Patrick and I started following Dave Ramsey's Total Money Makeover plan in September 2009. We put ourselves on a budget, shut off the credit card, paid cash for discretionary items (using an envelope system) and stopped all retirement saving.
Wait a minute....I know what's going through your head right now.
"I use a credit card for the air miles/cash back/etc..., and I pay it off every month. I'm not really in credit card debt; therefore, there is nothing wrong with using my card." That's right, you're not in credit card debt.....yet! All it takes is that one tough month. What if a member of your household loses their job this month? Are you able to pay the credit card bill for everything you bought the month before? Nope, you're going to leave that bill unpaid and, to make matters worse, you're going to buy more items with the credit card. All of a sudden, you've put yourself into such a tumultuous cycle that you can't sleep at night. Additionally, most people spend less money using cash instead of credit. I know that I am much more conscious of my purchase decisions. If this is a hard pill to swallow, I challenge you to pay cash for all discretionary items for just one month. By discretionary, I mean the items that you have control over. Examples of these might include groceries, restaurants, auto expenses, haircuts, cleaning supplies, laundry detergent, clothing and anything else that you decide whether or not to buy on a monthly basis. Pull a specific amount of cash out of the bank, keep it with you at all times and only use the money in your pocket to purchase discretionary items. I'm betting that you will make different decisions when you're using cash than when you're pulling out the card. Just try it!
"Everyone knows that you have to save for retirement. Are you crazy? Why would you stop saving money to become debt free? Isn't that counter-intuitive?" We stopped saving for retirement for six short months. Is it ideal? Of course not. However, it allowed us to focus all our resources on becoming debt-free and building up a sizable emergency fund. Now that we have no payments other than our mortgage, and an emergency situation is not going to send us into a tailspin, we have even more resources to put towards retirement! In fact, 15% of our gross income will be going to retirement savings beginning in June 2010. According to Dave Ramsey's calculations from his Total Money Makeover book, the monthly amount we will put into retirement savings could provide us with an annual income of $229,800 in our retirement years! I think that I could probably find a way to live on $230,000 per year in my retirement years! These numbers assume 12% interest and 4% inflation for a net return of 8% per year. Even if these percentages are aggressive, saving 15% of our income for the next 30 years or so will still provide a nice income in the golden years given an average return on investment.
"Isn't this just a little basic? I mean, you're an educated person with decent financial means. Aren't you making this a little too watered down? Living from envelopes and on a budget....don't you work too hard to have to live this way?" I can't tell you how many times I've heard this from my friends. I have an advanced degree, am a Certified Public Accountant and own my own business. My husband is a project manager and leads 14 people in a publicly held organization. Our friends can't believe that we would get so basic with our money. I will tell you that we would never have done this on our own. Following Dave Ramsey's Baby Steps gave us a simple, systematic and disciplined approach to take charge. We started this process with an end in mind. In the past, our attempts at living on a budget have fallen short because there was no end game. We didn't know where we were headed. Saving money would have been great, but for what? The Total Money Makeover provided us with a road map and big waving victory flags to know when we had arrived at each destination!
Taking control of our financial life feels great. We will never again have a car payment, a credit card bill or a school loan. We know that when we want to purchase big-ticket items, we save for them and pay cash. This goes for vacations, vehicles, home improvements....everything. We are living like no one else so that later, we can live like no one else!
I know you've been on pins and needles for this one! The Grocery Game Update:
During my Kroger shop for the week, I scored chicken nuggets (eight bags), yogurt (12 containers), barbecue sauce, Kool-Aid (12 packages), fruit and coffee creamer (two boxes). These are all staples in a young family's kitchen! I paid $16.46, but without coupons and store sales, I would have paid $35.93!
