At the beginning of this year the owner of the company I work for presented us with a challenge: Read Dave Ramsey’s The Total Money Makeover and adopt its principles. He was so passionate about this book that he bought every employee a copy with the request that they read it.
I didn’t wait for the company to buy the book for me, I went and borrowed a copy from a relative and read it cover-to-cover in just a few days. I found a copy of the book on “tape” and listened to it again on my Zune. I obtained a copy Dave’s Financial Peace University and listened to it as well.
Baby-Step One: Start your Emergency Fund
In the short amount of time it took for the company to start handing out books, I was already nearly complete with Baby-Step One: set aside $1,000 in an emergency fund.
Dave says this should be money that is easily accessible (not tied up in a CD or stocks), but not so easily accessible that it’s used for non-emergency items.
My wife decided she wanted us to have this emergency fund in cash and store it in a secure location. Cash is fine, but it’s easily spent and has no easy way to track, in my experience. I decided to surprise her. I went to the bank and cashed out the $1,000 that we had saved up for this fund – in two dollar bills. I had to call the Credit Union and have them order them in special for me, but they didn’t have a problem with it.
When I showed up at home with a thousand dollars in two dollar bills my wife thought I was crazy. “Why Twos?” she asked. Twos take up half as much space as singles; they’re uncommon, so we’re not going to spend them as readily, every time we do we’ll be reminded that this is money from our emergency fund; and it’s going to be a lot more difficult for us to spend ten Twos than one Twenty. She went along with it.
Moving on to Baby-Step Two, we started snowballing our debt, cutting expenses, and finding creative and frugal ways to save money that we apply to our debt.
Murphy Pays a Visit
Just when things started to get rolling That’s when Murphy decided to test our resolve. Out of the blue my wife blew a hole in one of her tires – in the sidewall, so it was non-repairable. All of a sudden our debt snowball came to a screeching halt, our well laid plans were falling apart. We’d have to go into debt to pay for the new tires. What credit card were we going to put two new tires on?
Then I recalled a story Dave shared in Financial Peace University. A lady had car problems on the way to FPU. She was working on Baby Step 3 (finish your emergency fund), had paid off all her debt (excluding her home), and had $12,000 in her emergency fund. She was furious, on the way to see Dave Ramsey she’d incurred hundreds of dollars in unexpected car repairs. Dave smiled and calmly replied, “You couldn’t have predicted this would happen to your car, right? So it’s an emergency, right? And you have twelve THOUSAND dollars in your emergency fund. So what’s the problem? Fix the car!”
I realized, these were 5-year tires that were two years old. We couldn’t have predicted this event. It was an emergency. As hard as it was to dig into our cache of Twos, we did – and we didn’t have to go into debt to pay for the new tires.
You should have seen the face on the man behind the counter when I counted out almost two-hundred dollars in two dollar bills. No one, he said, uses cash any more, let alone Twos. He was floored.
I had to postpone my debt snowball by two pay periods, but within three weeks I had restored our emergency fund to its full amount (plus a little bit), and was back on track. More importantly, we hadn’t incurred more debt to pay for new tires.
Baby-Step Two: Pay Off your Debt
After a brief delay we were back on-track and snowballing our debt again, paying it off with “gazelle-like intensity.”
We quickly paid off $200 on one credit card, a $250 loan, and another $500 loan. Next up were a Sam’s Club card and a Discover card (which we rolled windows purchased with “12-month same as cash”, a previous “emergency”), we were making good progress there.
Then the unthinkable happened.
Murphy Strikes Back
Murphy wasn’t too happy with us when we were able to roll right through our last emergency with the tires. This time he hit hard. My 4-year old son had an adverse reaction to a prescription medication. In medical jargon he had a dystonic reaction followed by seizures.
We rushed him to urgent care who consulted with Primary Children’s Medical Center. A quick ambulance ride later and he was in the their emergency room. Luckily the reaction was temporary, there was no permanent damage done. Other than being scared for several hours, he was none the worse for wear.
Then the bills came. Did you know that an ambulance ride from Layton to Salt Lake City costs about $2,000 dollars and several hours in PCMC’s emergency room runs around $1,000? Luckily insurance covered quite a bit, but that still left us with (ironically) around $700 in medical bills.
That was a large chunk of what we had in our emergency fund. Again, thanks to Dave’s advice, we’d been able to avoid going into debt to pay for an emergency.
We grudgingly all but emptied our emergency fund, paid off the bills, and began to rebuild the fund. It now holds around
We’ve obviously had some set-backs on our path to financial security. Our emergency fund now has $1,200 in it (again in Twos), ready for another unexpected event. We’re back snowballing our debt — which hasn’t gotten any larger, thanks to our emergency fund.
To-date we’ve paid off over a thousand-dollars in debt, and another $300 towards our next lowest balance.
Additionally, we’ve avoided adding another $1,000 in debt. Sure, that’s only $3,300 so far (including the replenished emergency fund), but we’re well on our way.
The Future and what we’ve learned
We’ve run our budget out for the next 8 months. By that time we’ll have fully funded Christmas (without going in to more debt to do so), we’ll have another $1,500 credit card paid off, and will have paid off the next credit card.
We’ve learned that
iving with debt is a cancer and something that we need to cut out of our lives as quickly as possible. We’ve learned that an emergency fund is not a goal, but a necessity.
We’ve learned that once you are no longer enslaved by paying usury to the banks and credit cards there is a LOT of money left over; money that can be invested; money that can be used to better the lives of others; money that we are no longer working for… because (finally) money will be working for us.