Dave Ramsey - Baby Step 1
After reading some of the comments on my giveaway post, it’s apparent to me how many people have “heard” of Dave Ramsey but don’t really know what he’s all about. My fear is that some people will blow him off as just another financial dude with a philosophy on money. But Dave’s different. I rarely hear the same thing about other financial gurus, about people’s lives being changed. Ramsey’s principals DO work, but they are not easy.
Dave’s plan consists of Baby Steps. Today I’ll be covering Baby Step 1 and my next post will be about Baby Step 2. I imagine most of my readers fall into those two categories.
Before you even begin baby step one, you need to clean a few things up. First of all, you must be current on all debts. Secondly, you must commit to no more debt. If you are going to continue using credit cards, store cards, lines of credit, then you have no reason to go any further. Debt has no place in this process.
Baby Step 1 – Save $1,000
Before you start battling your debt, you need to have a safety cushion. If an emergency happens, you must not resort back to credit cards and lines of credit. Having this emergency fund in place should prevent that from happening.
Now, what’s an emergency? Christmas is not an emergency. Birthdays are not emergencies. New clothes are not emergencies. Going out to eat is not an emergency. You must be very strict about what an emergency is and only dip into that fund when absolutely necessary.
You will also need to set up a budget. I know, I know, you hate that word. But you have to do it. If you don’t tell your money what to do, it will disappear before your eyes. (As it probably has already if you are still reading this.) At the beginning of each month, you must write down the income for the month and all of the expenses. As Dave says, “give every penny a name.” More on how to do a budget can be found here.
How do you get your $1,000? If you start living on a budget, you should be able to free up some cash right away. If your income is low, you may have to take on an additional job. You could have a garage sale and get rid of all the extra stuff around your house. Give up on the restaurants, costly entertainment, and unnecessary trips to Target. The main idea behind Dave’s plan is sacrifice, so you might as well start now.
Note: Since I’m all about honesty and sharing my journey to being debt free, I need to tell you that we did not follow Baby Step 1 exactly. We were fortunate enough to have quite a bit of savings built up when we started our Baby Steps. We did use quite a bit of our savings to pay off some debt, but we did not go down to $1,000. My husband was along for the ride, but he drew the line at using up all of our savings. Having savings and having debt makes no sense, but I chose to pick my battles.
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Another way to solve the traffic problems of this country is to pass a law that only paid-for cars be allowed to use the highways. Will Rogers
to be honest, I had never heard of DR until reading YOUR blog–now my husband and I follow his baby steps! We don’t have any credit cards (just the debt from 1 left, and it’s dwindling rapidly!) and our emergency fund built–it feels SO great to have that in place…onto #2~!
We also have not liquidated our account down to the $1000, but will. We’re going to use the extra in it to finish off our basement with a bedroom so we can have enough room in our house to have a 3rd child, since we aren’t able to move to a new home.
So we’re not using it to pay off debt, but we’re not going to incur any more debt to get this basement done, and it’ll make our house work for us for now until we can save up for a new home cash.
On BS2 btw, and we’ve paid off $12,000 since August of 2008. On track to be debt free early to mid 2010, with a total of $64,000 from start to finish.