Stop Being A Slave

July 10, 2014
by Brad

My wife and I are a fairly normal American family. And by “fairly normal” I really mean that we’re in debt up to our eyeballs.

According to the federal reserve the average U.S. household has:

$15,191 in credit card debt
$154,365 in mortgage debt
$33,607 in student loan debt

When you owe someone money, whether it be banks or family members, you become a slave to them. It may be subtle, but they are calling the shots.

Recently my wife and I got tired of being slaves and decided to do something about it. And it’s really not as hard to beat debt as a lot of people make out.

You Need A Plan

I like plans. I like step-by-step guides telling me exactly what to do to accomplish a given task. I think that’s why I had so much trouble trying to plot out my novel.

Over the past couple of years I’ve been listening to Dave Ramsey on the radio. I started listening because, at the time, the only channel my truck radio got was an AM talk radio channel and he replaced the radio show that had previously been on during my drive home.

I started listening to this guy talk to radio callers about how they could get out of debt. I thought to myself “this asshole is getting rich selling common sense.”

Meanwhile, my wife and I continued to rack up debt after debt. We bought a car we couldn’t afford. We bought a lawnmower 6 months same as cash. We charged dinner out 4-5 times a week.

We were normal.

Then something changed. Listening to Dave Ramsey one day my thought changed to “hey, this is common sense.”

It was a subtle change, but it is incredibly important. If you listen to him long enough you will even hear Dave admit that his methods are common sense.

The problem is that common sense isn’t all that common anymore.

The Baby Steps

Dave’s process is laid out step-by-step in his book The Total Money Makeover. I highly recommend it. But for a quick, free jumpstart you can see his baby steps for free on his website.

Build a $1,000 emergency fund
Pay off everything except your house using a snowball
Build your emergency fund up to 3-6 months expenses
Invest 15% of your income into retirement
Invest in your children’s college fund
Dump everything extra into paying off your home
Build wealth

7 steps. That’s it. And so far it really is that simple.

The Zeroeth Step

There is one thing I want to mention that Dave talks about A LOT, but isn’t an official part of the baby steps: the budget.

It’s hard to set up, it’s annoying to maintain, it seems like it’s controlling your life, and IT’S ABSOLUTELY WORTH IT!

See, before my wife and I got on the same page about eliminating debt, we were piss broke. It was not uncommon to have an empty checking account with two weeks left in the month. Then we would fight about where the money went and break out the credit cards to cover the expenses for the rest of the month.

Just this April we put together our first ever budget. It took us a while, and it was scary, but for the first time since we’ve been married we didn’t run out of money before the end of the month.

In fact, the opposite happened: we had more money left than the budget said we should have.

It’s not really a good thing because the budget should zero out every month, but it means at least we’re on the right track.

And I cannot express how good it feels to know where our money is going instead of wondering where it went.

The Tactics

We’ve read The Total Money Makeover, we’ve even bought copies for a couple of family members. Still, there are a couple of detail level tactical things we had to figure out the hard way.

If you’re interested in saving yourself some pain on the learning curve, here are some tactical tips:

Budget, Budget, Budget

I mentioned that you need a budget, and it bears repeating. It’s that important. And believe me, when you finally create one AND STICK TO IT it’s an incredibly freeing feeling.

Our budget is based on Dave Ramsey’s budget form. I put into a Google Sheet so that I could track some other stuff, but it’s his basic template.

~~I cleaned out our personal information and created a Google Docs Template you can use here.~~ Apparently you can’t submit a Google Sheet as a template, since the latest update to Google Drive. I’ll get it up as soon as possible.

My budget form does a couple of things.

First, it’s set up in two month;y halves. That’s because I’m the sole breadwinner in our house and I’m paid semimonthly, that is twice a month.

I get paid on the 15th and whatever the last day of the month happens to be. In the event of a holiday or payday falling on a weekend I get paid the day before.

It’s an incredibly handy way to be paid for the purposes of budgeting.

At the top of the sheet we list the amount of my paycheck. I have the added benefit of being salary, so it doesn’t change by more than a few cents each time.

Down the budget column we list all of the money we would like to spend out of that paycheck. Food, gas, bills that are due that half of the month, it all goes in the budget column.

The next column keeps a running total of how much money is left in the budget. It subtracts the individual items from our income all the way down the sheet.

When we go through the debts we always budget the minimum payments. Then, when we get to the bottom there is some amount of money left. This amount of money is EXACTLY what we have left to add to the debt with the smallest balance.

It takes care of itself.

Automatic Transfers

When my wife and I did our first budget, we found that one half of the month was incredibly lopsided. With our mortgage payment due the first half of the month we didn’t have anything left that half for gas, groceries, or any of the other essentials.

Enter automatic transfers.

Our credit union allows us to set up automatic, recurring transfers. We delayed our debt snowball and used some of that money to fund a separate checking account. That account contains exactly half of the mortgage plus half of several other recurring bills.

Then we have an automatic transfer set up to transfer half of the bills into that account each payday.

It’s really just an account trick, shuffling money around, but I find it really helps to clean up the budget.

First, our snowball amount is just about equal for both halves of the month. We’re not scrambling to pay bills because we ran out of money one half.

Second, my budget form only keeps track of our main checking account. Because of these transfers I get to mark those amounts as paid on the budget, which gives me a more accurate view of what’s actually going on with our money.

But, if the budget only tracks the main account, how do those bills get paid?

Automatic Payments

Disclaimer: Follow Dave’s advice. If you owe money do a debt collector NEVER give them electronic access to your bank account. Those guys will clean you out nine times out of ten. But it IS safe to auto pay other bills.

On top of automatic, recurring transfers our credit union allows automatic, recurring payments to creditors. I have recurring payments set up for all but one of our bills (a debt collector, boo).

Our recurring payments are set up in two rounds. Anything due between the first and the fifteenth gets autopaid on the first, and anything due between the fifteenth and the end of the month gets autopaid on the sixteenth.

This way our bills our paid almost immediately after the paycheck comes in. We don’t have to worry about paying any of them.

I pay only the minimums this way, and the autopays I have set up all push from our credit union rather than pull from the creditors. It’s tough to do this on the individual credit card sites, most of them will only autodraft on the bill’s due date.

I like my stuff to pull on controlled dates.

Back to the Budget

At this point we’ve got ALL of the recurring bills paid. There are a couple of items that we pull out cash for as soon as my paycheck is deposited. Gas, groceries, pocket money. The little things that aren’t completely predictable and can’t be paid automatically.

Then, anything that’s left in the account after all that happens gets thrown at the bill with the lowest balance. This would be the snowball to which Dave Ramsey refers.

(I did that on purpose to not end in a preposition…isn’t that sentence awkard? I HATE that rule.)

This is why my budget form is set up the way it is. As we go down and budget for minimum payments, the remaining column has a dollar amount left in it. This is the exact amount that we can afford to “snowball” on the lowest balance. We go back and add that to the lowest balance.

Then we rinse and repeat for the next month.

The Net Result

I create a new tab in the budget sheet for each month. According to March’s budget we owed a total of $53,000 in consumer debt.

At the end of June we were already down to $47,000.

Now, that’s not ALL directly from my paycheck. We have been really tightening the budget in other places, and we’ve been selling off just about anything that isn’t bolted down and throwing it on the snowball.

It doesn’t look like much dollar wise, but we started this process owing money to 20 different creditors. We’re now down to 15, with another due to drop each month for the next 6 months.

Most important of all we don’t feel like the debt owns us anymore. We know exactly where the money is going instead of wondering where it went.

It is an incredible feeling.