Never a Debtor

           The purpose of or Never a Debtor Blog is to change a generation forever—to arm them with information about avoiding debt so that we can truly be free.  Now this isn’t simply about avoiding debt because of the harmful effects of debt on your life.  That is just the start of it.  This rising generation is more aware of the problems in our society than ever before, from the environment to poverty.  

            Everywhere we see people who are passionate about causes. Passionate people are able to serve with time and with their skills, but often the causes they support need money-and a lot of it.  When you are chained to a car payment, credit card debt, and student loans, there just isn’t extra money to support the causes that you care deeply about.

            The truth of the matter is that you can’t give away what you don’t have for yourself.  This applies to all areas—spiritual, emotional, physical, and financial.  If you can’t put food on your own table, you can’t feed the hungry.  Sharing a spiritual conviction will seem hollow if you don’t have that knowledge down in the fiber of your soul yourself.  

            This is not to say that a person’s worth lies only in their net worth.  ABSOLUTELY NOT!  You are a unique individual and you were sent to this Earth to do something that only you can do.  

            Being debt free gives you just that—the freedom to accomplish what God intends you to do.  Money stress weighs on your soul and relationships.  The purpose of becoming debt free is not so that you can amass large sums of money and then consume it all for yourself.  Nope.  The purpose of becoming debt free, in the words of Dave Ramsey, is to live and give like no one else.  

            In order to teach our kids the perils of debt, you don’t have to be perfect.  If parenthood required perfection there would be no parents.  You can be debt free, deeply in debt, or somewhere in between. Start where you are at.  Your children, family, and friends will notice the changes in your life and you can learn and grow together.  

            So how do you get out of debt?  Getting in debt is ridiculously easy.  Getting out of debt takes effort and determination.  A visceral reaction deep in your marrow that says, “I have had it!  This is not working!  I work too hard to be this broke and have all this money stress.”  That’s how you know you are ready for change and ready to start down Dave Ramsey’s Baby Steps.  These are the steps we have taken in our debt free journey.  They have worked for us, they have worked for millions of others, and they will work for you.

Dave Ramsey’s Baby Step #1

            Baby Step #1 is to save a beginner emergency fund of $1000.  But wait, you say, $1000 won’t take care of a 3 month job loss or a new air conditioner. No it won’t.  It wasn’t meant to be your emergency fund forever.  It serves as a small buffer between you and Murphy’s Law.  It will pay for lots of life’s little emergencies so that you don’t go deeper in debt by putting those little emergencies on a credit card.  

vOf note: This is an emergency fund.  To be used in case of emergency.  A new couch is not an emergency.  Christmas presents are not an emergency.  A broken leg is an emergency.  

vIf spent, emergency fund money should be replaced immediately before paying off any debts.  

vWhile saving for your emergency fund, you should still be making minimum payments on all of your debts.

Dave Ramsey’s Baby Step #2

            This is the part when you start crushing your debt. List of your debts except for you mortgage from smallest to largest, paying minimum payments on all of your debts and put all of your extra money, blood and sweat into paying off the littlest debt.  Take an extra job.  Or two. Side hustles are your best friend. Sell everything that is not nailed down. This is time to be laser focused on eliminating debt as fast as possible.

vList all of your debts from smallest to largest by individual debt, not by category.  For instance, college loans are not listed as one big debt but instead break out the individual loans and list all debts one by one.

vIf your car debt is more than half of your annual income, it is time to sell some cars. I say ‘cars’ but this is actually anything with a motor in it.  Cars, golf carts, Rhinos, your $5000 lawn mower, anything with a motor in it.  

vBut what if your student loans are bigger than your mortgage?  Still list them in Baby Step #2.  This is all non mortgage debt

vIn the Debt Snowball, when you have paid off a debt, you take the payment you used to pay on the littlest debt and use all the money you can squeeze out of your budget to attack the next debt.  

Old payment for debt #1 + Minimum payment for debt #2 + Everything leftover in your budget = The amount you are paying on debt #2

Dave Ramsey’s Baby Step #3

            This is when life starts to feel soooooo much better. Not out of the woods yet, but you are not suffocating anymore.  

            Do you remember that starter emergency fund of $1000 that you had in Baby Step #1?  You know, the one that was so small it made you sweaty around the neck?  It is time to beef it up to a 3-6 month emergency fund.  This is the old fashioned rainy day fund that you always have known you should have. Cause guess what? Rain happens. Sometimes it is a torrential downpour. 

            Whether you aim for the low end of 3 months or the higher end at 6 months depends on your job situation.  Is this a single income household or two income household?  How stable is the job situation?  Single income households or commission based incomes should aim for the 6 month emergency fund.  

            

Dave Ramsey’s Baby Step #4

            This is when you can breathe a little sigh of relief and not be as intense.  Through Baby Step #3 you are pedal to the medal, no holds barred all in on eliminating debt.  Baby Steps 4, 5, and 6 are meant to be done simultaneously.  Baby Step #4 is to put 15% of your income into retirement.  Note that I said of your income.  Not 15% if you add in your company’s match.  It is 15% of your gross income.  This can be investing in a mix of 401(k), IRAs, Roth 401(k) or Roth IRAs, 403bs, individual brokerage accounts, etc.  

            This money is to save for your future.  Most people say that they are going to work until they are dead and that is their retirement plan, but that rarely works out. Usually health concerns for either themselves or their spouse, a layoff, or disability interrupts that plan.

Dave Ramsey’s Baby Step #5

            Baby Step #5 is to save for kid’s college.  If you do not have children, skip this step and move on.  

            Baby Step #5 does not say that you have to pay for all of your kid’s college.  Unless you are fundamentally opposed to paying for your child’s college, the point is to put something into an ESA or 529 savings plan to help pay for college.

Dave Ramsey’s Baby Step #6

            Any extra money left over after taking care of Baby Steps 4 and 5 should be spent on Baby Step #6, which is to pay off your house early. I know this sounds like a pipe dream, but this is how you set yourself up so that you can live and give like no one else. Without a mortgage, you can save more retirement.  Without a mortgage, you can give more and be more generous.  Most financial advisors recommend that you pay off your mortgage prior to retirement, and so do we.

Dave Ramsey’s Baby Step #7

            This is when you invest as much as possible, give as much as possible. Giving 10% to your local church or your favorite charity should have been in the budget all along the way, but this is when you really get to ramp it up.  This is when you can afford to do all the giving that you have wanted to do. Nothing you can do with money feels better than giving it away.  Yes, you absolutely should also be enjoying some of your money after your years and years of hard work.  You have earned it.  Enjoy some of your money, and also enjoy giving some of that money away.

For more information on the Baby Steps, visit daveramsey.com