One Down One To Go!

Just wanted to report that as soon as the payments hit Donna and I will have paid off the Chase credit card! We've paid off over $10,000 in 4 months! Up next is her student loan and we plan to knock it out with the same intensity that we knocked out the Chase credit card.

Just to recap in Sep 2011 we opened a Chase account and transferred our credit card debt to a 0% APR for one year account. We knew that having a year to pay it off would force us to pay it off within the year so that we didn't get hit with interest. In January we both read Dave Ramsey's Total Money Makeover and even though this debt was higher than her student loan and it was interest free compared to 6.8% interest we decided to pay this one off first because we knew we had to have it paid before October 2012. Little did we realize we'd end up paying it off in 4 months! I guess we did get gazelle intense though it really didn't seem like it.

I'll be the first to admit that we were able to knock out big chunks of it through the sale of camera gear and things like that but I'm fine with it. I sold a really nice camera that I wasn't shooting with enough to justify keeping it and as it turns out it looks like we'll be switching to different cameras soon so there's a good possibility I'll be selling all of my Canon gear and using that money to fund the new cameras that we'll get for Donna and me.

For me the coolest part about the whole deal, other than paying off the card, is that we made the last two payments on my birthday. What a great present that was!

4 April 2012 Update: I logged into the Chase account this morning and the payments have been applied. Chase has been paid in full! Time to write them and have the account closed. Below is a screen capture of the account summary page.

My Question was Selected!

One of the first blogs I started reading when I became obsessed with money matters started reading more about how to better mananage my money was Money Q and A which is written by Hank Coleman. One feature Hank offers is you can submit your financial questions to him and if he selects yours to answer publically he'll post it on his blog.

I've been thinking a lot about getting out of debt. In fact I'd say I've pretty much become obsessed with getting out of debt. Just check out the Pay Off Schedule for the Chase credit card and you'll see. Part of my initial planning was to treat our home mortgage like any other debt and get rid of it as quickly as possible. I see now that I need to adjust my plan.

If you want check out my question and Hank's answer (Opens in new window/tab): Reader’s Question: Should You Pay Your Mortgage Off First Or Invest For Retirement?

It's clear Donna and I have some re-planning we need to do so we'll be working on that while we continue to pay off our current debt.

How about you? What would you recommend?

Baby Step 4: Invest 15% of Income into Roth IRAs and Pre-Tax Retirement Plans

This baby step is the first of the wealth building steps. By the time you've reached this step you've completed Baby Step 1 ($1,000 Emergency Fund), Baby Step 2 Pay of All Debt (except house) With The Debt Snowball, and Baby Step 3 Put 3 to 6 Months Expenses in Savings. In the Total Money Makeover book Dave recommends the following for your investment

• Invest 15% of income before taxes (see table below)
• Don't count any company match as part of that 15%
• 15% is a recommendation. You can go up or down a few percentage points as desired.
• This is a long term investment
• Invest in mutual funds with good track records over the past 5 - 10 years.
• Allocate 25% of investment into Growth and Income Mutual Fund
• Allocate 25% of investment into Growth Fund
• Allocate 25% of investment into an International Fund
• Allocate 25% of investment into Aggressive Growth Mutual Fund

What we are currently doing is investing 5% of my salary into company 401(k) plan. My company matches the first 3% 1:1 and the next 2% .5:1 for a total company match of 4%. Prior to starting Dave's baby steps I was investing more than 5% into the 401(k) but we felt we could slow up on the 401(k) for a little while and concentrate on getting out of debt and fully funding our emergency fund. I have been fortunate enough in the past to be able to max out my 401(k) so we have a nice little nest egg built up. When we reach this step I will either split money between two Roth IRAs or take advantage of a company offered Roth 401(k) for me and a Roth IRA for Donna. We'll see what's available when we reach this step which we currently project to be January 2014.

Gross Income	15% Investment	Per Month	Per Pay Period assuming 2x periods per month
$10,000.00	$1,500.00	$125.00	$62.50
$15,000.00	$2,250.00	$187.50	$93.75
$20,000.00	$3,000.00	$250.00	$125.00
$25,000.00	$3,750.00	$312.50	$156.25
$30,000.00	$4,500.00	$375.00	$187.50
$35,000.00	$5,250.00	$437.50	$218.75
$40,000.00	$6,000.00	$500.00	$250.00
$45,000.00	$6,750.00	$562.50	$281.25
$50,000.00	$7,500.00	$625.00	$312.50
$55,000.00	$8,250.00	$687.50	$343.75
$60,000.00	$9,000.00	$750.00	$375.00
$65,000.00	$9,750.00	$812.50	$406.25
$70,000.00	$10,500.00	$875.00	$437.50
$75,000.00	$11,250.00	$937.50	$468.75
$80,000.00	$12,000.00	$1,000.00	$500.00
$85,000.00	$12,750.00	$1,062.50	$531.25
$90,000.00	$13,500.00	$1,125.00	$562.50
$95,000.00	$14,250.00	$1,187.50	$593.75
$100,000.00	$15,000.00	$1,250.00	$625.00

So how about you? Do you currently invest for your own retirement? If so how much and do you use a 401(k) or Roth IRAs or a mixture of both?

50 Cents

50 cents doesn't sound like much does it and it really isn't. Odds are you could come up with 50 cents in just a matter of seconds. No problem, piece of cake, right? So what if we came up with 50 cents per day what would that get you? Let's say you work 5 days a week and save 50 cents per day for those five days. On Friday you'll have $2.50 set aside. Let's assume each month has 4 weeks. At the end of the month you'll have $10.00 saved. Do that for 12 months and at the end of the year you'll have $120 saved. Now let's assume you're really committed and save 50 cents per day even on the days when you're not working. At the end of each week you'll have $3.50. Each month you'll save $14 and each year you'll save $168. I know $120 - $168 per year really isn't anything to get terribly excited about is it. For Donna and me those amounts would cover a good portion of our cell phone bill but still it honestly doesn't excite me too much.

I do get excited when I think about what that measly 50 cents per day can do for me as far as getting out of debt. Because Donna and I are so focused on getting rid of our debt right now we are looking for any and everything we can do to get our income up so that we'll have more money to pay on bills. Let's bring our friend Jack back for a moment. As a quick recap Jack is a fictional character with 3 outstanding debts: Lowe's credit card with $550 balance, $15 per month minimum payment, 18% interest, Student Loan of $6800, $100 minimum payment, 6.8% interest and Visa card with $2200 balance, $50.00 per month minimum payment, 12% interest. Using Dave Ramsey's Debt Snowball method Jack will be out of debt in April 2018 after paying $2685 in interest. Now let's take that $10.00 Jack saved each day at work and see what adding $10 towards his bills each month gets him. Jack will be out of debt in Oct 2017 after paying $2374.68 in interest. He'll save $399 interest payments and will be out of debt 1 year, 5 months sooner. Finally let's see what $14.00 per month extra does for Jack. Jack will be out of debt in Aug 2017 after paying $2281.32 in interest payments. He'll save $492 in interest payments and will be out of debt 1 year 7 months sooner.

So how can you manage to save 50 cents per day when it seems like every dollar you have is already spoken for? Here's a few ideas for you:

• Suppose you buy lunch 5 days a week. Bring your lunch one or two days per week. Assuming lunch costs $7.00 you've just saved two weeks worth.
• Buy a soda from the machine each day? Bring one instead. Our vending machines offer bottles for $1.25 and cans for 75 cents. Let's assume a 12-pack of soda cost $4.00. That works out to about 34 cents per soda. By not buying from the vending machine you'll save between 41 to 91 cents each time you skip the vending machine
• Skip the goodies in the other vending machine. Some example prices for items in our vending machine. Crunch and Munch Popcorn - 55 cents, Pork Skins (my favorite) - 65 cents, Checxmix - 85 cents, Reese's Peanut Butter Cups - $1.00. I'm not about to say you can't indulge in these things I'm just recommend you don't indulge in them as much as you normally would.
• Check the console/change holder in your car. I just checked mine and came up with $1.68
• Check your junk drawer in your desk. Just scored an additional $1.85 from mine
• Would you like to supersize that? Nope. Save that cost which I'm sure is more than 50 cents
• Coupons. Combine a couple and you'll have your 50 cents daily savings

50 cents per day isn't much but as you can see it can make a big difference. Good luck discovering ways to come up with your 50 cents each day. If you have a good idea please share it!

How One Call Saved Us $180.00

No, I'm not talking about switching car insurance companies, either :).

Donna and I have been working hard on making a budget, tracking our money and looking for ways we could cut back so that we would have more money for paying debt. A friend of ours told us they recently called the cable company and had them stop service. They wanted to have the money they were paying on cable availble for paying on bills. That's quite a dramatic step, in my opinion, and not one I'm willing to do. Yes I want to pay off our debt and become debt free as quickly as possible but I'm not at the point where I'm willing to have the cable service disconnected to do so.

What we did do though was call our cable provider and ask how we could reduce our monthly bill. The rep we spoke with, John, I believe his name was reviewed our account and discussed the different plans they had available. We could drop from Plan A to Plan B but then we would lose some channels we wanted to keep, etc. This went on for several minutes trying to find a cheaper plan that would fit our wants. Notice I said wants and not needs. We WANT specific channels we don't really NEED them. In the end we agreed that switching to a different plan wouldn't help us so John said that new subscribers were getting a $30 per month discount on our current plan for their first 6 months of service and that he would apply that discount code to our account as well.

So there you have it. Once call, 15-20 minutes of time and effort expended and $180 in savings over the next 6 months. All we had to do was ask! How cool is that. Best of all John advised us to call back in 6 months to see what offers were available at that time. Who knows perhaps with a little luck we'll be able to turn two phone calls into $360.

So how about you? Have you ever called a company and asked for a discount? If so how did it go?

Read Your Statements!

I'll be the first to admit that prior to January 2012 I rarely, if ever, read my statements. Because Donna and I are in the process of paying off and closing all of our credit cards we have been looking at the statements so that we'll have the address we'll need to send the letter to close the account, etc.

This past weekend I was reading one for the Barclay Card we have. I got this card on a whim when I found out I could earn iTunes points. Yes I fell for the whole I get points on this card thing. We actually have used it enough to earn a $25.00 iTunes card but I really don't need this credit card so this month we will pay it off and close it.

Below is a screen capture of part of the statment. Two things jumped out at me. First is what I highlighted in red which is the Late Payment Warning. Read that closely. By not paying the minimum which for this card and the balance on it at the time was $20.00 you could be charged a late fee of $35.00 (1 1/2 times the minimum payment amount) plus your APR may be adjusted to a penalty APR of 30.24%. 30.24 - seriously. OUCH!

Just for fun let's pretend the current balance is $6758.10 instead of $675.81. The current interest rate for new purchases is 16.99%. Assuming minimum payments of $100.00 per month. It would take us until Sep 2030 to pay the card off and we'd pay $15,595.73 in interest.

Now let's assume we didn't pay our payments on time and the bank jacked up the interest rate to the penalty rate of 30.24% We'll use the same current balance of $6758.10, interest rate of 30.24%. Minimum payments of $175.00 per month. It would take us until Mar 2024 to pay the card off and we'd pay $18,683.38 in interest. For simplicity sake we'll assume that once you get bumped up to 30.24% that you can't drop back down.

At first it looks like you'll get out of debt faster with the higher interested rate but that's not correct. The issue here is that I had to enter a value of $175.00 per month just to get the calculator to accept the parameters with the 30.24% interest rate. What's interesting is if you take the first scenario and bump the payments up to $175.00 per month which is $100.00 minimum plus $75.00 extra per month you'll be out of debt by Oct 2016, will pay a total of $3,092.35 in interest, be out of debt 13 years, 11 months sooner and will save $12,503 in interest payments! I can't stress enough that paying extra on your loans is the best way to get them paid off ASAP.

The second thing I wanted to point out the staement even shows you how you can pay off the debt a year early (see green section). If you increase your minimum payment from $20 per month to $24 and don't add any more debt on the credit card you can shave an entire years worth of payments from the card. I think it's a good thing the banks are including this information.

How about you? Do you read your statments or do you just look at amount owed and move on to the next one?

Baby Step 3: Put 3 to 6 Months Expenses in Savings

Dave recommends putting 3 to 6 months worth of expenses into a savings account to have as your fully funded emergency fund. With this fun in place you'll be ready for practically any emergency that comes you way. A good place to put this money would be into a money market account that offers check writing privileges. A bad place to put this money would be into a certificate of deposit because having the money tied up in a CD doesn't allow you to get to it quickly without having to pay some sort of penalty.

I know what you're thinking -- but savings accounts and money market accounts aren't paying squat for interest and you're right. I agree with you but think of your Emergency Fund as insurance and not as an investment. Sure we'd all like to earn a little extra interest on our money but I'm willing to earn a little less for having the money available in case I need it.

Determining how much you really need to set aside varies by your own situation. Let's take a look at the different situations for our family:

Terry and Erika. Terry is serving on Active Duty in the Army. He and Erika have been married 3 years, live in an apartment, and drive a 2009 Honda Accord that they are making payments on.
Andrew. Andrew is serving on Active Duty in the Marine Corps. He's single, lives in the barracks and down not own a car.
Steffanie. Steffanie is a recent college graduate. She works two jobs, rents and apartment and drives a 2000 Nissan Xterra.
Donna and me. Donna is retired from the Air Force and works part time as a dental assistant. I work full time as a database administrator and software developer. We have a $225,000 mortgage and drive a 2001 Toyota Tacoma and 2006 Honda Accord, both of which are paid for.

Now let's take a look at how each should setup their own emergency fund:
Terry and Erika: 3 months of expenses. Because Terry is serving on Active Duty his income is very consistent from month to month and since he's planning to make a career of serving in the Army he should be fine with 3 months set aside.
Andrew: 3 months of expenses. Being single and living in the barracks his expenses are minimal. Coupled with the fact that like Terry his income is very regular and steady 3 months is plenty. Andrew has not decided if he will make a career out of the Marines. If he plans to get out at the end of his enlistment then he should bump his emergency fund up to 6 months. Actually he should bump it up to 6 months of projected expenses once he gets out. He'll have expenses for food and rent which he currently doesn't have now.
Steffanie: 6 months of expenses. Steffanie can't count on a steady income like Terry and Andrew can. While she can count on her hours at her primary job she doesn't work a set number of hours per week in her second job so her income varies quite a bit. Additionally owning a 2000 model year car is somewhat case for concern. We know the Xterra has been well maintained. It was our car before it was passed down to Steffanie. We know it was maintained properly but now that Steffanie owns it and we aren't there to remind her continually to take it in for routine service there's a chance that car will need some repairs in the future and mommy and daddy won't have the extra cash to bail her out because we're busy paying down our debt so that we can build our emergency fund.

Donna and Me. We've already planned how we want to fund our emergency fund and we're doing things slightly different. Because we are just starting to keep track of our expenses we don't know what our 3 - 6 months worth of expenses equates to. Yes we know fixed expenses such as mortgage, etc but there's always something that pops up that we haven't yet budgeted for. Since we don't yet have a good handle on our expenses we picked a dollar amount that when set aside would give is a great peace of mind knowing we were prepared for almost any emergency that comes our way. For us that amount is $25,000. I really want $40,000 or even $50,000 but think $25,000 is a good number for us. My employment outlook looks very good. I've been with the same company going on 14 years now and that's pretty much unheard of in the IT industry. Because Donna retired from the Air Force she gets a monthly retirement check. Being empty nesters we get to skip Baby Step 5 (College Funding for Children) and want to work on Baby Step 6 which is to Pay Off Home Early. (Yes we plan to skip Baby Step 4 Invest 15% of income into Roth IRAs and Pre-Tax retirement plans but that's a subject for another post).

Looking at it $25,000 seems like a big number and it is. I know that to fund that amount in a year I need to save a little over $2,000 per month assuming we start in January 2013 which is our plan. I get paid twice per month and Donna's retirement check is paid once per month on the first so our monthly income isn't a 50/50 split between the two pay periods. For us it works out to a 62/38 split. To make it easier on us we will deposit a larger amount out of the first paychecks and we will the 2nd one. The table below shows the break down we plan to follow. We talked about going ahead and using the $1000 that we have already set aside and counting that towards our $25,000 fund but decided against it so well actually end up with a $26,000 Emergency Fund.

Planned Emergency Fund Deposits
Pay Period	Amount	Total
Jan 1	$1,270.83	$1,270.83
Jan 15	$812.50	$2,083.33
Feb 1	$1,270.83	$3,354.16
Feb 15	$812.50	$4,166.66
Mar 1	$1,270.83	$5,437.49
Mar 15	$812.50	$6,249.99
Apr 1	$1,270.83	$7,520.82
Apr 15	$812.50	$8,333.32
May 1	$1,270.83	$9,604.15
May 15	$812.50	$10,416.65
Jun 1	$1,270.83	$11,687.48
Jun 15	$812.50	$12,499.98
Jul 1	$1,270.83	$13,770.81
Jul 15	$812.50	$14,583.31
Aug 1	$1,270.83	$15,854.14
Aug 15	$812.50	$16,666.64
Sep 1	$1,270.83	$17,937.47
Sep 15	$812.50	$18,749.97
Oct 1	$1,270.83	$20,020.80
Oct 15	$812.50	$20,833.30
Nov 1	$1,270.83	$22,104.13
Nov 15	$812.50	$22,916.63
Dec 1	$1,270.83	$24,187.46
Dec 15	$812.54	$25,000.00

Observant readers will notice that the last payment is $812.54. Coming up with an extra 4 cents during the holiday season is going to be tough but Donna and I will do it some how. I just know we will :).

Baby Step 2: Pay off all Debt using the Debt Snowball Method

The theory behind Baby Step 2 - Pay off debt using the debt snowball method is very simple which is why it really appeals to us. It's so easy to understand. You arrange your debts in order of current balance, lowest to highest and then pay them off in order from lowest balance to highest balance. As soon as the debt is paid off on the lowest balance that amount is added to the payment you were making on the next lowest balance debt. You continue to do this and as you do your snowball gets bigger and bigger with each debt you pay off and before you know it you're able to put some serious money towards your debts. I have to admit it's a pretty awesome feeling when you send $350 to pay on a bill that you used to only pay $300 on. One thing you really need to do is to stop incurring new debt! If you don't you'll never get ahead of the debt.

Let's take the following scenario. Let's pretend our friend Jack has the following debts:
Lowe's credit card, current balance $550 at 18% interest, $15.00 per month minimum payment. Jack didn't have his $1,000 emergency fund established so when his dishwasher went out he charged one on his Lowe's card.
Student Loan, current balance $6,800 at 6% interest, $100.00 per month minimum payment. Jack was lucky and only had to get a small student loan unlike some fellow students that were graduating along with $25,000 to $50,000 in student loan debt.
Visa credit card, $2200 at 12% interest, $50.00 per month minimum payment. Jack should have used the money from his $1,000 emergency fund to pay for the dishwasher but since he didn't have it he was going to use this credit card because of its lower interest rate but Jack's limit is $2500 which isn't high enough to cover the new dishwasher.

Now let's consider some pay off methods. We'll look at 3 of them. Method one - paying only minimum balance each month. Method 2 - paying lowest balance first (this is the debt snowball method). Method 3 paying highest interest rate first (this is typcally called the debt avalanche method). For this post we will stick with the basics and assume Jack isn't able to put any extra towards his debt. In a future post I'll show you how you can turbocharge your payoff. You'd be surprised how something as simple as adding an extra $10 per month will really get you out of debt in a hurry.

I used the iPad application Debt Strategy to come up with the values shown in the table below. One thing you will notice is that there's no difference between paying off the debt by lowest balance first and paying it off by highest interest rate first. I had read and used online calculators that show paying by highest interest rate first can get you out of debt faster but personally I think it takes a lot of discipline to use that method. Think about it if we had good discipline we probably wouldn't be in debt in the first place! While preparing this post I did run the same numbers through an online calculator and they agree with what the iPad application calculated so I'm confident in this scenario it doesn't matter if you pay off lowest balance first or highest interest rate first. Donna and I are going through this process now and we are taking the lowest balance first approach and we're on track to be debt free, except for house payment by Christmas 2012. What a wonderful Christmas present that will be!

Debt Repayment Method
Method	Pay Off Date	Total Interest Paid	Interest Saved	Pay Off Early By
Minimum Balance	Dec 2018	$2493.81	$0	0
Lowest Balance First	Feb 2018	$2430.35	$63	10 months
Highest Interest Rate First	Feb 2018	$2430.35	$63	10 months

In this example it may seem like saving $63 in interest really isn't that big of a deal and in the scheme of things it really isn't. What is important is to note that you'll be out of debt 10 months earlier. By using the debt snowball approach you've really given yourself a $1650 raise (10 months x $165 in monthly payments) and that doesn't even include any interest you may be earning on that money.

I really am a believer in the debt snowball but there's one vitally important thing you need to remember about it or any other method you use to pay off your debt. You'll only get out of debt if you STOP ADDING NEW DEBT! It does you no good to pay off a credit card and then start using it again. To get out of debt once and for all you need to pay off the balance on the card and then get rid of it.

Here's a little shocking stastic I'll share with you. When reviewing my FICO score I saw a figure that floored me. It showed that I have over $70,000 available to me to charge things on credit. $70,000 WOW! I had no idea. Honestly I'm not confortable with that so Donna and I will be closing almost all of our credit cards and store cards to bring that number down. While it's true that I don't have $70,000 in debt just knowing that a few pieces of plastic in my wallet give me the ability to get $70,000 in debt in a hurry if I really wanted to bothers me. We are currently closing all accounts that have a zero balance on them. This includes credit cards and store cards such as Best Buy, Target, etc. Donna knew I was really committed to this when I willingly turned over the Best Buy card.

Just to recap here's how you can get out of debt using the debt snowball:

1. You have to be committed to not take on any more debt. That's critical!
2. List your debts in order of balance lowest to highest
3. Pay minimum payments on all debts. If you come up with extra money apply it towards the debt with the lowest balance
4. Once the debt with the lowest balance is paid off take the money you were paying on that debt and add it to the minimum payment on the debt with the next lowest balance
5. Continue paying off and rolling over your payments until you've paid off your debt

Good luck!

Baby Step 1: Establish $1,000 Emergency Fund

The first baby step recommended by Dave Ramsey is to establish a $1,000 emergency fund. The purpose of this fund is to have readily available cash on and or in a savings account so that you will have money to handle an emergency should one come along. Note for those of you that earn under $20,000 per year Dave recommends setting aside $500 but if you can swing it put aside the full $1,000.

Why $1,000? Several reasons:

• It's enough money to replace any appliance in your home.
• It's enough money to cover most car repairs
• It's enough money to cover most home repairs
• It's a low enough amount that you should be able to set it aside quickly
• It's better than paying for the next emergency by using a credit card
• There's comfort that comes from knowing you have $1,000 saved

While is is true that $1,000 won't cover every repair to your car nor your home it should cover the majority of them. The key here is that this money is to be set aside for EMERGENCIES ONLY.

• Swiping $20 from it to pay for pizza is not an emergency
• That new video game is not an emergency
• The new iPhone/iPad/Driod/Kindle/??? is not an emergency
• Books for college is not an emergency
• College tuition is not an emergency

Emergencies are those things that happen unexpectedly and we had no way of preparing for them in advance. In each case listed above we would have had time in advance of the event in order to prepare to deal with that event. An example of an emergency is you are driving down the road and hit an object in the road that you did not see because you were busy texting. You hit the object and it not only pops your tire it also bends the wheel the tire is mounted on. The only way to fix the problem is to have a new tire and wheel installed. Instead of paying for the repair with your credit card you use all or part of the $1,000 you've set aside to pay for the repair. As soon as you possibly can replace the money in your emergency fund a quickly as you can.

Your emergency fund should be easy to get to but not too easy. For example you should just say Okay this $1,000 we have in checking now will be our emergency fund and we'll just pretend it's not there. That won't work. The money being readily available makes it too easy to spend. At a minimum you'll want to move it into a separate savings account so that you're not constantly seeing the $1,000 sitting in your bank account.

In Dave's book he tells the story about one young lady that after setting aside $1,000 in the cookie jar she went to the bank and got 10 fresh $100 bills and framed them in a nice picture frame. On the frame she wrote "In case of emergency, break glass." and hit the picture frame behind her clothes in her closet. When I first read that I thought it was a wonderful idea. Now I'm not so sure. Yes it's nice to be able to look at that picture frame and see those nice $100 bills and because they're closed up behind glass you can't get to them that easily, but consider this. What is she going to do if she's away from home and has an emergency? How is she going to access the cash when she's away from home? Sure she could take the picture frame with her but would you want to carry a picture frame with $1,000 cash in it every place you traveled? Surely you wouldn't check that with your luggage if you were flying and can you imagine the looks you'd get from the TSA when you went through security? I would imagine in a case like this it would probably be too tempting to just charge the repair on the credit card and then take the cash from the picture frame to pay pay the credit card bill. But let's suppose this lady didn't have a credit card. Then what would she do? I think having the money in a savings account is probably the best option.

Some of you may be thinking why put it in savings when you could put it into a one year CD and earn fractionally more interest. Consider this money as your own personal insurance policy not an investment. Remember it is there only in case of an emergency.

When Donna and I got started with Dave's Baby Steps we were fortunate to have more than $1,000 in our savings account. Given that situation how should you proceed? Donna and I talked about it quite a bit. Neither of us was really comfortable with taking the extra money we had in savings and applying it towards our consumer debt even though doing do would pay off a big chunk on one particular debt. I did lots of research and asked others familiar with Dave's plan what to do. Everyone recommended following the plan to the letter. So that's what we did. We transferred all but $1,000 from our savings account and used that money to pay down debt.

I have to be totally honest and say I don't like only having $1,000 in savings. That scares me the crap out of me. What I have found that it has done is to highly motivate us to pay off our consumer debt so that we can get onto baby step 3 which is to fully fund our emergency fund with 3 - 6 months worth of expenses. The best part about it is after we've paid off our consumer debt it's only going to take us a few months to fully fund our emergency fund. I will sleep much better at night knowing we have $10,000 in the bank instead of $1,000.

Hopefully you now understand the purpose of the $1,000 emergency fund but you may be wondering how to fund it because in your current financial situation you don't have much left over after paying your bills. Here's a few ideas to help you fund your $1,00 emergency fund:

• Sell old textbooks on half.com
• Sell instead of buy stuff on eBay
• Sell stuff on Craigslist
• Try to drive less so you won't spend as much on gas
• Get a part time job
• Ask for extra hours/overtime at work
• Ask for a raise and tell your boss exactly what you'll do with the raise
• Lower the amount you put into your 401(k)
• For Christmas / Birthday ask for cash and explain why you want the cash
• Have a garage sale or sell stuff at the local flea market
• Mow yards
• Skip Friday night out with the boys/girls and put that money aside
• Take that jar of spare change to the bank and deposit it into your savings account
• Quit eating out so much. Cook at home and take left overs to work for lunch the next day.
• Question every purchase. Do you really need to buy this item right now?
• If you are paying extra on any bills only pay the minimum on them until your fund is established
• Getting a tax refund? Use that to fund your emergency fund
• Find a quarter on the sidewalk? Use that

I'm sure there's plenty of other good ways to fund it but you get the idea. Good luck getting your fund started. If you've come up with a creative way of funding your $1,000 emergency fund leave me a comment and tell me about it.

Introducing Dave Ramsey

So just who is this Dave Ramsey guy that seems to have gotten you and Donna all excited about money? Good question!

Dave is a guy that started with nothing, became a millionaire, lost it all, and deciding he didn't want to repeat that process a second time decided to figure out how money really works, what caused him to lose it all and how not to lose it all again. What appeals to us the most about what he says is that it is presented in a way that's very easy to understand. The things he says just clicked with us an it would seem, millions of others. You can read more about him at his website. Dave has taken the knowledge he's gained and turned it into a big business. He has a daily radio show, Podcasts, etc, etc, etc. Spend some time exploring his web site and you'll see what he's all about.

The book Donna and I read and have bought for our children is called "The Total Money Makeover" and it is based around 7 baby steps that one can take to get control of your finances. At the bottom of this post are links for his books on Amazon. If you click the link and buy the book I'll earn a small commission.

I will be writing about each of the 7 baby steps described in Dave's book. Each one is worthy of it's own post but as a summary here are the 7 steps and you're supposed the follow them in order:

1. Establish $1,000 Emergency Fund
2. Pay of All Debt (except house) With The Debt Snowball
3. Put 3 to 6 Months Expenses in Savings
4. Invest 15% of Income into Roth IRAs and Pre-Tax retirement Plans
5. College Funding for Children
6. Pay Off Home Early
7. Build Wealth and Give

I will be writing about each of these in upcoming posts. As those posts are written I'll come back to this post and update the list to links to each post.

Print Book

Kindle Version

Introduction - Welcome to Money Guy Zack

Welcome to Money Guy Zack! I've been doing a TON of reading about money management/personal financial planning, etc since the first part of 2012 and decided to start a new blog to share my thoughts instead of taking up space on my Camera Guy Zack blog.

Before you read any further you should know that I AM NOT a licensed financial planner or otherwise licensed/certified financial person. (Some would say that I'm certifiable crazy but that's a whole different story.) What I am is half of a partnership, the other half being my wife, Donna, that have finally decided to take control of our financial situation once and for all. For years I used the saying "I make the money and Donna spends the money." Sure it was funny and friends would laugh at it but in hindsight it was really unfair on my part to just dump all of the financial responsibility on Donna. Together we are managing our finances. If you are married and only one of you takes care of all of the bills please stop doing that and work together. Seriously, it will make things so much easier when you two share the same goals than if only one of you does all of the planning.

Our turn around came about innocently enough. A friend on Facebook posted that she was energized to get her finances in order after seeing financial guru Dave Ramsey speak in Atlanta, GA. I will be writing a lot about Dave Ramsey on this blog so even if you've never heard of him you'll find about about him here. Also if you are already familiar with him hopefully I'll be able to present my take on things that may be of interest to you. I asked my friend to give me a Reader's Digest summary of what she heard and why she was so excited. She did and included a recommendation to buy one of Dave's books. I bought it and started reading it. I told Donna about it and she started reading it as well. She got so into the book that she read the entire book in one night!

I've recently finished reading the book and Donna and I had pretty much the same reaction: We wish our parents had told us this stuff. We're not saying our parents weren't good parents or anything like that, far from it, we just wish we had heard about this stuff years ago. It's our hope that you will take the time to read what is written here and apply it to your own personal situation. Because we were so moved by what we read we've either gifted or bought copies of the book and given them to our children to read. We're doing for our children what we wish our parents had done for us. Between us Donna and I have four children: Terry, Steffanie, Zack Jr, and Andrew. Terry is married and serving in the Army out in Washington State. Steffanie just graduated college and lives in Georgia. Zack Jr lives with his mom in San Antonio, and Andrew is serving in the Marine Corps out in California. All of our kids are in their 20's. Terry is married and the others are single. Terry and Steffanie are Donna's kids and Zack Jr and Andrew are mine.

Over the next weeks/months/years/who knows? we plan to share with you our experience and those of our children. It's our hope that you'll find some of this information useful and will apply it to your own personal situation and that you will, in turn, pay it forward and share it with a friend or loved one. Do we have all of the answers? Will you get rich quick reading this blog? Is it easy? Is there a bunch of complicated math involved? The answer to all of those questions is NO!

No I don't have all of the answers - I'm just starting out on this journey and have much to learn. In fact I don't believe you can every know all of the answers.

No you will not get rich quick reading this blog - About the only ways I know to get rich quick are (1) inherit a bunch of money (2) marry into a bunch of money or (3) win the lotto.

No it's not easy - You'll second guess yourself when you make a tough decision but in the long run you'll be better off for making the tough decisions.

No there's no complicated math - If there were I wouldn't understand it so if I can understand it I'm sure you can too.

So there you have it. My introduction. Welcome and I hope you'll follow along with us and share your thoughts along the way.