Our Total Money Makeover

Let me preface this by saying I am not one to share my financial situation with anyone. I don't (usually) think that it is anyone's business and I don't give financial advice.

That said:

Hello World! We are in debt.

Here is our story.

Once upon a time, (5 years ago) we had it all. We had a nice townhouse, one car payment and my student loans as our only debt. We both worked and I was able to make double payments on my loans. We had one credit card and we paid it off every month. We had a budget and stuck to it.

Then LIFE happened. We had a baby. We built a bigger house. Then we had twins. We needed to trade in a car for a mini-van and we bought more 'stuff' - more stuff than we needed. Then came preschool tuition, twice the diapers, swim lessons, swing sets, Christmas and double the bills in our new, bigger house.

We have managed to rack up some pretty heavy credit card bills over the past 2 years. More than once, when couldn't pay the balance, we opened a 0% interest card where we let the balance sit, making minimum payments wih no real plan to get rid of it. We even took out a Home Equity Line with the intention of making home improvements. That has only become a place to 'store' our debt.

Enter: The Total Money Makeover. I have been reading about and listening to Dave Ramsey for a few months. His debt reduction plan made sense to me. After hearing that a few friends were on his plan, and it was working for them, I decided that this is what we needed to do.

I went to the library to check out The Total Money Makeover, and was disappointed to hear that they did not have it in circulation. They were going to locate it for me from another library. In the meantime, my mom (also a Ramsey fan) bought me the book. I started it on a Saturday and finished it by Sunday. It was an easy read. The concepts were not foreign to me and its a plan we can live with.

As of March 1st, We have started the The Total Money Makeover and we plan to completely eliminate our debt over the next 2 years. That means NO more student loan payments, NO car payments and NO credit card bills. We will be debt free (except for our mortgage.) We'll have an emergency fund in place as well as college funds for our kids (even though I am fairly certain they will all get scholarships to great schools!) :)

Ramsey's plan includes 7 baby steps to becoming debt free.
Step one is to establish an emergency fund. This fund is a minimum $1000. For us, this was an easy step and we were able to dive headfirst into Baby Step 2: The Debt Snowball.
This step will take much longer to accomplish. It entails strict budgeting and planning - and a cash only budget. We tried the cash thing for a few months about a year ago, except that time I left my credit cards in my wallet to 'fall back on.' This time, the credit cards are gone. We have both emptied them from our wallets and sealed them in an envelope - until I think of a creative way to dispose of them. We have implemented a cash envelope system.

Each month the envelopes (labeled Grocery, Gas, Dining Out, Medical, Haircuts, Wholesale Club, Dry Cleaning, Entertainment, Gifts, Clothing, Misc.) are filled with an allotted amount of cash. Depending on the month, the amount in each envelope will vary. Planning is key. For example, we know we have two family weddings this summer. We already know that those months will require extra cash. We must plan accordingly, which may even mean that we contribute less to our debt that month.
If we want to make a purchase, we'll need to save each month. No more spending money we don't have. No more impulse buying. Every purchase is planned.

I was able to use Microsoft Money's Cashflow forecaster (a tool I have used to help keep track of our expenses since 2005) to help predict approximately how much we will be able to contribute to our debt each month. These first few months will be the hardest as we make the complete transition to cash. Once our cash habits are established, the debt snowball will begin. By the end of May we should have $500 to put to debt and by early July we'll have and additional $1200.00 to snowball.
All 'found money' will go directly to debt. This includes our garage sale profits, bonuses and tax returns.

You're invited to watch as we crawl out from under our debt - so we can live a life of no payments, no money stress. This journey for us is so much more that just getting out of debt. My hope is that as a family we can learn to live only with what we really need and appreciate what we already have. That we can simplify and have less 'stuff.'
After All, "Having the best things is no substitute for having the Best Life."

I heard that quote on Oprah yesterday. It hit home for me.