Baby Step #2

Okay, so where were we? We established a $1,000 emergency fund, we set up a budget and envelope system, ah- yes, now it’s time for baby step number 2- working on your debt snowball! I’m not quite sure why Dave Ramsey calls them baby steps. They really should be called Giant Leaps. When you move from one baby step to the next, it’s quite an accomplishment and to me, it has never felt like anything a baby would do! Dustin and I are currently on baby step 2 and unfortunately, we’re going to be in this step for quite a while. It involves paying off all debt except for your mortgage. This includes, but is not limited to, vehicle loans, loans for a boat or RV, credit cards, student loans, medical bills, financed furniture and electronics, personal loans- any debt that is not classified as a mortgage.

So why is it called a debt snowball? It’s mainly about the momentum that can happen when paying off debt. It works a lot like a snowball rolling down a hill. You start with a tiny little ball and as it gets rolling, it builds more and more momentum and collects more snow until it becomes a huge, heavy snowball that knocks out anything in its way. Paying on debt can be very similar. To start, it is a good idea to make a list of all of your debts, how much is owed on each one, and the interest rate of each loan. It would also be a good idea to transfer all of your debt to fixed rate loans, of possible. You may be surprised at the total amount of debt you have outside of your mortgage!!

Next, take that list and organize it in the order of smallest to largest amount owed. You will want to pay on the smallest debt first. Yes, I know what you’re thinking and I thought the same thing too- “Wouldn’t it be wiser to pay off the loan with the largest interest rate first?” Yes, ideally, it probably would be the best option, however it has been proven time and time again that people are more motivated to pay off debt when they can actually see the fruits of their labor and they typically stop paying on debt when it feels like they are getting nowhere. This is true from our experience as well. Dustin and I have been able to knock out a few loans fairly quickly and it has really motivated us to keep going.

So, you’ve created your budget, filled your envelopes, and now you have some cash leftover per month. You don’t want that extra cash to just disappear on stupid purchases. You will want to designate this cash completely toward debt. When you account for every last dollar you make, you start to make your money work for you. So, let’s say you have $200 left over after everything else is accounted for. This $200 goes toward your smallest loan, on top of the minimum payment that you already make (let’s say it is $150.) This accelerated payment of $350 will allow you to pay off that loan much quicker. Once that loan is paid off, you will then apply that $350 to your next smallest loan, on top of its minimum payment and so on and so forth until you are throwing a huge amount of money at your last loan. So, you still continue to live exactly the same way, but your money is now working in a way that is allowing you to pay off your debts.

Believe me, it feels different to drive your car when it’s completely paid for, your couch suddenly feels a little more comfortable, and you really enjoy vacations with your family when your RV is truly yours. It is also rewarding to think of all of the interest that you saved by not just making minimum payments until each loan’s end.

A debt snowball calculator is pretty useful for seeing the big picture/timeline of financial freedom. I use this one.

So what are you waiting for? Get those snowpants on and create some magic!!!

Just another reason to pay cash…

Retailers can now charge consumers 4% to use their credit cards!!

Free Shopping Friday

So now I’m going to tell you about my favorite kind of shopping…free shopping. I’ve only been at this for a few months, but it astounds me what I am actually able to get for free from places or websites I would usually frequent anyway. Before, when people would mention free shopping, I would think of those extreme couponers who buy $56,432 worth of groceries that they will never use for $4.35 and stockpile their basements full of Oreos and hairspray for the apocalypse. I just wasn’t into it. But after doing a little research on the subject, I have been able to get quite a few things for free that have been put to good use and it satisfies that small need for Dustin and I to have some retail and eating out therapy without the any of the hefty price tags. In fact, I usually end up not even spending my “blow” money for the pay period because I have shopped for free.

My great idea is to post a free shopping deal or method every Friday. I’m really good at getting excited about something in the beginning and then letting it slide after awhile, so I hope that I can continue to do this every Friday. There are certainly enough deals out there to do so! Like with everything frugal- free shopping requires discipline. When companies offer something for free it is most definitely just to lure your into their store to buy other things. Most people are afraid that they will come off as a cheapskate and end up purchasing something else because they don’t want to be embarrassed. I can only understand this if it is a small ‘”mom and pop” kind of place where the people you are buying from most likely are the owners of the establishment. Dustin and I never free shop at those sort of places because they are usually struggling as it is to stay afloat. We free shop at multi million/billion dollar companies that usually overprice their merchandise and take advantage of most of their customers anyway. Why be embarrassed? You were smart enough to find your deals and in my experience, the cashiers usually think its pretty cool. I’ll warn you though, it does feel strange at first to walk out of a store with merchandise and not have paid a cent. It takes a while to break that retail habit.

Since January 1st, I’ve been keeping a list of everything I’ve gotten for free. I hope to do this all year long and celebrate my accomplishments on New Year’s Eve.

My list so far:

Free Stuff 2013

Red box rental
Ingrid leggings
Ingrid turtleneck
Ingrid socks
Duplo blocks
Small silverware sets
Down alternative comforter
Auntie Anne’s pretzel
Ingrid shirt
Hat & Mitten set Ingrid
Flannel shirt Simon
Socks Ingrid
Redbox rental
$1 amazon card
Photo shoot & 16×20 family photo from Sears
$5 amazon card
$5.20 Starbucks card
$1 amazon card
4 samples of Airborne
$1 Amazon Card
$5 Amazon Card
$1 Amazon Card
$1 Amazon Card
$2 Amazon Card
Simon pajama set
Simon pajama set
Bath and body works lotion
Bath and body works lotion
Auntie Anne’s Pretzel
Redbox rental
$5 Starbucks Card
3 Atkins Bars
Atkins frozen entree
$5 Starbucks card
$1 Amazon card
Panera pastry
Valley Dairy Hot Cocoa & cookie
Arby’s Triple Hot Chocolate

And so the Free Shopping Friday Deal today is a Free Triple Hot Chocolate at Arby’s

Enjoy!! :)

You’ll see my nerdie self coming from a mile away

You’ll see me at the supermarket- I’m that tired mom with a toddler on her back, baby in the cart, and my hideous nerdie envelope system in hand. Yes, I spell it nerdie because I like it that way. I’m probably pleading with my oldest to hang on for 2 more minutes while I check the sale on French vanilla yogurt. I don’t look like I have it all together, nor do I try to appear that way. But what I do always have is cash.

I’ve gotten a lot of questions about my gaudy envelope system in the past two years that I’ve used it. It’s made of a Christmas Red material and has snaps to open and shut for fast cash flashes. Most people think its some sort of couponing organizer (which, by the way, I hardly ever use coupons for groceries). One time a lady commented, “Your Christmas-y purse is so cute.” I usually just reply, “thanks” and move on, but on the rare occasion that no one is throwing a tantrum, I’ll try to explain what it is. Well, since both of my children are napping and we are currently sans tantrums, I will try to reveal the method to my gaudy madness.

As I mentioned in my previous post, every payday we split our paycheck into categories. After the utility bills, mortgage, car insurance, student loans, and car payment are deducted automatically from our account, we are left with all of these various categories to which we now assign envelopes to. Before using this method, if we needed a car inspection or haircut, we would swipe our debit (or credit) cards and hope that the excess in our account covered it. This is a very bad idea not only because you might not be covered, but also because that excess seems to disappear without really knowing what it was spent on. Now that we have our trusty envelopes we can see exactly what we have spent and how much is left to spend. When you account for every dollar you make you OWN your money. You tell it what to do. Not the other way around. We all work really hard for our money. Shouldn’t we own it?

Every payday (which happens twice a month) I pack my children up and take them to the bank. It’s time for our payday party! My oldest loves going to the bank. She thinks it’s where lollipops are made, as the tellers are always so willing to hand out a few of her favorite treats. I withdrawal the exact amount of 1’s, 5’s, 10’s, 20’s, 50’s, and 100’s needed to fill our envelopes. I then insert money into the envelopes and that’s it! No really, it’s that simple and actually a concept that’s as old as the hills. Just ask your grandmother how she budgeted. Payday now has a more exciting feel for us. It’s like a reward for all of the hard work in the previous weeks. It feels way different than having a check debited into your account and forgetting about it. It’s so much more fulfilling to actually see the cash that you make and trust me, handing over those pretty, crisp uncle Benjamin’s at the grocery store- now that really hurts!! (To be read in a British ‘Charlie bit me’ voice.) Only after all of our envelopes are filled, can we know how much is leftover to throw at our debt snowball that month. And that is really where the magic begins (debt snowball post to come.)

Okay so now I’m going to put it all out there and reveal how much we put into each envelope per payday. No laughing! We are broke and we’re living like this now so we can live like no one else later (OH, yes I did, Dave Ramsey-ites! You knew I would be pulling that one out before too long)

I carry around 4 envelopes in my cloth envelope system. These go with me everywhere. “WHAT!?? Aren’t you afraid you’ll be robbed or you’ll lose them?” The only thing robbing me was my debit card and I have never misplaced a single dollar. So…da da da da! Here is that stylish system that would compliment any number of Santa’s outfits:

And the envelopes contain:
Grocery: $225
Gas: $100
Eating Out: $60
Blow: $15

“Blow?? What the?” Yes ‘blow’ is the term Dave Ramsey came up with for “fun money.” In hindsight
I should have just named it “fun money.” You get some interesting looks on the bus when your blow envelope falls on someone’s shoe.

I like the cloth envelopes because they are durable, but any envelopes will do. You have to find a system that works for you. There are some really cute ones on etsy, where I purchased mine. Being the nerdie frugie that I am, I of course bought the cheapest one available.

For the remaining categories we use paper envelopes and we keep them in a fireproof safe in an undisclosed location in our house:) Uh uh, noo way, you CANNOT rob from the clothing fund to get Chinese takeout! Believe me, we’ve done it! Because the next time you need new underwear a little takeout container will not do!

Here are the remaining envelopes:
Gift: $30
Vacation: $25
Car Inspection/Registration: $20
Car Maintenance: $10
Haircut: $5
Dry cleaning $5
Staining deck/Sealing Driveway: $10
Clothing: $10
Turnpike Tolls: $5
Home/Lawn Care: $15
Neighborhood Dues: $2

If you continue to do this, I guarantee your worries about money will start to disappear. It has worked well for us for 2 years and we are beginning to make headway with our debt. I would have never envisioned this could be a possibility.

The B word

no, not that one…the other “B” word- BUDGET. Just reading this word sends a lot of people into a frenzy thinking about all of the things they can’t do because of this awful, nasty word. “Oh, we could never live on a budget, we enjoy ourselves too much.” “We thought about budgeting but it just isn’t for us.” HUH??? I think the biggest misconception about budgeting is that people believe it to be too restrictive. Ah, we Americans- we don’t like to be restricted. We want to live how we want, when we want, and we don’t like to hear the word “no.” Basically, we live in a world of denial. We’ll, I can honestly say that being on a tight budget has been one of the most freeing experiences of my life.

OK, so most of us have been there- you’re at a restaurant with a date or some friends. You’ve planned to pay, but you’re really not sure what the total is going to be. In your head you try to secretly calculate everyone’s meals as they order but that extra side of potatoes jubilee is throwing everything off and then finally the big moment arrives- the little black billfold is placed on the table. You cringe, open it up, slide your card in without looking, and cross your fingers it’s not declined (after you take the mints, of course). If it isn’t, you happily sign your name, THEN check the total and run to the bathroom to call for your balance (just to make sure you are truly covered). If it is declined, well, there are few things more embarrassing and restrictive in that situation. If only you’d have budgeted! You’d enjoy your meal to its fullest, knowing you’ve got it covered. When that billfold comes, you casually, but classily whip out your eating out envelope (more to come on that later), and you fan your twenties out, oh so gently, while your date looks on with a smile. “Oh wow, he paid cash?” Nothing says responsibility more.

Restrictive? Maybe in some sense but really not. I’d trade eating out only once a week for a sound night’s sleep any day. Plus, you’ve worked hard for this cash- really, really hard. You start to appreciate eating out on a different level and instead of blowing it on pizza delivery, you want to make it the best restaurant experience possible- even better with a coupon, I might add. But maybe save that for a second date.

Dustin and I lived almost 4 years together without a budget. We might as well have opened up our car door every weekend and thrown hundred dollar bills out of it. We had many moments of crossing our fingers and hoping it worked, but guess what, usually it didn’t. The night that we did finally sit down and become “restricted” was a very long night with too many calculations and not enough Shiraz. But, it completely paid off (hehe).

There is way enough information out there on budgeting, so I’m not going to go into details right now on how to do it. To briefly sum it up, we listed everything we ever bought in a year’s time and divided it by 24 (the number of times Dustin is paid in a year). We were conservative with our numbers but still realistic. Everything must have a category- haircuts, staining the deck, clothing, turnpike fees- you name it, it’s in our budget. We then created our envelope system and began filling them with CASH at each payday (more about that in my next post). Whatever was left over we decided to throw at debt and begin our debt snowball (also more about that to come). After 2 years of living this way, we actually feel like we’ve got everything covered and we are making some headway with our debt. The system truly works if you have the discipline to keep at it. It’s very much like weight loss. You have to work, but you will slowly see results.

In 2012 we were able to pay for the following purchases completely with cash while still throwing huge chunks at our debt:

Granite countertops
Ceramic tile
8,000 IRS payback (from sale of last home)
New stove
Roof repairs
Driveway resurfacing
Paint kitchen
Kitchen hardware
Tires Dustin car
Catalytic converter Dustin car
Treadmill
Staycation
New range hood
Laptop

2 years ago, most of those items would have been financed. I am proud of us.

In 2013 we hope to focus considerably more on just our debt and restrict ourselves from major purchases. Each year we keep getting madder and more disgusted with it. We want it outa’ here!!!!

Dave Ramsey (note: I will be referencing him, like maybe, ALL of the time, sorry!!) says there are 2 kinds of people. You have your “nerds” who are very disciplined with their budgets and love spreadsheets. They tend to be very conservative with their money and over think every last piece of gum that they purchase (woo hoo, yes that’s me). And you have your “free-spirits.” They tend to buy without really thinking about the consequences, live life to the fullest, and hate budget meetings and Excel (yup, Dustin). Put them together and bibbity bobbity boo, you have a good team. They balance one another and usually there is one of each in every relationship. It works for Dustin and I. There are a lot of disagreements, of course, but we keep each other in check.

Here are a couple free tools for budgeting that my friend, Alexis, found:

http://angus65.com/

Click to access fpu_monthly_cash_flow_plan_forms.pdf

Promise this is the last post today. I just have so many of them swimming around in my nerdie head!! :)

One of the best decisions we’ve ever made

I could give just one piece of financial advice (although I’ll certainly be giving more) it would be to CUT UP YOUR CREDIT CARDS AND NEVER USE THEM AGAIN!!!!

No seriously…do it…right now! Call your friends over and cut them up together. Bring out chips and salsa (paid for with cash, of course) and make a party of it. Slice them into a million tiny shreds and scream “Take that, Citibank! We’re through! No more lies, no more deception! I’m moving on to something real, something with substance who is honest and reliable. I’m moving on to cash!”

No more taking out credit to save 30% on that sweater. No more free T-shirts and ball caps for filling out that application. These companies want to own you. They feed off the bottom. They want you to make minimum payments, or better yet be late with your minimum payments,for the rest of your life. Isn’t that thought enough to make you want to reach for the scissors? We’re smarter than that, aren’t we?? That $29.99 sweater could end up costing you hundreds of dollars!

“But, but, but what about emergencies?? What if I need new tires or we have an unexpected medical expense?” you might ask. I’m glad you might have asked that. That’s what an emergency fund is for. Dave Ramsey’s baby step número uno: build up a $1000 emergency fund as fast as you possibly can. Sell anything that’s not nailed to the floor, plow someone’s driveway, work a wedding on the weekend- anything to make $1000 super quick. Once you have that money, put it somewhere that won’t be tempting to use, yet is still liquid enough that you can actually get to it, say a real emergency happens. Some people put it under their mattress and forget about it. Dave tells of a woman who framed it and hung it in the back of her closet. Dustin and I are a little more greedy than that so we opted for an ING savings account that can make us a little extra money while it is sitting in there. It takes a few days to withdrawal your money, however it is perfect to suppress those red-faced moments of “lets buy a pop up camper” (which by the way, is NOT an emergency!) Not many people can think of a true emergency that will cost them over $1000. So what qualifies as an emergency? Car repairs, medical expenses, broken water heater, insurance deductibles, you get the gist. What doesn’t qualify? Shopping sprees, kitchen remodels, new furniture, I’m sure you also get the gist.

“But what about the rewards points? I can’t give up my frequent flier miles! I need my cash back!” No, no you don’t. You’re smarter than that. Even if you are the most strategic of planners, shop sales, and keep track of what you spend, I guarantee you will spend more when using plastic. There have been studies done about this very concept. When you pay with cash, it hurts! Those little Abe’s become your friends!! When you swipe a card (even a debit card) you barely feel a thing. There is more temptation just having them in your wallet. From my experience, the opposite is true with cash. I like my wallet to be filled with friends and I feel lonely when they are gone. You’ll think twice before trading in dear Benjamin for that extra value meal. And how many of us actually have used our rewards? How many of us have used our flyer miles? If you have, please share your experiences. I’m really interested to know if any of you are truly beating the system.

“But what about my credit score. If I don’t take out credit cards, won’t I have bad credit?” And I’ll answer your question with another one- “Why do you need a credit score if you want to live debt-free?” Don’t fall for that either. Again, we’re smarter than that.

OK, I’m a little embarrassed…

Hi! If you found yourself here, you’re most likely a supportive Facebook friend, family member, or dedicated fellow nerdy frugie. In any case, I’m thankful that you are taking the time to read about our family’s exciting, but complicated journey to becoming completely debt-free. This blog comes from a few recent requests to share my OCD frugal methods and tips and it is my hope that I can change at least one person’s perspective on personal debt and the need for “stuff.” But first, let me give you a little bit of our family’s background and explanation of why we decided to embark on this crazy and “weird” challenge.

I do have to admit that I’m embarrassed, even mortified, to expose some of our biggest financial mistakes. While our mistakes are not all that different from the average American’s, it makes the hair stand up on the back of my neck to think about how just plain stupid we were with our money and how much better off we could be now if we hadn’t given in to our need to want “stuff.”

Our debt began in college. We both attended a very modest state school (no problems there) but we didn’t pay a dime for it until after we graduated (big problems there). We also signed up for a total of 4 credit cards while in school (also a big problem). This was before the time when everyone and their 5-year-old had cell phones and the oh so well-meaning credit card companies would stand at the front door of our dining halls, dangling calling cards in our hungry faces. If we would just fill out a simple application, the cards would be ours. Missing home, and not having many other means to call, we willingly surrendered our social security numbers and income of $0 so we wouldn’t have to call our family collect and scream “momthisiserincallmeback” into the receiver. “We won’t use these cards, we’ll just tuck them away in our top dresser drawers in case of an emergency.” WRONG. When you’re in college everything qualifies as an “emergency” including A large fry at McDonalds at 2am. Fast forward through the 4 years of school and we had an almost $15,000 emergency!

Fortunately, we were both able to find full-time jobs straight out of college. We continued to spend on credit- eating out, buying clothes, and yes, we got MARRIED on credit!!! We moved to an extremely claustrophobic, 600 square-foot, 1 bedroom apartment. We also bought a brand new Chevy Aveo with no money down, 11% interest! I consider this now to be one of the stupidest impulse buys I have ever made. For a year we made minimum payments on everything, put our student loans into forbearance, and took weekend trips on credit just to get out of the tuna can we lived in. Somewhere in that year, Dustin’s Uncle Mark and Aunt Dana sent us Dave Ramsey’s book The Total Money Makeover. We skimmed through it, thought his ideas were great, and put it aside. “We’re much too young to be concerned about our finances,” we thought, or should I say, didn’t think. The only good thing that came out of that year financially was the decision to finally stop using credit cards and us taking out a loan to consolidate them all (totally Dustin’s idea).

We moved to yet another 1 bedroom apartment close to both of our jobs and continued to make minimum payments for another year while Dustin dabbled in some graduate courses and racked up an even higher amount of student debt. What was our next step? Why buying a house, of course! We kept our student loans in forbearance, reconsolidated our car loan with a credit union, and took out even more loans for a down payment on a house. Ouch. That hurts to even type it. We continued to eat out multiple times a week, but this time we paid in cash (making it a little better). I remember adding up one month’s worth of restaurant bills and ending up with a figure somewhere around $450. That is more than we pay now for one month’s worth of groceries to feed our entire family, 3 meals a day plus snacks. Double ouch. And then it happened… wheels came screeching to a halt when we discovered I was pregnant. Somehow housing, feeding, and supporting someone who you deem the most precious being on the earth changes everything. We went down to one income and I became a stay-at-home mama. Dustin began feeling the pressure as our sole financial existence rested on his shoulders. I began clipping coupons, calling all of the utility companies, asking for discounts, and reconsidering “unnecessary” items at the grocery store. Our hunting and gathering instincts set in. We sat down one night and made our first budget. It was long, it was gruesome, but it was also very satisfying. We had enough to slip by, if we just kept paying minimum payments and student loans could miraculously stay in forbearance forever. This just didn’t fly with Dustin and he began searching for better employment. Our beautiful daughter, Ingrid, was born in September of 2010 and that same week, Dustin was offered a new job. A few months later we sold our house, and bought another closer to his work with the equity (thank goodness there was some) from our sale.

We were starting to get on track. We were paying cash for everything, eating out far less, but still making minimum payments. A few months later, I was introduced to a wonderful group of mamas who were very like-minded in the way of parenting, sustainability, and frugality. I was talking with one particular mama (you know who you are) about budgeting and finances and she shared with me that she follows some of Dave Ramsey’s methods of using the envelope system and his debt snowball. The name sounded familiar, but I couldn’t place it. I went home that night and talked to Dustin about it. “We have one of his books!” he replied. “We just never did anything with it.” I ran upstairs, pulled it off the shelf and read it cover to cover. That week we set up our budget, emergency fund, debt snowball, and envelope system and we haven’t looked back.

Two years later, it feels like an obsession. We are angry enough about our debt and stupidity that we have gotten, as Dave Ramsey calls it, “gazelle intense.” Retail is not a word we use in our house and we are actually having a blast living below our means. Every single dollar of our income is accounted for and if it wasn’t for babies needing to eat every three hours, we could finally sleep soundly, knowing we have it covered.

While brainstorming a name for this blog, Falling Behind the Joneses immediately popped into my head. At first thought, it seemed too negative for a title, yet, after thinking about it, it is absolutely perfect. We don’t want to be the Joneses or even appear to be the Joneses. In fact, we despise the Joneses. Not because they have everything but because of their irresponsibility and childishness. We’re frankly too smart to be the Joneses and we want to leave a positive, lasting legacy for our children and our family tree. We don’t want to be slave to the lender for the rest of our lives. We want to be “weird.” For most people having no payments seems like a fairy tale, but it is our goal by 2020 to make it a reality.

So if you’ve made it this far through my ramblings, please leave a comment, introduce yourself, and just for fun let’s share the stupidest thing you’ve purchased on credit.

Thanks for stopping by :)