Get Out of Debt - Part 9

If this is your first time reading the "Get Out Debt" Series and would like to catch all the drama from the beginning click here and start reading from the bottom up.

Welcome back to my weekly post where I air and even at times exploit my dirty-debt laundry. 

This week in doing my part to help all of you become debt-free, I thought I would pass along a few helpful tidbits ala Dave Ramsey .

First, this is something I want to get out right away because I don't know how long it will last.  Dave is giving away some FREE "Financial Peace University" training the week of April 5-12 in cities across the country.  This is something almost unheard of.  Again, not sure how long it will last so if you at all think you would like to take advantage of this amazing opportunity or want to pass it along to someone who would, follow this link for details and to sign up.

Next, I thought it would be fun to share with you all a couple of real-life success stories from Dave.  I know it helps me to read them when I think about the task ahead of us yet.

This first is about a single mom who paid off $30,274 in debt while making less than 40K a year.  Read about her triumphant story here.

This next one is an Indiana couple who paid off almost $800,000 in debt in seven years. Read about their inspiring story here.

I want to finish you off with a story from Cindy who went from $45,000 in credit card debt, unemployed for four months and way behind on most bills with only $12.00 to her name to not only out of debt (except for mortgage), but in six more years will be 100% debt -free, including mortage, and have a net worth of over One Million Dollars.  You'e got to read how she did it.

I hope you enjoyed todays "Get Out Of Debt" post.  It was meant to inspire and encourage you.  I hope I have accomplished both.

Have an amazing day - Jamie

Get Out of Debt - Part 8

If this is your first time reading the "Get Out Debt" Series and would like to catch all the drama from the beginning click here and start reading from the bottom up.

Welcome back to my weekly post where I air and even at times exploit my dirty-debt laundry. So let's get right to the update on our debt reduction...

By our sixth month we had reduced our debt by an amazing....21%!!!

Yes, in 6 months we were 1/5 of the way out of debt and it felt great.  We could smell our financial freedom in the air and it only fueled us to be more agressive.

Now, back to you...

Okay, you're out of debt, now what?

Dave Ramsey's Baby Step Three - Finish The Emergency Fund.

What emergency fund you ask?  Well, remember the $1000 you put away in Baby Step One?  Yeah, that emergency fund.  Well now it's time to finish it.

Here you are going to incorporate the same skills you used to pay off your debt to put away six months of living expenses.

How do you know how much six months of living expenses is?  Well, figure out what it would take for you to live with no income for one month then multiply it by six.  This would include things like mortgage, utilities, food, gas for your car, etc.

Take the $1000 you put away and just as aggressively as you attacked your debt I want you to sock that money away for this emergency fund.

What do you do with it as you are getting it together?

Put it in an easily accessible place like a savings or money market account.  This is not, I repeat is not for investment.  Your objective is not to make money off this account but to have money put away for a rainy day that you can get to in an emergency.

"Money magazine says that 78% of us will have a major unexpected event in our lives within the next ten years."

Without this emergency fund in place, all the hard work you put into getting out of debt is in jeopardy.  Without that money it is very likely you will reach for a credit card to save you.  And who could blame you.  Don't let that happen.  Get that emergency savings fully funded. 

So what does an emergency look like which warrants tapping into this money?

Things like medical emergencies, the loss of a job, a blown engine in your car, etc.

What it isn't is that dining room set you've had your eye on that just went on sale at 50% off.

According to Dave's research, "a poll in Parenting magazine said that 49% of Americans could cover less than one month's expenses if they lost their income."

How many months could you cover?

Okay, that is the gist of Baby Step Three, but of course, like always, please refer to Dave Ramsey's website and books for more specific details.

Next week, Baby Step Four!

Click Here to go to "Get Out of Debt - Part 9."

Get Out Of Debt - Part 7

If this is your first time reading the "Get Out Debt" Series and would like to catch all the drama from the beginning click here and start reading from the bottom up.

Welcome back to my weekly post where I air and even at times exploit my dirty-debt laundry. So let's get right to the update on our debt elimination...

By our fourth month we had reduced our debt by an amazing....18%!!!  For us that equated to a small car.

Next week I'll go over Dave Ramsey's Baby Step Three.  But for this week I'm going to keep it short and sweet with just a few comments.

Comment #1:  It is my belief that most people won't even try this because they think freedoms are going to be taken away, perhaps much like they were by their parents years ago.  I promise, you will only gain more and more freedom, not loose it. I PROMISE!

Yes, your budget and fun may be cut, but you will hit a point where you are no longer a slave to your job.  You will sleep well at night.  Once out of debt you will open up a whole new frontier of possiblities you couldn't even begin to entertain when you were in debt. 

Like what you ask?  Like you can move to another state.  You can quit a job you don't like.  You can start a new career.  You can never work again.  You can be a stay-at-home mom or dad.  You can travel more.  You can build that dream house.  Fill in the blank with what you can do once you are free from debt.

If you think these things happen without any planning or forethought you need a reality check. 

 

Comment #2:  I think a lot of people would like to do this but don't think it is possible because they do not make enough money or they are too old.  All I have to say to you is SO FALSE.  Just try it, you'll see I'm right.  Any amount of debt relief is good.

Comment #3:  Some people thing they are out of debt but really aren't.  If you tell me you are out of debt EXCEPT for a student loan or a car loan you are not out of debt.  Time to be honest with yourself.

Comment #4:  Have you ever figured how much you need to retire on or were you just planing on working forever?  Sit down and figure it out than calculate out how much you would need to put away every month to make that happen.  How are you doing?

Comment #5:  Get a second or third job if you need more money to make this happen.  A little short term pain will go a long way on being debt free.  I started a home based business as a Arbonne consultant and the money I'm making I'm able to put towards our debt relief is amazing.  As Dave says, whether it is a job outside the home or something you are doing from home, it needs to bring in an extra $1000/month to make it worth your time.

Okay, that's it for this week.  Good luck with your debt relief.  Next week - Dave Ramsey's Baby Step Three (a.k.a - what to do once you are out of debt.)

Click here to go on to "Get Out of Debt - Part 8."

Get Out of Debt - Part 6

If this is your first time reading the "Get Out Debt" Series and would like to catch all the drama from the beginning click here and start reading from the bottom up.

Welcome back to my weekly post where I air and even at times exploit my dirty-debt laundry.  So let's get right to it shall we...

By our third month we had reduced our debt by a whopping...drum roll please....12%!!!

Now before you snicker at what some might see as a paltry amount let me first ask you this - what percentage did you reduce your debt by in the past three months?  Hmmm?

All kidding aside, 12% is huge.  Hopefully by now you have added up all your debt like discussed in a previous post.  Take 12% of that.  It's a chunk isn't it?  For us 12% translated into thousands of dollars.

Can I get a big Whoo-hoo here?

So what were we doing to find all this extra money to pay off debt where we hadn't been able to before?  I've discussed a few things in the past that went bye-bye like pedi's and mani's (insert sad face here), dining out now got defined as maybe dinner at Taco Bell on Sunday night if we were lucky but for the most part restaurants were now categorized as a luxury we simply couldn't afford and thereby got mostly eliminated.

When I found out that the dryer was the most expensive appliance to run in a home I removed it as an optional tool to do laundry.  We live in a townhouse, so the idea of hanging clothes on a line outside is not possible (you know HOA's and such).  So instead, I hang my clothes to dry on the shower rail in my son's bathroom (right off the laundry room).  It works quite well especially during this time of year when the house is dry.  The clothes are done surprisingly quickly and it adds some much needed humidity to the air. 

Speaking of laundry I switched to washing all my clothes in cold water.  Who knew, they still get clean.

I also make all my cleaning supplies.  Previously I had been purchasing chemical free cleaning products from the health food store.  With a big bag of baking soda and a gallon of white vinegar  I can clean all kinds of things.  Google how to make your own cleaners - books and answers are everywhere.

I've also reduced my grocery bill drastically. I'm so proud of myself.  In the month of February I finally hit my goal of a food budget of $400 a month.  That's down from the $1000-$1200 monthly grocery shopping I had before we decided to get our heads screwed on straight and get out of debt.

As promised I wanted to address Baby Steps One and Two with you about the program Dave Ramsey outlines that we have been using to get out of debt.  So here we go...

The Baby Steps are meant to be followed in their specific order without questions and I promise you when I say they really, really do work.

Baby Step One - 
Save $1000 Fast As A Starter Emergency Fund

Okay, before you freak out on me and start complaining about how there is no way you can do this, after all you've got to buy some new spring clothes and the guest bedroom just must be remodeld before your in-laws come to visit, or try to justify to me how you really deserve that new car, let's just stop and take a breath. 

Some ground rules need to be set here that will help put some clarity to this picture.  Baby Step works on the premise that you have set up a budget as I outlined in earlier posts in this series.  Yes, you have to have a budget.  And if you whine and give every excuse for why you can't then just go away and stop reading this posts because you obviously prefer to be in debt and unable to retire and I don't even want to hear from you ten or twenty years from now on why you can't afford to send your kids to college and how they are going to have to get student loans thereby starting their adult life out in debt.  Don't go there with me I promise I won't listen.   
 

As the circus moguel P.T. Barnum once said, "Money is an excellent slave and a horrible master!"

Enough said.

Another prerequisite of Baby Step One is you have to get current with all your creditors.  In otherwords, if you are behind on payments to anyone for anything get caught up now!  How do you do that?  Make a budget and cut out everything you can to find that extra cash.  Have a yard sale if you must (which actually is a really good idea), or get a part-time job in the evening.  Just get caught up and fast.

I'm not going to tell you this is easy because truth is it isn't.  But, I will promise you this, with each creditor you catch up on, with each bill you pay off you will start to feel powerful and in control of your life.  More importantly you will feel freedom like you have never known before.  You've just got to trust me on this one.

This emergency fund in Baby Step One is just that, an emergency fund.  It is not for buying new clothes or going on a vacation.  By the way, Christmas and birthdays are NOT an emergency, you've known about their impending date for twelve months, so what's the problem?  Budget, budget, budget! Do not cheat on this fund because you are only cheating yourself and your family from a life of financial freedom.  We are talking about being prepared for Murphy's Law here, you know the one that says, ''Anything that can go wrong will."

Some of you may be wondering why start with this step instead of hitting the debt right away?  Because if you start with paying off debt and an emergency happens, Dave has found most people stop paying debt off all together, then put money back on credit cards to get through the emergency causing them to have to start all over again.  But if you have some cash put in an emergency fund you just take care of it and get on with the business of the day - becoming debt free!

Once you get the emergency money,  HIDE IT!  From who?  From YOU!  Seriously.  Ours is hidden and no I'm not going to tell you where.  Be creative in where you hide it so it is not easily accessible but make sure both spouses know where it is.  Also, keep it in the form of cash.  Emergencies are by definition something not planned that need to be dealt with immediately.  In an emergency you don't need to be going to an ATM at 2:00 in the morning or trying to cash a check on a Sunday.

We were fortunate enough to already have that money stashed away so we were able to skip right on to Baby Step number Two.

Baby Step Two-

The Debt Snowball
The way Dave Ramsey describes paying off debt is referred to as "The Debt Snowball" and it really does work like a snowball rolling down a hill, constantly gaining speed.

In a previous post I described how to list your debt smallest to largest and recommended you post it somewhere in plain sight like on your refrigerator.  The reason to list smallest to largest instead of highest interest percentage as many other debt-relief gurus will tell you is to get "small wins" under your belt. If you can pay off your first little debt quickly it fuels and pumps you up to keep going.  In this process you are going to need that encouragement.

After you list all your debts smallest to largest, pay the minimums on all current debts except the smallest.  Every extra dollar you squeeze out of your budget, realized from a yard sale or earned in a part-time job needs to go toward paying off this one debt.

After that debt is paid you do the same process with the second smallest debt.  Keep paying minimums on everything else and attack just that specific debt.  The snowball part is realized because every time you pay off one debt, the minimum you were previously paying on it gets added to what is paid toward the next debt.  Each time the amount of money you are able to pay toward that debt increases just like a snowball rolling down a hill.  You will be amazed when you start getting to car payments and students loan how much extra you can pay toward them, it could very well be in the thousands.

To make this work you must do three things:  1) have a budget and stick to it, 2) sacrifice the immediate satisfaction for long term financial freedom and 3) focus on your financial goals.

I raise my right hand here and solemnly swear to you that this will not work if you play at it.  It has to be your number one priority.

That's Baby Steps One and Two in a nutshell.  I strongly encourage you to visit Dave's website.  He has all kinds of resources and much more information than I've given you here.

Best of luck and let me know how it is working for you.  I love to here about your successes.

Click here to go on to "Get Out of Debt - Part 7."

Happy Wednesday All, Jamie

Get Out of Debt - Part 5

Before I delve into Dave Ramsey's baby steps one and two as promised last week, I wanted to share a revelation I discovered late last night while my overly taxed brain recovered from four consecutive days of piecing together the broken shards of our computer dependent life.

So why get out of debt?

I mean really?

If life is generally running along perfectly smooth where even a few pumps of debt can't derail it, then why am I putting myself through this slow and tedious self deprivation lifestyle?


Sure there is the obvious point of wanting to maintain the sanctity of my marriage and of course my overt disdain for divorce court plays along with that.  And one could also argue it is because of the poignantly correct and undeniable reasons Dave Ramsey so boldly points out time and again.  But are these the real motives behind my decision to jump aboard this debt-free bandwagon or are they merely the added benefit like a gift with purchase at Macy's makeup counter?

So here was my epiphany.

I have this undisbutable, almost visceral instinctive need to reconnect with the self proclaimed hippie-chick who entered my reality at about the same moment my mother (God bless her anesthetically induced delivery) gave birth to me forty-three years ago this past June.

You know her.  Sometimes I've seen her in the faces of little pigtailed girls called Lulu or Zoey, her feet are always bare and her simple cotton dress dusted with dirt, a badge worn proudly from a day lived chasing butterflies and hunting for fairies.

I realized I've chosen this path so I no longer have to worry about Home Owners Associations, restrictive covenants or whether or not my car is pulled too far onto the sidewalk.  I'd rather be wandering down a dirt road, my dog by my side, as the heat of the rising sun evaporates away the early morning dew.

Can you smell the crisp freshness in the air?

And I want to see and smell flowers.  Lots and lots of flowers. All day everyday! Planted all around me. In the garden, arranged in beds around the house, hanging from the veranda and climbing up trellises.  I especially want to see pink flowers of every shade.

I want to hide away for a day in an eclectically built tree house with my son, dining on a picnic of peanut butter and jelly sandwiches, while he shares with me all the wonders and enchanting adventures of his perfect little world.  We'll laugh a lot and dream a lot and time will stand still.

I want an organic garden again.  One overflowing with the bounty of nature's colorful treasures.  I want to pluck strawberries right off the plant and taste their succulant sweetness. I want to carry an apron full of garden fresh ingredients back to our house then set about chopping and slicing to prepare a supper for my family.  One created by God and served with love.  I can almost smell the freshly baked bread and fragrant herbs as they fill the heart of the home.

I want to take a bath with a window wide open so I can feel the warmth of the sun on my wet skin and listen to the birds as they serenade.

I want to curl up on a front porch swing in the late afternoon of an Indian summer, swaying gently as I sip on a refreshing iced tea watching the gentle play between my two most favorite guy in all the whole world.  I want  listen to their laughter as they do that male bonding thing we woman don't quite get but understand and respect none-the-less.

Yes, I stick to this get out of debt thing not because anyone is making me, for trust me when I say no one has ever or will ever make this hippie-chick do anything she doesn't want to do.  And it's not because I can then start to accumulate shiny new things as a temporary fix to prop up a deflated self-esteem.

I do this for the moment in time when I can lounge below a starry sky, snuggled close to the only man who has ever truely known me and still chose to love me, while we watch our son catching fireflies beyond the warm flicker of our campfire.  The leaves will whistle a gentle tune in the darkness as a slow southern breeze passes through to say hello.  Lilac flowers will grace us with the benevolence of their delicate scent and a hoot owl will signal his approval.  At that very moment in my husbands secure arms and the eyes of my son I will never, ever have to wonder why I sacrificed for such a very small while to have a wealth beyond all of King Solomn's riches.

I sacrifice not.  But instead I choose to get out of debt so I can live my dream life instead of just being someone who only got to write about it.

Okay, after that you're going to have to wait for next week to hear about baby steps one and two, for to do otherwise after that post just wouldn't be prudent.

Click here to move on to "Get Out of Debt - Part 6."

Live a delicous life my dear readers,  Jamie

Get Out Of Debt - Part 4

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.

In the last part of this series I talked about how we were spending on average 5% more than we earned.  That was fun to discover.  Okay, so let's recap what we know at this point into our new committment.

1.  We were in huge debt  :(

2.  We were spending more than we were making

3.  Dave Ramsey had a step by step plan for us to follow

4.  We were really ready to make a change.

So it was time to make a budget.  Dave Ramsey tells you to make a new budget at the beginning of each month, because each month can bring with it different expenses then the previous month.  For example, our auto insurances are paid four times throughout the years.  So this is not an expense we have every month.

Something to take into consideration when you are planning each months budget is how you want to handle large purchases, like Christmas gifts, that family reunion you plan on attending, the new tires for the car you know it will be needing soon (we are actually planning all those in our current budget.)

At this point I'm not going to get into how much you should be spending on Christmas gifts or even if you should make that family reunion, I'll address that later.  For now let's just assume you are doing those things and they are reasonable to do given your current financial situation.  So how do you budget for these them?  Well it takes long term planning and thinking.  Being one step ahead of your families needs makes all the difference.  Lets address some of these examples individually.

Budgeting for Chirstmas gifts.  I've always been pretty good about making a list and a budget at Christmas, and because of this I know fairly well how much money we are going to need.  I also budget in wrapping paper and possibly a new decoration or two (although this year I didn't engage in those extras.)  Think of every expense you can that will come up during the holidays.  Next you have to think about all the birthday gifts you purchase throughout the year.  Take your time and don't leave anyone out.  Lastly, think of anything else that might come up during the course of a year that you spend money for as gifts.  Are you going to be planning a baby or wedding shower?  Will you have to buy any graduation gifts this year?  What about Valentines Day?  Easter?  Teachers and birthday party gifts?  I think you get my point.

Once you've collected all this information add up the total cost.  It also doesn't hurt at this point to keep your data to refer back to when it is time to make a gift purchase.  Now, take that total and divide it by twelve months. How much did it come to?  This is how much you need to put away in an envelope every months to pay for this category of expenses.  Were you shocked by the amount you needed each month?  When doing your monthly budget which we will talk further on in a minute, if this amount doesn't allow you to pay off your debt, you need to reconsider how much you are going to be spending on gifts this year.

New tires - or any other major repair /maintenace purchase for your house or automobiles is our next example.  Right now we need new tires for our car.  I am planning on driving 12 hours to see my parents the first part of April.  I would like to have the new tires before we go since I have to drive through the Smokey Mountains.  After price shopping several sources, we finally made the decision of where we would purchase them from.  The grand total comes to $594 now we just need to budget for them.  Once we knew the cost involved we decided to put the money away for them over the course of a three month period. Next month I will have the cash to get new tires on my car.

As I mentioned I'm going to be driving from North Carolina to Missouri to visit my parents soon.  Since I've done this before I have a very good idea of my total expenses including gas, dining out, hotel and miscellaneous expenses.  We simple budgeted the same way as I just explained previously for the tires.  After that trip we will be flying up to Minnesota to visit my husbands family and will do exactly the same to budget for that trip as well.

Since we are working to get out of debt we are not taking any vacations other than to see our respective families one time per year.  No fun vacations to the Bahamas or Vegas.  This is strictly for family visits only. 

Using my examples you can see how your budget will not always be the same each month throughout the year.  Also, go easy on yourself in the beginning.  It took us a few months of creating a budget before we got good at it.  Dave Ramsey also says to sit down with the budget having both spouses agree on it.  Very important.

For us, since we were spending 5% over our income on average every month, we needed to find places to cut expenses.  I simply went through each category and assessed them.

First thing was the grocery budget.  Here is a place I knew I could gain major financial ground.  If you remember we were spending on average $1200 a month for three people!  Uugh!  I knew I could get it down to $600 a month and I did.  Then I tried for $500 a month.  Did that.  Now I'm working at $400 a month and I think I'll make it this month.  What did I do?  I studied what others were doing.  A great source is Coupon Mom.  I also started cooking a lot more and from scratch.  Now we use a combination of coupon/sales and large discount warehouses such as Sam's Club.

Some things we basically elimated all together.  Like what you ask?  Like no more dry cleaning, next to no dining out (big one), very little entertainment that wasn't free or close to free.  No more housekeeper.  No more babysitter and since we don't go out anymore that hasn't been an issue.  No more manicures, pedicures or massages. Sigh :(

I also cut some budget categories down to almost nothing.  Clothing for example is usually less than $10 a month.  I've learned to shop at yard sales and thrift shops.  If I do need to purchase some clothing, usually for my son, that I wasn't able to find used, I budget  for it that month.  Like if I know he is going to need some new shoes or jeans.  Before you snub your nose at thrift shop and yard sale finds let me tell you that I am a fashionista in a big way.  I swoon for anything Louis Vuitton.  I am into designer clothes big time so if I can make this work I know you can.  Just yesterday I was in our local thrift shop and saw a Dolce and Gabana shirt for $3.49.  Looked brand new just not my size.

So on went the process of putting together a budget.  Once we had it together and printed it out all that was left was to follow it.  Now, you can do this one of two ways.  You can make an envelope for each category and put the cash in at the beginning of the month.  When the cash runs out no more spending.  This is what Dave Ramsey advises.  Or, you can simple write down your expenses directly on the budget you printed off your computer, subtracting left over spending cash from appropriate categories. 

We kind of use a combo of both.  We have found that on things like utilites, car paymets, etc, it is easier just to write the expense down and subtract it out.  For things like vet bills, groceries, big ticket items that we have to save a few months for the envelope system works best.  You will figure this out on your own.  Again, it takes a few months to get the hang of it so don't get discouraged.

One other thing Dave advises and I recommend, is to list all your expenses, smallest to largest on a piece of paper.  I made this in Word on the computer so I could adjust it each month.  Then we taped it onto the refrigerator.  Nothing makes you think twice about spending extra money then staring at your debt all day everyday.  Also, it is out in the open and we discuss it casually with our son.  One of the great bonuses of this process is that we are teaching Ethan how to handle money properly and he is getting too see what NOT to do first hand via mom and dad.

Each month then I update the new balances on the debt and use the yellow highlight button in Word to cross out whatever was paid off.  Boy are those days fun.  Almost as good as (no it is as good as) purchasing a brand new pair of  heels hot off the Must-Haves list for Spring.  It is always a big celebration around our house.

So we made our budget and followed it.  By the start of our second month we paid off our first credit card!  Yeah!!  I did this great little happy dance around the house for that one.  That debt represented 6% of our overall debt.  Just so you understand how enormous that accomplishent was it was the equivalent of several thousand dollars.  We had gone from spending 5% over our income each month to paying off 6% of our debt.  We felt fantastic and for the first time in a long time in control of our future and finances.

Next week I'll talk about how the next several months went as well as explain Baby Steps One and Two according to Dave.  I'll also address replys I hear often from people who think this can't be done or how it is simply too strict or my favorite one,  " I want to have a life."  Of course I highly recommend you refer to Dave Ramsey for details.  He also has some budgeting tools on his website if you need them.  Until then...

 

Click here to go on to "Get Out of Debt - Part 5."



Have an amazing Day!  Jamie

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...

...how 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

Are You Ready To Take The Challenge?

"Are you ready for a challenge?

"Do you run and hide at the very mention of a challenge?

"Or are you an A-type personality like myself whose ears perk up like a hyena on the Serengeti?

"Whichever category you fall into, this might just be a challenge you want to get in on."

"How many winners?" you ask.

"Everyone can win,"  I respond.

"Okay then, what do we win?" you question.

"You win Money!"

"Money?"

"Yes, Money!" I say more loudly this time.

"How much money?" you push.

"It depends," I reply.

"It depends on what," you ask as you start to get annoyed with my coyness.

"It depends," I continue "on you."

You sigh.  Not really the answer you were hoping for, but the thought of winning money still has your interest peaked.  So you inquire further.  "On me?  Well if it depends on me then I think twenty, no make that thirty million will do just fine please."

(Here is where I Laugh Out Loud!)

"I can't promise you twenty or thirty million, " I begin, "but I can't rule it out either now that I think about it."

Now I've got your interest.  So I continue...

..."because it really truly is up to you."

"Huh?" (That's you.)

"Okay, let me explain.  Grab a cup of coffee or a cold beer and that last piece of chocolate cake, have a seat in your comfortable chair next to the fireplace and I will explain my challenge to you and how you can have more money because of it."

(This is were I give you time to go do the aformentioned.)

"Are you comfortable?"

"Yes quite," you reply.

"Good, then let me begin.  So you've heard me talking about all this get out of debt business and how Ken and I committed ourselves to this journey last June.  Since I began these talks I've been encouraged and believe me when I say even a bit surprised at the amount of attention and more importantly the national nerve it has hit.  I received quite a few emails on the topic to say the least."

"Okay," you encourage between bites of cake, "I'm with you so far."

"Good.  Well anyway, with all the thoughts and information rolling around in my head orbiting my brain like the earth around the sun, I came up with an idea.  What if, I pondered while I was soaking in a warm tub of water a few nights ago, what if I gave everyone the opportunity to become debt-free along with me.  What if as a nation we took control of our own financial responsibilities and showed the White House how to do it?"

That has me thinking again.

"Hmm, do you really think I can get someone in D.C. to follow along?"

You shake your head no.

"I suppose you're right.  Well at least we Americans can take back our country and rescue it from the depths of poverty and rise to the Challenge!"

And so a Challenge was born.

"Yes, but what is the Challenge and more importantly, how much money am I going to get?" you probe.

"The challenge is to Pledge to be Debt-Free."

"Sounds good," you answer, "but how am I supposed to do that?"

""First, read about the Challenge that I've explained on the sidebar of my blog.  Then copy and paste the code for the pledge button to put on your blog.  Next you need only to follow along with my Wednesday (and sometimes additional days as well) posts as I explain what we have done, what we are doing and how it is all working to get Ken and I out of debt."

"Well," you begin, "I suppose I can do that.  I'm mean, I really do need to get out of debt but don't know where to start."

"Then you can start right here.  You can start wherever you are along the path of being debt-free and having financial freedom."

"I'm convinced I need to take the challenge and make the pledge but what about the money?"

"Oh yes that," I feign memory lapse.  "Well you see, the money in question comes into play when you are out of debt.  Once you get out of debt, all that money you were paying out each month in payments and burning off in interest can now be used to save, invest and build your wealth instead of substituted as an expensive source of fuel to feed the 'I need, I want machine.'  Not that I'm saying you've ever spent too much money or anything."

You squirm a bit like my eight year old son Ethan when he is being questioned whilst he is standing in the 'naughty' corner.

"Okay!" you stand and shake my hand as the cake crumbs fall to the floor.  "I'm in.  I'll take the Challenge and become debt-free."

"Then my friend," I reply, "my work here is done for the day."

Photos from iStock.com (except for the one just above.)

Get Out Of Debt - Part 2

If you missed Part One of "Get Out of Debt" Click Here.

Wow, I never would have anticipated the stir my last post on this topic would have caused. Thank you for all the nice comments and those of you who shared your story with me. It became very obvious to me since last Wednesday that this topic (as I described earlier in a posting elsewhere) is like the proverbial elephant in the room. And here is the irony in that, because we don't talk about it is a large part of how we often get into financial trouble and then we don't want to talk about it because it is embarrasing. Am I right?  Ever heard the term "vicious circle" before?

Okay, so last week I left off telling you that since June of last year we have embrassed the teachings of Dave Ramsey and since then have made a drastic turn around in our financial situation.

I can't stress enough to you all how we honestly thought we were well on our way to being able to retire in comfort someday. It was quiet insidious how our financial debacle snuck up on us.

I urge even those of you who feel your finances are fine to follow along in these next few steps to assess where you are.  Hopefully, unlike us, you are right on track.

So what did we do next?

The next step was the most painful for me and most hurtful to my husband.  I had to own up to every single penny I owed.  Every penny!  Now mind you, much of it he knew about like a student loan and a credit card, but he didn't really know the full picture.  Why?  Because I didn't want to tell him.  I didn't want to be lectured to or treated like a child, so I suffered through my financial problems silently by myself.

I was making just enough money to pay minimums on everything.  But minimums don't get rid of debt, they just build it a home to live in forever.

Once all of my personal debt was drug out, accounted for and added up, my debt, the person who is for the most part a stay-at-home-mom with relatively no income, had aquired almost 67% of our overall debt (not including our mortgage.) 

Disclosing it was hard, but seeing the sock-in-the-gut my husband felt was the hardest part of all.

Weeks later while he was still mending from the blow, he shared with me it felt like I told him I had an affair.  In his mind (and I completely get it) I was going behind his back and cheating on him not with another man but with money, threatening our families very future.  Here was a man who since the day we were married worked hard and long hours to provide for his family, and the one person he trusted the most was being extremely irresponsible with it.  I was failing as a wife and as a steward of our money.

At this point all I can say is that as a couple we went through something we had never experienced in ninteen years of marriage.

Good news is in time we healed it up and now, today, our marriage is even stronger than ever.

So what was next.

Well, once I had aired my dirty-debt laundry it was time for us to figure out down to the very last penny what we owed as a couple.

Out of respect for my husband I am not going to give you exact numbers so instead we will talk in percentages, but let's just say your jaw would drop.

Here is how the bottom line of our debt broke down:

Credt Card Debt (mine) - 38%
Personal Loan (ours) - 9%
Car (ours) - 24%
Student Loan (mine) - 29%

Grand Total (not including our mortgage) - we were in debt by 78% of our annual income

So to put that in perspective, take 78% of what your total family income is and see how much it is.

That's a lot isn't it?

Even though I knew how much I owed, I never in my wildest dreams would have imagined that as a couple we owed that much money.  And this isn't including our mortage which for the time being we will keep out of the equation.

We were broke.

Yes, we lived in a nice home, drove a nice car, had money in our pockets and bank accounts, had money invested.  But we were broke.  Because if you took what we had minus what we owed we should have been living on the streets.  This is the nasty part of the debt cycle that we as a nation subscribe to.  We think that if we are paying our bills, making our monthly mortgage payments and our car payments that we are "successful."  No, we are not.  If you owe more than you have you are broke.  And we were really, really broke.

Don't believe me?  Do this exercise right now.  First find one of your larger bills, like a credit card or car payment.  Go ahead, I'll wait.

Now, on your last statement look at what you paid and how much of the debt it actually paid off.  For example, if your car payment is $400 and it only takes $250 off you total balance, you are throwing away $250 every month.  How much are you throwing away on just that one debt?  Could you write a check to pay it off now?

Bet you could really use that $250, couldn't you?  Just imagine going to an ATM and taking out $250 in cash every month and then driving down the street with your windows open and letting the cash fly away.  Now imagine doing that with the money you put toward your credit card, or worse yet your mortgage.

Listen to our real life example.

We pay $1725 every month for our mortgage payment.  Guess  how much it takes off the principal?

$159!

Can you feel my stomach clinching everytime we make that payment. 

Every month I open my car window and let $1566 fly away into oblivion.

Yes we have our home on a low interest rate but it is only 3 years old so right now we are paying mostly interest.  Can you see why we want our mortgage gone?

So here is your assignment this week.  I want you to do three things:

1.  Gather up all your debt (all of it).  Put it on paper and then own it.  Accept it for what it is, no more pretending it is not that bad.

2.  Next if you have a spouse I want you to share it with him or her.  This is really hard I know.  Believe me I know!  But you can do it.  Things will never get better if you don't.  I thought I could handle it on my own and the truth was I couldn't.  I needed my husbands financial and emotional support.  While I haven't lied to you about how rough it was, I promise you our marriage today is stronger.  We have become an amazing team in becoming debt free.  My husband has forgiven me and he has accepted some of the reponsibility.  He too admited that he suspected I had more debt but did the "don't ask, don't tell" thing. He put blinders on and for that he too owned some fault.

3.  Lastly, make a list of every thing you owe as a couple/family.  Everything!  List it from the smallest debt to the largest, which is usally a mortgage.

I hope you all found this helpful and I look forward to hearing how your assignment went.  You can do this, I know you can.  Part-Three, next Wednesday.

Click Here to go to "Get Out of Debt - Part 3".

You deserve a debt frree life!  Jamie

Get Out Of Debt - Part 1

Would you like to be debt-free?

How about mortgage-free as well?

Many people have been emailing me since I have made some references to the fact that Ken and I are not only on a mission to become debt free but also mortgage free.  While this certainly is not a fact I've been hiding, it took me some time to think about if it was a topic I wanted to go into.

So I listened to you all and got the message loud and clear, you want to know the what, where, when and how's of what we are doing.

Therefore I now declare Wednesdays (for as long as I have something to say about it) my "Get Out Of Debt" day.

That means that every Wednesday for a while I will tell you step by step what we are doing and let you know how it is working.

I would love for you all to follow along and get out of debt with me.  If you're not in debt first let me say "congratulations."  Hopefully I'll still be able to add some ideas that you haven't heard of yet that will help you even further along in you financial mission.

Today let me just begin with a quick synopsis of The Mori's Financial Story.

Ken and I have now been married for twenty years.  In that time for the most part he has made a great living and I have made an okay one from time to time when I wasn't being a stay-at-home-homeschooling mom.

Unfortunately we made a big mistake in our finances.  Note I said big but not obvious.  What was it?  We simply weren't paying attention.  It happens and it happened to us.  What do I mean?  Well, we paid our bills just fine, put some money in investments just fine and then had fun with the rest.  Fun came in the forms of vacations, cars, boats, clothing ,eating out and just an all around wonderful lifestyle that we all seem to aspire to.

Still we thought we were doing fine planning for our future. 

Then along came our beautiful son Ethan.

Again, we thought we were doing right by him and ourselves by immediately setting him up a college fund.

At this point we figured life was great.  House, check.  Good income, check.  College fund, check.  Retirement investment, check.  Sounds picture-perfect and exactly what we are all told we're supposed to be doing right?

So where did the mistake come in?

Well, like I said we weren't paying attention.  We weren't paying attention to where our everyday spending cash was going.  We weren't paying attention to what each other was spending (I'll explain later,) we weren't paying attention to what we were spending to run our household.  We weren't paying attention to all the money we were thowing away on interest.  And the biggest one of all we weren't paying attention to our financial future.  We were living in the moment and the moment caught up with us in our early 40's.

Fast forward to when our son was about five.  Still good income by my husband.  I was earning a good part-time income as an adjunct professor and things were great.  Until my husband and his business partner unexpectedly ended their relationship in a nasty and expensive legal battle.

If you've ever had the misfortune of going through one of those I'm sorry.

However, no crying over the proverbial spilled milk as they say.  We moved on, literally, and life has actually been even better so no harm done. But what this event did do was it did us a huge favor.  It made us reasses where we were in life.  When you get the opportunity to "start over" with an older version of yourself as we did, the now hopefully wiser you thinks it through a little bit more.  It was time for us to take a long and trust me when I say very, very painful look at our financial situation and the repercussions of the egregious mistake of simply not paying attention.  We had to take the shiny new designer blinders off and see the very real ugly ogre of a financial life we had created.

It took us almost two and a half years after our life changing event that we got to this point.  I know, I know, it should have happened right away but it didn't and for that there is no excuse.  But thankfully it eventually did.

Last May my husband and I had one of those heart to heart talks that can either break or make a marriage.  We soulfully realized that while income wise we were right back to where we had left off before the nasty business "divorce" with his partner, we were in our early 40's and no where near ever being able to retire.  Now for me, since I don't work outside the home that didn't seem like as big a deal, but for my beloved Ken who works six days a week, every week, ten to twelve hours a day this was an incredibly huge deal.  I felt his pain as if it were my own.

What happened to those dreams of retiring early and traveling around the world?  I wanted to hang out on the beach while I still looked good in a bikini.  We wanted to be able to spend our later years in life with our grown son and future grandchildren.  Not working and worrying about surviving.

Trust me when I say it is a sad day when reality slaps you in the face.

So what did we do?

Well, we took the advice of  what Dave Ramsey was teaching, embraced it and ran with it whole-heartedly.  And the amazing thing is now just eight months later we have made such a monumental turn around in our financial life that we now see the reality of all those dreams that had only recently started to fade away into the mist.

Over the following weeks (on Wednesdays) I'll chronical exactly what he says to do, step-by-step, what we did and how it is working for us.

I hope you come along for the journey, this has made a huge difference not only in our lives but marriage and I hope it will help you even in some small (hopefully large) way as well.

Click Here for part two of "Get Out of Debt".

Live a Delicious Life,
Jamie