*The Dave Ramsey 'Baby Steps' Thread*

[barkley]

I'm not sure how to approach DW about getting on board with finances. Every time I try and talk to her (tried last night as a matter of fact), she said it's my job to handle all bills, make sure they're paid on time, know where and how to pay them, take care of all of the financial stuff. I've told her I need help. So not sure what else to do. I told her last night I wanted to give her all the info on paying the bills, when they're due and when/how to pay them just in case something happened to me. She said she wasn't interested, and that she'd figure out how to do it if something to were to happen.

you've spoken in the past of how you and your wife regularly attend church. churches sometimes offer free DR financial peace classes. one of the aspects spoken to is for husband and wife to equally share the responsibility/burden of money management. perhaps in a church setting she would be more open to these concepts.

 

[WDW_fan_in_TX]

Thank you for this. I talked to our pastor just a couple of months ago about doing a DR class, and he said they just did one a few years ago and it costs too much to do another. I just think it's a matter of math and numbers. She's not very good with those 2 items, she thinks, so she prefers not to do anything in regards to those numbers (which is weird because she works at a bank, lol).

you've spoken in the past of how you and your wife regularly attend church. churches sometimes offer free DR financial peace classes. one of the aspects spoken to is for husband and wife to equally share the responsibility/burden of money management. perhaps in a church setting she would be more open to these concepts.

 

[barkley]

Thank you for this. I talked to our pastor just a couple of months ago about doing a DR class, and he said they just did one a few years ago and it costs too much to do another. I just think it's a matter of math and numbers. She's not very good with those 2 items, she thinks, so she prefers not to do anything in regards to those numbers (which is weird because she works at a bank, lol).

you might check with other churches in your area-they frequently welcome non members to these classes. your wife works in a bank? it would seem she would be extremely interested in knowing where your household stands financialy-most if not all bank/financial institution employees are contractually held to a higher financial conduct standard as a condition of employment. many of these employers have a tolerance level and internally monitor individual and shared credit/banking stats. I hate to think of worse case scenarios but she should be aware of your household's financial situation if only b/c if something happened to you she would be operating on far less income and in what sounds to be a financial circumstance that could endanger her own source of income.

 

[ThereYouSeeHer]

Thanks for promoting this thread. I just started watching DR earlier this year, and I agree with most of what he says.

But here's a breakdown of my debt (highest to lowest with what I currently owe):
- School loan: $19,574 with a $148 monthly payment at 4.25% APR;
- Car payment: $15,693 with a $505 monthly payment at 23.8% APR;
- Bank loan: $3,432 with a $235 monthly payment at 11.5% APR;
(from when my wife was involved in a hit and run when the other driver was at fault but took off)
- CC1: $439 with a $40 monthly payment at 28.2% APR and a $100/year fee;
- CC2: $297 with a $30 monthly payment at 29.7% APR and no annual fee;

Welcome! I'll give you the Ramsey plan for the first four steps below, but here's some ground rules when following the Baby Steps:

1) Keep making a budget. Plan every dollar, every month to see where you can make sacrifices.
2) No more use of debt. Stop adding to credit cards and don't take out new loans.
3) Pause retirement investing. This is temporary until you are past Baby Step 3. If getting out of debt will take more than a couple of years, then you need more income.

Step 1: Save $1000 in the bank as a starter emergency fund. This money is only for emergencies that answer the questions, "Is it unexpected, is it necessary, and is it urgent?" Pay minimums on all debts until this amount is saved.

Step 2: Use the snowball method to pay off all non-mortgage debts. List all debts in order of smallest balance to largest. Pay minimums on all debts. For the smallest debt, you will also add any extra money to this debt until it is paid off. Then, repeat the process on the remaining debts.

Step 3: Save 3-6 months of expenses in a fully funded emergency fund.

Step 4: Contribute 15% of gross household income into retirement accounts.

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There are a bunch of debt calculators online, but here is the Ramsey one: https://www.ramseysolutions.com/debt/debt-calculator.

Quickly putting your debts into the calculator gives the following information:

1) Only paying the minimum amount will take about 15 years to pay off all your debt. You would be 65 years old.
2) Adding $100 a month to your minimum payment will take about 4 years to pay off all your debt. You would be 54 years old.

The choice is yours. It would be far preferable to work multiple jobs at 50 years old, than 80 years old.

I highly suggest getting an extra job at a place you already shop and could get an employee discount (i.e., supermarket, Walmart, etc.). This would give you income, plus the discount would help your money go farther.

 

[WDW_fan_in_TX]

Thank you. Yes, I know the Baby Steps as I've been listening to DR daily since the beginning of the year. I'm afraid to pause retirement because I'm 50, and I only have $30k in my 401k. So I'm afraid to pause it because I don't want to have to work until I'm 70. And I will keep making a budget for sure. Working on the next 4 weeks today as it starts on Friday when I get paid.

Welcome! I'll give you the Ramsey plan for the first four steps below, but here's some ground rules when following the Baby Steps:

1) Keep making a budget. Plan every dollar, every month to see where you can make sacrifices.
2) No more use of debt. Stop adding to credit cards and don't take out new loans.
3) Pause retirement investing. This is temporary until you are past Baby Step 3. If getting out of debt will take more than a couple of years, then you need more income.

Step 1: Save $1000 in the bank as a starter emergency fund. This money is only for emergencies that answer the questions, "Is it unexpected, is it necessary, and is it urgent?" Pay minimums on all debts until this amount is saved.

Step 2: Use the snowball method to pay off all non-mortgage debts. List all debts in order of smallest balance to largest. Pay minimums on all debts. For the smallest debt, you will also add any extra money to this debt until it is paid off. Then, repeat the process on the remaining debts.

Step 3: Save 3-6 months of expenses in a fully funded emergency fund.

Step 4: Contribute 15% of gross household income into retirement accounts.

----------------------------------------------------------------------------
There are a bunch of debt calculators online, but here is the Ramsey one: https://www.ramseysolutions.com/debt/debt-calculator.

Quickly putting your debts into the calculator gives the following information:

1) Only paying the minimum amount will take about 15 years to pay off all your debt. You would be 65 years old.
2) Adding $100 a month to your minimum payment will take about 4 years to pay off all your debt. You would be 54 years old.

The choice is yours. It would be far preferable to work multiple jobs at 50 years old, than 80 years old.

I highly suggest getting an extra job at a place you already shop and could get an employee discount (i.e., supermarket, Walmart, etc.). This would give you income, plus the discount would help your money go farther.

View attachment 1002554

 

[Sadeesmom]

I'm afraid to pause retirement

This is a common statement, and mathematically, it is usually a wash if you continue retirement contributions and make smaller debt payments versus pausing for 1-2 years and make larger debt payments, but the main driver behind the baby steps and the debt snowball isn't math. It is behavior. Knowing you don't have those contributions going in will drive you to get there quicker - it will provide a sense of urgency to get BS2 done.

 

[WDW_fan_in_TX]

Thank you. Yes, we've changed our behavior quite a bit. We used to eat out probably 14+ times per week. Now we're down to just about 4-5 times. Mostly during work (we have mandatory lunch meetings out at least one time a week, sometimes twice, that we have to attend and we have tp pay for ourselves).

Outside of eating out, we're not spending anything hardly outside of our 4 walls. And as far as contributing to 401k, I'd like to continue doing that because my company matches 4%. So I put in about $73 every 2 weeks, so not much of a difference if I were to stop honestly.

@ThereYouSeeHer I don't really want to stop contributing because my company matches 4%. I know it's not much, and won't make much of a difference should I stop contributing and put that into my pay check every month. So that's why I was wanting to continue.

This is a common statement, and mathematically, it is usually a wash if you continue retirement contributions and make smaller debt payments versus pausing for 1-2 years and make larger debt payments, but the main driver behind the baby steps and the debt snowball isn't math. It is behavior. Knowing you don't have those contributions going in will drive you to get there quicker - it will provide a sense of urgency to get BS2 done.

 

[firefly_ris]

Thanks for promoting this thread. I just started watching DR earlier this year, and I agree with most of what he says. I've been trying to do a budget monthly (don't stay on it, but I do track ALL of our expenses on a spreadsheet). And it's been very eye-opening. I tried to tell DW what we're spending money on, and she doesn't care as long as we don't have overdraft fees at the end of the month. I understand that too. But I've adjusted.

I've started doing a 4-week budget since we get paid every 2 weeks. Just works better for us. And I've tried paying stuff off (but I had to use my CC this week to make ends meet). I did take on a second job working Friday nights and making $100/week. But they told me yesterday that they didn't need me anymore. So back to square one with a second job. And our income covers our four walls with nothing leftover to pay off debut.

Going forward, I will be checking in on this post to see how everyone is progressing. We don't have anything planned the rest of the year except for a short trip to Disney World. We've talked about canceling it, but we would lose all the money we paid for our flights. We would get a credit, but it would expire at the end of the year anyways. Plus, we got 1/2 price rooms because my niece works for Disney, and we're using her guest passes for the 1 day we're doing the parks. So everything is paid off minus MVMCP tickets and food. So we're going to keep as we don't want to just lose $300.

You've heard it already but I'll just bring it home again... you need to find extra income somewhere. I know you're working on it. Don't stop working on it.

I would NOT buy tickets to MVMCP. You do not NEED that. If I had consumer debt there are NO vacations, but I guess the damage is already done in the other portion of it. You NEED to get rid of those credit card balances and then you NEED to stop adding new charges to them, period end of. That goes back to the income thing... if you are needing to go into debt to buy groceries, the math isn't mathing. Think about it... you're paying interest on your milk and apples.

That car payment sucks. Might be a hard idea to stomach, BUT I will throw it out there just in hypothetical land anyway -- you could sell the car for $10k. Get a personal loan from a credit union at a lower interest rate than the car loan for the remaining $6k balance plus an additional $4k (for a total of a $10k loan). Pay the car loan off and get rid of that whole deal, and buy a 11+ year old Corolla or Civic in cash. Work on paying off the personal loan which has a smaller balance, smaller interest rate and smaller monthly payment, and throw the remaining extra amount that would have gone toward the original car payment at the credit cards, while driving the older car for at least 2 or 3 years, or however long it takes to get rid of those cards and start building up some kind of padding in your checking account so you do not have to go into debt for groceries. Vehicles are huge depreciating assets and you are paying outrageous interest on something that will be essentially worthless in 10 years.

Just thinking outside the box. Above all you need something to add more income somehow. I don't want to sound discouraging, just reality. I really want to see you succeed. Creature comforts like new cars, vacations and so on are things that have to be set aside while getting rid of the debt holding you down takes priority. It's painful but that's life. We're conditioned to believe we NEED all these things that are really luxuries and it's OK to drive an old car and it's OK to not take a vacation for a year.

 

[ThereYouSeeHer]

I'm afraid to pause it because I don't want to have to work until I'm 70.

I'll be really honest here--as it stands now, you will need to work beyond 70 years old to clean this situation up. The amount of debt and the lack of savings for emergencies, savings for future expenses, owning a home, as well as no retirement funds are going to take decades of working to fix. This isn't meant to scare you, but to motivate you.

I like numbers, so let's put this in perspective. You are currently paying about $1000 in minimum debt payments every month.

If you had invested $1000 a month over the past 25 years, you would already have over $1 million in retirement right now.

If, starting today, you didn't have any debt and you invested $1000 monthly, you would have about $700,000 in 20 years at age 70.

If you take 10 years to get out of debt and then start investing $1000 monthly for the next 10 years, you would have about $200,000 at the age of 70. By most standards today, this would not be enough money to retire on.

Every month that you delay paying off debt is robbing your future retirement.

(These numbers assumed a starting amount of $0, using 10, 20, or 25 years, with a return rate of 10%, compounded annually, with contributing $1000 at the end of every month, using this calculator: https://www.calculator.net/investment-calculator.html.)

And as far as contributing to 401k, I'd like to continue doing that because my company matches 4%. So I put in about $73 every 2 weeks, so not much of a difference if I were to stop honestly.

I don't really want to stop contributing because my company matches 4%. I know it's not much, and won't make much of a difference should I stop contributing and put that into my pay check every month. So that's why I was wanting to continue.

I totally understand, and if your methods have been working, then feel free to continue. But if you are looking to change...

In my previous post, I demonstrated that making only minimum debt payments will take about 15 years to payoff. If you add $100 each month, it reduces the payoff to about 4 years. You mentioned there isn't money leftover to put extra towards debt. If you stop your contributions temporarily, you just found about $150 a month to help clear your debt log jam.

Pausing retirement is not forever, and you can start it again at anytime. Finding a better paying first job, selling things, and adding extra jobs are also necessary to make this process faster.

You can do this, but you really have to dig in and get gazelle intense!

 

[WDW_fan_in_TX]

So I should pause even though I'm 50? And my office is giving me free money with a match? Also, won't that extra $150/month be taxed?

In my previous post, I demonstrated that making only minimum debt payments will take about 15 years to payoff. If you add $100 each month, it reduces the payoff to about 4 years. You mentioned there isn't money leftover to put extra towards debt. If you stop your contributions temporarily, you just found about $150 a month to help clear your debt log jam.

Pausing retirement is not forever, and you can start it again at anytime. Finding a better paying first job, selling things, and adding extra jobs are also necessary to make this process faster.

 

[ThereYouSeeHer]

So I should pause even though I'm 50? And my office is giving me free money with a match? Also, won't that extra $150/month be taxed?

If you want to follow the Baby Steps, then yes, you would pause--even though you are 50, even though there is a match, and even though it would be taxed. The understanding would be that the extra money is to first get an emergency fund and then pay off debt. It's not for vacations or eating out or groceries or other items that should be completely eliminated or budgeted. This also doesn't remove the need to still get extra income coming in.

I completely understand the hesitation, and for some people, they prefer to follow different financial advice. There are also plans like the Money Guy's Financial Order of Operations (to me, this is more for higher income earners) or the Budget Mom's 9 Steps to Financial Freedom (to me, this is more philosophical and less concrete action). There are other plans to follow as well.

But, since this is the Ramsey thread, I want to make sure any advice actually follows the Baby Steps. Whether people ultimately choose to follow them or do their own thing is another issue!

 

[WDW_fan_in_TX]

Thank you. Yes, it would be used to pay off debt. Not for anything else like eating out, vacations, etc. We've already got budget line items for groceries, eating out, etc. And I have started looking for another job to work Mon, Thursday and Friday nights for 10-12 hours per week. That hopefully will get me a couple of extra hundred per week to put toward nothing but debt. Hopefully, we can have the CCs and small bank loan paid off quickly. Not so much worried about car loan, but if I can pay that off too, that would be great. Or at least catch it up what it's worth then maybe sell it, buy a cash car and be done. And I'm not worried at student loans at all. They're a 4.25% APR. I got to the point previously to where they were being taken out of my paycheck ($350/month) at my old job. I should've kept that going here at my new job. But I will definitely think about stopping my 401k contribution for a short time, maybe like 5 years.

If you want to follow the Baby Steps, then yes, you would pause--even though you are 50, even though there is a match, and even though it would be taxed. The understanding would be that the extra money is to first get an emergency fund and then pay off debt. It's not for vacations or eating out or groceries or other items that should be completely eliminated or budgeted. This also doesn't remove the need to still get extra income coming in.

I completely understand the hesitation, and for some people, they prefer to follow different financial advice. There are also plans like the Money Guy's Financial Order of Operations (to me, this is more for higher income earners) or the Budget Mom's 9 Steps to Financial Freedom (to me, this is more philosophical and less concrete action). There are other plans to follow as well.

But, since this is the Ramsey thread, I want to make sure any advice actually follows the Baby Steps. Whether people ultimately choose to follow them or do their own thing is another issue!

 

[Sadeesmom]

But I will definitely think about stopping my 401k contribution for a short time, maybe like 5 years.

Definitely think about pausing, but do not resign yourself to thinking it should be 5 years.

One thing we have not addressed is if you have any non-retirement savings already. If you do, you need to take everything over $1,000 and put it toward the debt.

BS1 is $1,000. If you are starting from scratch with zero non-retirement savings, this should take you less than a month to save up. Take all the overtime, walk dogs, mow yards, sell so much stuff the dog thinks he's next, anything you can do to save up $1,000.

BS2 should take 1-2 years. If it is going to take longer than that, you need to take some serious actions. It was already mentioned about selling your car(s). That depreciating asset is one of the biggest downfalls for the middle class.

BS3 should take 6-12 months.

Then you are back into retirement investing, at a higher rate than you ever were before. You can do this - just think "short term pain for long-term gain".

 

[ThereYouSeeHer]

Not so much worried about car loan, but if I can pay that off too, that would be great. Or at least catch it up what it's worth then maybe sell it, buy a cash car and be done. And I'm not worried at student loans at all. They're a 4.25% APR. I got to the point previously to where they were being taken out of my paycheck ($350/month) at my old job. I should've kept that going here at my new job. But I will definitely think about stopping my 401k contribution for a short time, maybe like 5 years.

Yes, once you start the snowball, definitely get rid of the credit cards and bank loan first.

However, from a financial perspective, you should still be extremely worried about the car loan and the student loans--the car loan because of the extremely high interest rate and the student loans because you have probably paid an ungodly amount on them already, if they have been kicked around for a couple of decades.

For all your debts, you should look at your statements and see how much you are losing in interest every month as motivation.

Dave doesn't want to see retirement contributions stopped for more than 2, maybe 3 years. That's why he stresses extra income, so that you can knock out debt and get a full emergency fund quickly, then get right back to investing.

 

[WDW_fan_in_TX]

Thanks. Now I understand what BS1 and BS2 mean, lol. I thought it was one of my debts you were referring to.

We don't have anything saved up. Got like 97 cents in our bank account until Thursday night (get paid Friday, but we can spend Thursday, and it won't hit until after our checks go in Friday night). So trying to put together some type of EF. Every time we get paid, we move some money over ($50-$100), but then we get in a bind and need it, and we end up moving it back to the main account to buy groceries or pay a bill. It'll take more than a month as I'm salary so can't get OT. I've been looking for a better job. I've put probably 20 apps in on Indeed, and I haven't heard a single thing any about of them. And I do sell stuff on ebay, but it's tough sledding on there. So I sell shirts, pants, shorts, stuff like that whenever someone buys it. So we're trying. In fact, we sold some pants and shirts that DW had, but we used it to pay regular bills.

I've looked into various ways to get rid of the car. I've tried to refinance, but I'd have to pay down to what it's worth. And that's more debt. I did KBB, and I got several offers from dealers to buy, but again, I'd be upside down in it. Plus, if we sold one, it'd leave us with one vehicle. And we work in opposite directions from each other. So there'd be no way to get to work for one of us.

As far as BS3, I don't understand how it should take a couple of months. That's half a year's salary for me. Even if I completely stopped eating out, which i can't since I have to do it for work meetings, that's only a little bit per month going to debt. Biggest thing is to find a second part time job for 10-12 hours per week on Monday, Thursday and Friday nights after my full time job.

Definitely think about pausing, but do not resign yourself to thinking it should be 5 years.

One thing we have not addressed is if you have any non-retirement savings already. If you do, you need to take everything over $1,000 and put it toward the debt.

BS1 is $1,000. If you are starting from scratch with zero non-retirement savings, this should take you less than a month to save up. Take all the overtime, walk dogs, mow yards, sell so much stuff the dog thinks he's next, anything you can do to save up $1,000.

BS2 should take 1-2 years. If it is going to take longer than that, you need to take some serious actions. It was already mentioned about selling your car(s). That depreciating asset is one of the biggest downfalls for the middle class.

BS3 should take 6-12 months.

Then you are back into retirement investing, at a higher rate than you ever were before. You can do this - just think "short term pain for long-term gain".

 

[WDW_fan_in_TX]

The goal is to pay off the CCs and keep them open, so it doesn't affect my credit. Then to pay off the bank loan. I just hate DW was hit, the woman took off and we had to take out a loan to fix the car. But it is what it is, and we can't change the past. Can only change going forward. I graduated college in 2003, so I've been paying about 20 years on my student loans. But the last 5 years I haven't paid anything since we didn't have to repay during Covid. I just resumed making those payments in August. The first goal, though, as I stated, is to find that part time job for 10-12 hours per week on Monday, Thursday and Friday nights. That will help tremendously as that will bring in probably $200 extra per week that I can throw entirely at debt.

Yes, once you start the snowball, definitely get rid of the credit cards and bank loan first.

However, from a financial perspective, you should still be extremely worried about the car loan and the student loans--the car loan because of the extremely high interest rate and the student loans because you have probably paid an ungodly amount on them already, if they have been kicked around for a couple of decades.

For all your debts, you should look at your statements and see how much you are losing in interest every month as motivation.

Dave doesn't want to see retirement contributions stopped for more than 2, maybe 3 years. That's why he stresses extra income, so that you can knock out debt and get a full emergency fund quickly, then get right back to investing.

 

[ThereYouSeeHer]

The goal is to pay off the CCs and keep them open, so it doesn't affect my credit. Then to pay off the bank loan. I just hate DW was hit, the woman took off and we had to take out a loan to fix the car. But it is what it is, and we can't change the past. Can only change going forward. I graduated college in 2003, so I've been paying about 20 years on my student loans. But the last 5 years I haven't paid anything since we didn't have to repay during Covid. I just resumed making those payments in August. The first goal, though, as I stated, is to find that part time job for 10-12 hours per week on Monday, Thursday and Friday nights. That will help tremendously as that will bring in probably $200 extra per week that I can throw entirely at debt.

Yeah, hopefully you can find a job soon! Walk into different businesses, ask if they are hiring, and see if you can talk to a hiring manager before filling out an application.

Until then, you'll just have to be really lean on expenses. When we were getting out of debt, one thing we did was shop at the dollar store. Everyone would get $1, and then I'd tell them to go find dinner! If we had the money to splurge, everyone would get $2, one for food and one for a drink or dessert. Even today, we still scrounge up coins and go through self-checkout at the supermarket to use pocket change when money is tight (when it's not busy in the store!). We've filled the internal coin holders before by using so much change, haha!

 

[afan]

So I should pause even though I'm 50? And my office is giving me free money with a match? Also, won't that extra $150/month be taxed?

I wouldn't. I understand the reason but you are giving away free money and will get taxed on it. Prob not enough to change your bracket, but you won't get the full amount that goes to your 401k since it'll be taxed.

 

[Sadeesmom]

So trying to put together some type of EF. Every time we get paid, we move some money over ($50-$100), but then we get in a bind and need it, and we end up moving it back to the main account to buy groceries or pay a bill.

One thing I did was put my EF at a different bank - I actually used an online only bank. Savings account only, and I declined an ATM card. It takes a couple of days to transfer the money to my regular bank, and that forced hesitation is what saved me from myself multiple times.