspective on what is truly an emergency when considering using this money.  Is it really an emergency?  Could I save money to cover this expense rather than pulling money from my Emergency Fund?


Baby Step 2

Pay off all debt using the Debt Snowball

The Debt Snowball pays off all debts except a first mortgage.  Dave suggests paying off the lowest balances first.  Pay the minimum on everything except the lowest balance and put everything you can toward that creditor until it is paid off.  Then take the amount you were putting toward that balance and attack the next lowerst balance.  As each balance is paid off, the snowball grows and more money is available to pay toward the lowest balance each month.  Learning to live on a budget and within your means (living on less than you make) is the only way to get out of debt and stay out.

Baby Step 3

3 to 6 months of expenses in savings

After the debt is taken care of, it's time to beef up the Emergency Fund.  More savings means you're better prepared for bigger emergencies should the arise.

The next several steps overlap or occur simultaneously. With the first three steps, you are digging out of a hole and ensuring that you are prepared to handle emergencies without incurring debt. The remaining steps are about building wealth.


Baby Step 4

Invest 15% of household income into Roth IRAs and pre-tax retirement

This is just the start of retirement preparation unless you're already on the verge of retirement.  Once the rest of the Baby Steps are complete, more may be invested.  My company matches 401(k) contributions, doubling the first 1% and matching the next 3%.  That means that if I put in 4% they will put in 5%.  That's free money!

Baby Step 5

College funding for children

R and K will be starting college at the same time, so this step is a little intimidating.  R declared the other day that she wants to be a doctor.  Later the same day, we were driving past the private college that I attended briefly and she told me that was where she wanted to go to school.  Granted, she is not even four years old yet, but I want to support her big dreams.  After all, I want to be in a nice nursing home someday!

Baby Step 6

Pay off home early

Home mortgages are the only type of debt that Dave Ramsey understands as a necessity for most people.  He would prefer that everyone pay cash but that's not an option for most people.  He provides some guidelines for those looking to buy a home:

1. Utilize only 15-year, fixed-rate mortgages.
2. Your monthly payment should be no more than 25% of your take-home pay.

Using these guidelines helps you to keep the cost of your home within your means and if your payments are reducing your mortgage balance at a faster rate, equity in your home is built more quickly.

Baby Step 7
Build wealth and give!

With the first six steps out of the way, you can invest more in your retirement if you'd like.  You can give more to the philanthropic organizations that are important to you.  You can even add more cash to the fun envelopes!  A fortune cookie I got recently said it best: 

"If you continually give you will continually have."

So those are the Baby Steps!  That's not so hard, is it? :)

This blog is now open to the public.  Feel free to pass it along to anyone you think may enjoy or benefit from it.  The links over there ---> might help me pay my debt down faster if I find myself with some followers who click on them now and again.

I'm adding labels to my posts so specific topics can easily be found.  I've also added a net worth tracker.  It's not much to look at right now, but it'll be fun to watch it change.  I'm a nerd for math, graphs, and spreadsheets so all of this is kind of fun for me.  I like paying bills.  How weird is that?

Please leave your answer in the comments below. :)

full disclosure

I have expressed my desire to pay off at least $15,000 of debt in 2010.  In total, I have $35,000 in debt.  About $16,500 of that debt is student loans.  Somehow I feel like student loans are an acceptable form of debt so I need to explain that.  The rest is consumer debt in one form or another.  Here's the lowdown of every debt I'm making payments on.

Direct Deposit Advance - $550

Store Card 1 - $323
Credit Card 1 - $400
Line of Credit - $510
Credit Card 2 - $685
Student Loan 1 - $1,951
Store Card 2 - $2,800
Student Loan 2 - $3,148
Auto Loan - $4,140
Credit Card 3 - $4,577
Credit Card 4 - $5,150
Student Loan 3 - $5,614
Student Loan 4 - $6,048


There you go.  Every bit of it.  I'm working the Dave Ramsey plan.  That means that I'll be paying these debts according to the balance, lowest to highest.  This may seem counterintuitive to some who are of the pay-less-interest school.  Numerically, that makes a lot of sense, but the reasoning for paying them according to the balance is to get the momentum going.  If I paid these according to the interest rate, it would probably still result in paying some of the lower balances first (store credit cards are notorious for ridiculous interest rates), but sticking strictly to the lower balances first is going to increase the amount of money that I'll be able to commit to paying the next debt faster.

Ready... Set... GO!

the approach

How do I keep it going?
I'm taking a few approaches to keep myself excited about paying off debt.  I want to stay focused so I'm trying to spend some time every day working on my finances in one way or another.  I look at my budget every time I recieve a bill to determine when it will be paid.  Because I'm in my first few months of using a budget, it is going to require some regular tweaking before I get it just right.  I am also listening to financially-focused podcasts on a daily basis to learn more and hear about the experiences that others are having paying off their debt.  Right now, I listen to The Dave Ramsey Show and Rebound.  I have also subscribed to MyTotalMoneyMakeover.com and am using the money tools there to help me in this process.  I'll blog more about that soon.

Why do I want to pay off my debt?
At this point, I spend about a third of my take-home pay on debt repayment.  That's ridiculous!  If I was able to save that money every month, I'd have the girls' college funds fully funded well before they were in high school.  I could afford to have them in preschool.  I could spend money on piano lessons.  And for me, I could contribute to a retirement fund and purchase stock at the company I work for.  I could buy new clothes when I lose weight.  I wouldn't be stressed out about how I'm going to pay for car repairs when they're needed.  And there is the fact that I hated going into my first marriage with debt.  I do intend to marry again someday and I don't want to bring financial baggage into the relationship.  I am currently dating an absolutely amazing man that has the desire and ability to be an entrepreneur.  Business ventures require capital.  I'd love to be a help rather than a hinderence in those ventures if we should end up marrying someday (and I hope we do <3).