About six years ago, I was just finishing up my Master’s degree and had accumulated thousands of dollars in student loans. My husband and I were both working jobs that paid next to nothing. We had a two-year-old with routine upper-respiratory infections and were knee-deep in healthcare and childcare costs. Our rent was affordable because of where we lived, and our car loans were manageable thanks to some support from my husband’s parents. Not to mention, we had racked up a bit of credit card debt.
Our lifestyle just wasn’t sustainable.
We realized that we had to make some hard decisions and big changes. As the self-proclaimed financial manager of our family, I started to do some research on how we could begin to pay down our debts and start saving money. After all, we had plans—we wanted to travel, buy a house, and eventually try for baby number two.
It was during this time that I stumbled upon Dave Ramsey’s budget guidelines and Debt Snowball method on Pinterest. His budget percentage recommendations and approach to paying off debt were easy to understand and seemed highly doable to this underpaid, over-stressed Mama, so I dove in.
I began by creating a budget. Per Ramsey, I listed our incomes, which at this point was just our paychecks. Then, I wrote down every one of our fixed expenses and categorized them using Dave Ramsey’s recommended budget percentages, which looks something like this:
- Gifts 10-15%
- Savings 10-15%
- Housing 25-35%
- Utilities 5-10%
- Food 5-15%
- Transportation 10-15%
- Clothing 2-7%
- Medical 5-10%
- Insurance 5-25%
- Personal 5-10%
- Recreation 5-10%
- Debts 5-10%
After a lot of serious soul-searching and deep thinking, our budget ended up looking a bit different. Not wanting to get bogged down in the Should I count this as entertainment or food? conundrum, I deviated a bit from Ramsey’s budget and simply put a label of Miscellaneous to anything that wasn’t a recurring expense, like Utilities and Housing, so our budget looks more like this:
- Housing 25%
- Transportation 15%
- Savings 10%
- Utilities 10%
- Debit 5%
- Miscellaneous 35% (includes all expenses that do not repeat)
Dave Ramsey recommends a zero-based budget, in which the income minus expenses should equal zero at the end of the month.
This means that if you have $500 left over at the end of the month, the budget would need to decide where the extra money should go. We ultimately decided to put this money into savings, and we worked tirelessly to make sure each dollar went where it was supposed to go each month.
In addition to the recommended percentages, Ramsey also proposes using a cash envelope system for budgeting; however, I know myself, and I know that for our plan to work, it would need to be practical. Cash in envelopes just isn’t practical for us.
Instead of using actual cash in actual envelopes, though, we began to track our expenses and our monthly budget using the Mint app. (Ramsey now recommends an app called EveryDollar, but it didn’t exist six years ago as I embarked on this journey.)
On the last Saturday of the month, I create our budget for the next month and monitor it daily using the app. Each expense is categorized according to our personalized budget specifications (as outlined above) and is tracked using the app, so we always know how much money we have left in our “envelopes” or categories.
After creating our budget and making sure we had $1,000 in savings as a starter emergency fund, we started working on the Debt Snowball method to tackle our debt.
I listed all of our debts, including medical bills, credit cards, and outstanding loans, from the smallest amount to the largest amount. We set to work making minimum payments on all our our debts except for the smallest debt, which we paid as much as possible towards.
I am proud to say that we have been able to maintain these guidelines and methods for the past six years. In that time, we have paid off all of our healthcare costs, credit card debt, car loans, and well over $10,000 in student loans, though we still have thousands more to go. In order to do this, when we paid off the smallest debt, we then took the amount of money that we were paying for that debt and added it to the next smallest debt, eventually creating a “snowball” effect. The only remaining debt we have is my student loan. If my estimations are correct, we’re only about 12 to 16 months away from paying it off once my Teacher Loan Forgiveness is accepted (fingers-crossed, y’all).
Now, I’m sure there are plenty of budgets and debt payment methods out there that work well, but Dave Ramsey’s guidelines and methods came into my life at a time when I needed them the most.
And, most importantly, they’ve worked for our family. I’ll admit that I have never read a book or gone to a Dave Ramsey workshop, so I am no expert; however, his easily accessible recommendations and methods have been instrumental in helping us pay off a very large chunk of our debt and start saving with gusto.
As we’ve worked diligently through the Debt Snowball method over the past six years, my outlook and interactions with money have changed for the better. I actually enjoy saving money now because I like to see our savings grow. Additionally, we (gasp!) have money to save at the end of the month (because we budget for it) and are able to travel regularly.
Although I genuinely enjoy saving money now, it is not always easy. For example, I (oftentimes begrudgingly) put all of my “extra” money, like birthday and Christmas cash and checks, toward our debts and/or savings instead of music or books or coffee or make-up or clothes or a plethora of other things it would be nice to have. Budgeting and saving might not sound like a lot of fun, but they do provide our family with financial peace of mind. And that, my friends, is absolutely priceless.