Wednesday, February 10, 2010

Get Out Of Debt - Part 3

If you are just reading this series for the first time and want to catch up on all the drama Click here then just work your way from the bottom up.

I was thinking the other day why would smar,t otherwise responsible people get themselve into the financial pickel we had gotten ourselves in. Afterall, according to statistics we are not alone in this department.  No my friend, this is a crowded room we sit in.

Finally I boiled it down to two reason.

1.  You just don't know how to budget and manage money the correct way.  Doesn't mean you can't be extremely successful in all other aspects of your life, it just means someone didn't teach you these skills when you were growing up and or you had a bad example to follow.

2. I think we (and I'll include myself here) are a society that wants the instant gratification.  We are told that if we get a job and put a little money away (sound familiar?) then we will be fine.  So go ahead and get that new car, purchase that designer handbag with oh-so-cute matching open toe slingbacks, you deserve it.  You work hard, and beside, you can afford it.  So we do.  Isn't that what all the advertising tells us.  Afterall, aren't we going to be wealthy when we retire. We've been following what our financial planner has been telling us, so I can just spend the rest and not have to wait until I'm sixty-five to enjoy the good life.  What's wrong with that?

First, I will own up here and say I fell partly into both categories, but probably the first the most.  I, nor my husband (sorry mom and dad we love you but...) were taught these principals about money that we are just now learning in our forties.  Our grandparents knew it.  And their parents certainly knew it.  But  our parents, the Baby Boom generation, started to forget it.  And if you were one of their children then chances are you didn't learn it either.  No blaming here, it just is.

Which category do you fall into the most?
Enough said.  So... did your assignment go?

I hope you got a chance to do it.

Okay, well no lecturing here I promise you, believe me, if you've been following along with this story line you know I have no room to talk.

Instead, on with the story...

We left off with me giving you the gruesome details of airing my dirty-debt laundry out for all the world to see, but more importantly for my husband to see.  Suffice to say we moved on and are fine - even better as I mentioned previously.

Now what to do?  This was new territory for us so please understand we were like a child just learning to walk for the first time.  There were a lot of "What Next?" moments.

We knew just how financially broke we were thanks to the previous episode of honestly sharing our debt, so again I say - now what?

To actually start Dave Ramsey's financial plan you need to find money to pay off the debt.  Here is were I started to get really nervous and we only had begun the process.

Where were we going to find "extra" money to pay off the debt?  As far as I could figure we were mostly living paycheck to paycheck with just a tad left over, and some months none.  How were a few dollars going to make any difference in the masssive amount of debt we had aquired?

My All American Guy and I decided that the first thing we needed to do was actually have an idea of how much money we were spending every month. 

Well that was easy - EVERYTHING!

Okay, but where was it going?

So I got out a piece of paper and we stared to list every category we could think of that we were spending money in: homeschooling, car payment, clothing, dining out, dry cleaning, gifts, satellite TV, fuel for the car, etc., etc.

Next we put a dollar amount to it as to what we thought we were actually spending.  Oh this is a fun exercise you should try it.  You put all these numbers in all these categories then add them up.  Oops, that can't be right, it adds up to more money then we spend.  Let's rework those numbers until they fit more into the amount of money we have each month.  So I reworked and reworked until I thought it replicated where our expenses went on average per month. Ha, ha, ha.(I'm laughing here and when you read on you will see why.)

I have to mention that at this very first point, since we had vowed to follow Dave Ramsey's plan, we took out all credit cards and seeing how my husband still had a trust issue at this point, he stood and watched while I put one after the other in the shredder.  Have you ever had to flush a family gold fish down the toilet?  That is kind of what it reminded me of.  Not too painful but just a small tear welling up in the corner of my eye.  I had to say goodbye to an old friend.

Now back to figuring out how much we spend a month.  I highly recommend this step, it will astound you I promise.

So we made a list of the expenses and what we spent in each category per month.  Then reality hit once more (have you noticed that happening a lot throughout this series?)  In most cases, what we thought we were spending and what we actually were spending were two very, very different things.

For example, we figured we were spending about $600 per month on groceries.  Yeah, right.  Try $1200 a month.  Yes, I did say $1200 a month just on groceries for three people.  Worst yet, we saw this kind of egregious miscalculation on category after category.  Is it any wonder we were in the financial mess we were in.

From here on out we wrote down every single penny we each spent all day every day for a couple of months.  Yes I said "every single penny."  It was important to get a true snapshot of where we were.  Immediately we realized there weren't near enough categories on our list.  Yeah, we forgot we have four pets with health issues that do need food.

Anyway, after diligently logging our spending habits here is how it all came out:

Starting Household Expenses

Mortgage - 27%
Car Payment - 8%
Personal Loan - 8%
Car Insurance - 6%
Groceries - 6%
Pets - 5%
Hairdresser - 4%
Homeschooling 4%
Clothing - 4%
Dining Out - 3%
Gas Utility - 3%
Tutoring - 3%
Gifts - 2%
Car Maintenance - 2%
Satelite TV - 2%
Telephone/Cell Phone - 2%
Fuel for car - 2%
Home Owners Association - 2%
Personal Care - 1%
Dry Cleaning - 1%
Electric - 1%
Entertainment - 1%
Ethan's allowance - 1%
Gymnastic Lessons - 1%
Hobbies - 1%
Home Repair - 1%
Furniture - 1%

Grand total - 105% of our total household income was being spent each month on these expenses.  Notice anything funny here?

Yep.  Every month on average we were spending approximately 5% more than we actually were earning.  Do that month after month and we could certainly see why we were in the financial situation we were in.

Now came the big sigh - and a big deep breath.  Okay, that was all the wallowing in self pity we allowed ourselves, it was time to clean up this mess and get on with the life we both wanted.

Next week I'll get into the budget we set up and some drastic changes we had to make.  Although, I don't think I probably should refer to them as drastic, because while at the time they felt huge, now after eight months they feel normal.

Now it's your turn.  Start recording every dime you are spending and if you have a spouse he or she as well.  Don't fib on this one.  If you don't truely assess where you are you will never get to the road paved with gold.

Click here to got to "Get Out of Debt - Part 4."

Good Luck!  Jamie


  1. Hi Jamie,

    Thanks so much for visiting and following my blog. I am excited to see your post regarding financial freedom and Dave Ramsey. I can't wait to read your other posts. My husband and I followed Dave Ramsey's principals and are now out of debt, with the exception of our mortgage. The freedom feels great!!

    And congratulations on your recent anniversary!! 20 years is amazing! We live in such a "quick fix" society that many people aren't willing to put the hard work into their marriages.

    Hope you have a great Valentine's weekend with your family!!


  2. Hello, Great to see your comment. I love it when we find awesome new blogs.
    Hope you have a great day.
    Thanks for stopping bye
    Julie, Kindred Roses


Oh I'm so happy you checked out my blog. I absolutely love hearing from each and every one of you - it truely makes my day! Jamie