So now what? {An update on our Financial Peace Trek}

It's been awhile since I wrote about our financial goals. Since we just significantly lowered our income, and since Nathan and I are going to be two of the co-leaders for a session of Dave Ramsey's Financial Peace University starting next month, I decided it was time to take a look at how we're doing with our trek to financial peace. We've made lots of progress, but we still have a long way to go.

To review Dave Ramsey's baby steps and the progress we've made so far, step one is to put $1,000 in the bank. That one was pretty easy for us with two incomes; we've never had less than $1,000 during our marriage. Step two is to pay off all debt except your mortgage, but we deviated from Dave's plan a bit. We have no mortgage and had quite a bit of debt in the form of graduate school loans, so we decided to pay off all debt except the grad school loans. We called this Baby Step 2, Phase 1, and we completed it early in 2011. Then we moved on to step 3, which is building an emergency fund of 3-6 months' expenses. This baby step kind of bugs me. Three months and six months is a big difference. How do you know when you've completed it? We just decided on a nice round number, and after saving that amount about two years ago, we began paying off the grad school loans.

Originally we thought about setting aside money for a down payment on a house at the same time we were paying off the loans, but we decided it made more sense to pour all our extra funds into getting rid of the debt as quickly as possible to avoid paying more in interest. We've questioned this decision from time to time as we watched the real estate market, but ultimately, we can't predict the future, and we're okay with renting.

Our goal for 2012 was to pay off half the grad school loans. I never did write a post on how I did with my 12 to Tackle in 2012, but I can say that we successfully met our financial goal. I called this our "Big Hairy Audacious Goal" because I really didn't think we could pull it off. Well, we did! The initial goal for 2013 was to be completely debt free with a 3-6 months' emergency fund. However, we could only do that by putting 100% of my income (and then some) towards paying off debt. Without my income, this isn't just an audacious goal, it's a nearly impossible one.

So now what?

Well, we are still putting as much as possible towards becoming debt free. I say "as much as possible," but within reason; we want to be able to enjoy life. As of now, seven months into 2013, we have paid off around 75% of the grad school loans. Our only remaining debt is two subsidized federal government loans. Can we be debt free by the end of the year? Probably. The question is, do we want to be? By the end of the year, the amount of debt we have will most likely be less than the amount in our emergency fund, so if we wanted to, we could use the money from our emergency fund to pay off our debt (assuming we have no serious emergencies). The financial adviser we met with doesn't think we should do it. He told us, "Dave Ramsey says once you have your emergency fund, you don't touch it." True, but Dave also says to pay off all debt before worrying about building your larger emergency fund. So, we're not sure what we'll do when we reach that "break even" point, but for now we're just continuing to work towards reaching that point by the end of the year.


How's your trek to financial peace? Which do you think is more important: having lots of savings, or being completely debt free?

Gazelle Intensity

“Give no sleep to your eyes, nor slumber to your eyelids.  
Deliver yourself like a gazelle from the hand of the hunter, 
and like a bird from the hand of the fowler.”
- Proverbs 6:4-5

You should have as much energy escaping from debt as a gazelle has when escaping from a cheetah. Dave Ramsey calls this gazelle intensity.

Run! Escape!

But sometimes, I get tired of running. Sometimes I don't want to live like no one, living in a cheap apartment and packing my lunch every day. When we go through periods of lost income, I feel like we'll never be out of debt. Why bother trying to escape?

If you've ever felt like that, here's some inspiration.

10 Small Ways I'm Cutting Costs

Now that we're currently living on just my income, we need to identify areas where we can cut back on our spending. It's a great opportunity to refocus on what necessities really are and how we can save money on those things we do have to buy.

These are a few small actions I've taken (or plan on taking) to help us live on as little as possible. Even if this season of one income is very short, some of these changes will hopefully become permanent and help us reach our financial goals.

1. Not getting my hair cut

This may sound extreme to some, but for me it was an easy decision to make. I've only been getting regular haircuts for the past year, so going without one for a while won't bother me. Of course I'm hoping Nathan will find a new job before I'm due for a haircut anyway.

2. Stepping up my couponing game.

I have no desire to look through recycle bins for coupons, but I need to make better use of the ones I have. I've gotten a little lazy lately and let some good ones expire.

3. Buying cheaper razors

I'm normally not a brand loyal person, but I've been using Schick Quatro razors for years. I decided to switch to two-blade razors that were 75% cheaper. This has turned out to be a painful decision (literally), but I think I can handle it for a while.

4. Only grocery shopping every two weeks

It's too early to know if this change will actually save us money, but I think it will. If nothing else, I'll be spending less time shopping and less money on gas than I was when I shopped once a week.

5. Temporarily stopping HSA contributions

Right now, part of each of my paychecks goes directly into our Health Savings Account. If the unemployment continues for another month or so, I'll stop making that contribution. We already have enough money between out HSA and emergency fund to cover our out of pocket maximum.

6. Only buying 1% milk

For a year I've been buying skim for me and 1% for Nathan. I finally decided that I'm not going to become obese from drinking 1% milk, so I've stopped buying skim. With the two of us sharing one gallon, we're much less likely to waste any because it's gone bad. The extra refrigerator space is a nice bonus too.

7. Severely limited eating out

I know some people seem to think you should never eat out, but it's nice to be able to go out for dinner as a couple or have lunch with coworkers at least a couple times a month. I don't think we'll be able to completely give it up, but we're going to have a very small number in this budget category. Thankfully, I have several unused Groupons we can use for a date.

8. Not buying new makeup

I've run out of both my foundation and mineral veil, so I'm looking very natural right now.

9. Shopping for a lower car and renter's insurance.

We're spending a huge chunk of our income on insurance. The company Nathan chose several years ago had the best rate at the time, but now that he's added another driver, a second car, and renter's insurance to his policy, it's time to look again.

10. Deleting all daily deal e-mails immediately

Groupons are great for saving money on restaurants, entertainment, and even clothing, but when you don't have a budget for these categories, it's brutal looking at all the deals you have to pass up. Heartsy was really rough. It's better to just delete the e-mails before I can read what they're offering.


What small or big changes have you made to save money?


More Top Ten Tuesday from Oh Amanda.
More Frugal Friday on Life as Mom.

For Richer. For Poorer.

This past weekend, my longtime dream of riding a zip line finally came true! It wasn't a huge one, but it was a good starter zip line. Once we finished our adventure, Nathan broke the news to me that he no longer had a job. He wanted me to have my fun that day, but he couldn't put off telling me any longer.

For richer or poorer.

Those words are spoken in traditional wedding vows for a reason; both are very real possibilities in a marriage. When I made that vow at my own wedding, I started crying as I thought of everything we'd already been through and knew we could make it through anything. Sure enough, when Nathan lost his job after just a few weeks of marriage, we survived the poorer for a time. But then he got this new job, with great pay, and I thought everything would be better. Poorer? That was all behind us! And now, here we are, back to just my income. Although I hope this will once again be such a short period of unemployment that we'll hardly notice it, we have no way of knowing.

Marriage is kind of like a zip lining. Even though I'd looked forward to it for a very long time, I didn't know what it would be like when I jumped off that platform. Sometimes it seems like an easy ride, but sometimes you start spinning out of control. You just have to have faith that the cord holding you up is strong enough that you won't fall into the pond.  It's a crazy ride, but I wouldn't want to do it with anyone else.

I know we'll be okay. Living on my income is certainly possible, just not a lot of fun. I'm so thankful that we fully funded our emergency fund and paid off all consumer debt during our first year of marriage. If you have not yet done both of those things, I would truly encourage you to do so as soon as you possibly can. Although you may think everything is great now that you're richer, you never know when Poorer could come to visit.

What We've Learned About Budgeting

At the beginning of this year, I wrote about the brilliant idea Nathan had to base our budget not on the 12 calendar months but on 13 four-week periods so that our income for each period would be about the same. Now that we're nearing the end of the fifth period, I'm still happy with this system, but it hasn't worked quite the way we thought it would. We've learned a lot about budgeting during these 20 weeks.

Income is never steady
This graph shows what our income has looked like the last five periods. Not so steady, is it? Just to clarify, the markers for the third and fifth period are the "normal" months. It has actually been higher than normal income we've been dealing with, which is a very good issue to have.

Why the high months? 

• Working on corporate holidays in December meant extra income for Nathan in January.
• Tuition reimbursement from Nathan's employer came in February.
• We received a tax refund in April.

Budgeting requires flexibility
The problem we had last year was that we thought of our budget as this rigid guideline that could not be changed in the middle of the month. But guess what? Life isn't predictable! In addition to the unexpected extra income, we've also had some unexpected expenses. You don't know at the beginning of the month that in two weeks you'll need car repairs. You don't know that you'll end up losing the key fob for the laundry room and have to pay $50 to replace it (or that you'll find it later and not be able to get any money back). And really, who can predict how much they'll spend on gas anymore?

Now, when we set our budget before the beginning of each period, we set our amounts for each category based on our normal earned income. If we end up bringing in more money than expected, we then tweak the overall budgeted amount and the amounts for each category. For example, if we expected to make $2,000 during a period and Nathan gets a paycheck with $50 extra overtime pay, we might add $40 to the budgeted amount for the emergency fund and $10 to the amount we budget for miscellaneous spending. Our total budgeted would then be $2,050. And likewise, if an expense comes up that was not originally in the budget, we'll have to lower a few categories to make up for it.

Budgeting requires communication
Extra income is a blessing, but it makes having a budget even more important. If Nathan and I hadn't decided ahead of time how we were going to use our tax refund, we could have ended up going crazy with our spending for that month. Having a budget meeting at the beginning of each period is a starting point, but being in financial harmony with your spouse requires constant communication. We don't consult each other about every purchase we make, but it's nice to know when Nathan plans to spend $100 on computer parts.

Budgeting takes a lot of time to get it right

If you've been using a budget for a long time, it might sound like I'm stating the obvious in this post, but it was incredibly frustrating for us those first few months. We still haven't perfected it, and I don't know that we ever will. If you're just starting out with creating and using a budget, don't give up!


 Do you use a budget? What are your tips for making it work?

Baby Step 2, Phase 1: Complete!

Our debt snowball has rolled all the way down the hill! Baby step 2 in Dave Ramsey's plan is to pay off all debt except your mortgage. Since we don't currently have a mortgage, we've modified Dave's plan a bit. After putting $1,000 in our emergency fund, we paid off all debt except student loans for Nathan's graduate school. Over the past eight months, all of my take-home pay and then some has gone towards paying off debt. While we can't officially say that we're debt free, it's still a nice feeling to not have any credit card payments, car payments, or any other debts.

Putting our final payment in the mail

How We Did It

For the most part, we avoided lifestyle inflation after Nathan started a better paying job. When he first called to tell me the news, I was so excited about how much money we would have that I went to Panera for a $12 lunch that day. But I haven't done that since then. Our way of living hasn't really changed all that much. We live in the same apartment, drive the same cars, and wear pretty much the same clothes. We've made a few splurges, but we budgeted for them. I'm a tightwad by nature, and I've managed to reign in Nathan a little.

The Next Step

Over the next three months, we'll be putting the same amount of money we have been using to pay off debt into our emergency fund. Since it will take us quite a while to pay off the graduate school loans, we didn't want to pay off those with the same intensity without having an emergency fund of 3 to 6 months' expenses (Baby Step 3). Our emergency fund is in a special type of bank account. Unlike our standard savings account, from which I can transfer funds with just a few mouse clicks, we must actually visit a branch or call the 800 number to withdraw money from our emergency fund. We also have a Health Savings Account that we can use for any medical expenses, but we want to have 3 to 6 months' expenses saved in addition to the money in our HSA.

After Our First Anniversary

Starting in July, assuming all goes well, we want to start setting aside money for two purposes: paying off the student loans and saving up a 20-25% down payment for a house. It's hard to say how long this will take - our income could go up or down, we could have another mouth to feed - but we'll still be paying off student loans a lot faster than most people, and we're in no hurry to buy a house when Nathan has only been at his job for 7 months. I'm just thrilled that we've already made it this far on our road to financial peace.

For those of you who have gone through Financial Peace University or are familiar with Dave's teachings, have you followed his steps in order or switched things around a bit?

That's Not Good Enough!

Week 8 in Financial Peace University, which is all about finding good deals, is titled "That's not Good Enough!" It's funny how as you find better and better deals, what you consider to be a good enough price becomes lower and lower. $10 for a pair of jeans? Not bad, but after the deals we found this weekend, I'm not sure that will be good enough anymore.

 

We got this dress shirt, sweater, and jeans all for less than $5! 

Here's how:

Jeans (from Target)
Original Price: $24.99
Sale price: $6.24
Used a Target printable coupon for $5 off women's denim item
Final cost for jeans: $1.24


Then Nathan and I went to Kohl's as part of our date night (what a good husband!).
Dress Shirt
Original price: $38.00
Sale price: $7.60

Sweater
Original price: $30.00
Sale price: $6.00

Used postcard I received in the mail for $10 off any purchase
Received an extra 15% off
Final cost for dress shirt and sweater: $3.06


$93 worth of clothes for $4.30...That's good enough for me. I know opportunities like this might not happen very often, but just knowing that they happen at all is very exciting!

Living Like No One Else

Nathan and I have completed 10 weeks of Dave Ramsey's 13-week Financial Peace University. Nathan has gone through the class before and we listened to all of the audio CD's together before we were married, yet we're both still learning a lot going through the material again. The major theme of FPU is "Live like no one else so later you can live like no one else." If you live below your means in the short term so you can you save and invest, you will build wealth and be able to enjoy life and give freely. Debt is dumb!

This certainly isn't the way that the majority of Americans want to live. Erica at Newlyweds on A Budget wrote in a criticism of Dave Ramsey,

"But what’s the point of saving and living like a pauper if I’m only going to be old when I get to enjoy it? What good will it do me to have $5 million dollars when I’m 80 if I’ll be using a walker to get around and wearing diapers?"

Well, you can certainly enjoy the benefits of following Dave's teachings well before age 80. After Crystal at Money Saving Mom and her husband went through Financial Peace University, they had a paradigm shift in their view of money that allowed them to pay 100% down for their first home. Talk about financial peace!

Just how counter-cultural are Nathan and I in our spending habits? We definitely haven't lowered our standard of living to the absolute minimum in order to pay off debt and start saving, but I would say we make more sacrifices than the average couple with our income.

Ways we're living like no one else:

• Over 40% of our take-home pay goes towards paying off debt. 
• I work hard at couponing to keep our grocery budget as low as possible.
• We don't eat out for lunch most days. I take a lunch to work and Nathan goes home.
• We have only basic cable channels - no TLC or HGTV for me.
• I very rarely spend more than $15 on an article of clothing and don't buy clothes that often.

Ways we aren't so much living like no one else:

• I haven't cut up my credit card. I pay it off every month, but I'm still using it.
• We don't live on beans and rice. We eat good meat!
• We're using student loans to pay for Nathan's graduate school.
• We go on dates to nice restaurants (not fast food) once or twice a month.
• I get my hair cut at a salon every eight weeks. (This one kind of balances out though since I went more than two years without getting it cut.)
 

I guess you could say we're living fairly differently than most people, but we aren't as frugal as we could be. In the year or so we have left until we have to start paying off the student loans, we plan to pay off all other debt and save up an emergency fund of 3-6 months' expenses. We don't want to buy a house until we've paid off the student loans and can make at least a 20% down payment. Yes, this will take years, especially since we want to have children, but that's okay.

What do you think of Dave Ramesy? Are you living like no one else?

The Nerd and the Free Spirit

When it comes to the budget, Dave Ramsey says one spouse is the Nerd and the other is the Free Spirit. The nerd enjoys numbers and coming up with the budget, while the free spirit doesn't care about it and feels controlled by it.

It isn't so black and white with Nathan and I. We're both nerds in some ways, but we can also be free spirits. While Nathan may seem like the nerd at first glance since he loves accounting and is working on an MBA, I have kept records of my earnings and spending since I was 11 years old and engage in what Nathan refers to as "stalking" our bank accounts online ("Did you enjoy that Arby's you had for lunch?").

When it comes to creating the budget, Nathan is the nerd. He sets the amounts for each category each month, and he was the one who planned out our debt snowball. Although I offer some input, I remain the "whatever you want" free spirit for the most part. Being the Excel guru that he is, he set up an amazing budget tracking spreadsheet for us with all kinds of drop down menus and formulas.

However, in terms of actually tracking the budget and trying to ensure that we stick with it, I become the nerd. I'm the one who records all the transactions in our Excel spreadsheet and makes sure bills get paid on time. I will give Nathan reports and observations on how we're doing with the budget.

The important thing is that we both know where we want to be financially and we're working together to get there. If we agree on the budget, we shouldn't have any major disagreements over money.