Last Saturday, Josh and I went to a Total Money Makeover Live event with Dave Ramsey. He is an incredible speaker. I'm not really sure what I was hoping would happen when I told Josh I wanted to go to this, but it worked. We walked away ready to commit to his plan fully for one year and then evaluate how things were going.
Basically, we had been doing his plan for the past couple of years. I had read his book and relayed some info to Josh and he liked the sounds of it. He didn't want to stop his 401(k) or empty our savings of all but $1000 to pay off debt but everything else sounded good. So we made a budget and a list of our debts and started paying them off. I don't know how long it took exactly but we were doing well. We had a home equity loan that we weren't sure what to do with because the rentals were supposed to be paying that off since that's what we had used it for.
About a year ago, we decided that plan wasn't working. The rentals were just not generating enough of a cash-flow to count on paying off that home equity loan. We were wanting to sell our house but the real estate market was down and it was going to be difficult, if not impossible, to break even with that loan. We revised our budget and this was also the time I started coupon shopping again. We paid off that loan in April and were thrilled. Now we were completely debt-free except our house.
Then the air conditioning went out on our van and we bought a different van. We could have used up our savings but decided to take out a loan and work on paying it off early.
After listening to Dave on Saturday, I really wanted to follow his plan completely and asked Josh if he would agree to try it for one year. Then we went back for the 2nd half of the conference and Dave said that if you were in the stage of building up your savings, you shouldn't see the inside of a restaurant unless you worked there. And I gasped out loud. I love eating out. We eat out usually twice a week, sometimes more. Josh just looked at me and I said, okay, I can do this.
On the way home, we talked about what needed to be done. We would set aside money for the rentals so it would be a different account then our savings account. This was necessary for both of us psychologically. I always felt like we had more than we did and he was always worried we didn't have enough. I should clarify - we have a business account for the rentals but there have been times that we have had to use our savings to keep them afloat. Now we just have a special account for any emergencies that are related to the rentals.
We also agreed to pay off the van loan immediately. This would drop our savings considerably but there would still be over $1000 there and we would work on building that back up. We were also going to temporarily stop the 4o1(k) until we built up our savings to a number that we were both satisfied with.
We sat down Sunday night for a "budget date". We went through this coming month and tried to think of every expense. We deleted items like eating out. The only frivolous thing we left on the budget was our fun money. It turns out we have quite a bit left to put into savings. Because of that, the 401(k) will not be stopped. I was so tempted to ask if that meant we could still eat out but I didn't.
I have learned quite a few things already about myself and how I view money through this process. One, I was spending a lot of money that had no place on the budget and apparently just figured it would all work out. I can't believe how many times, in just the last 2 days, I've thought about buying something and realized it's not in the budget. And when you have a strict, zero-based budget (meaning every dollar is assigned somewhere) there is no wiggle-room!
Two, whenever I would get frustrated with something, I would move quickly from "wanting" something to make it better to believing we "needed" that thing. I started wondering how in the world we would ever be able to save up for all the things we "needed". Oh, I'm learning so much.
Josh had originally wanted to have 6 months living expenses in the bank before moving on to the next step but after talking about it, he has agreed that 3 months is good for now. We should be able to do this by Christmas and still have gifts under the tree! The only way I could commit to not eating out is if I knew it would be temporary. :) And we've also said if we have extra fun money (I rarely do so I'm hoping Josh does) or if we have extra grocery money, we'll use that for a special meal out. I'm so excited about this new plan for our lives and what the new year will bring.
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