Finance Gets Personal

I started listening to the Dave Ramsey Show podcast in July, and have continued to listen to it every day on my way to work. That’s a real compliment to the show, considering I’m a non-church-going liberal and he’s, well…not.

I’ve been working on paying off my debt ever since I began acquiring it in college, but once I’d get one thing paid off, there was another reason I “needed” to borrow money. But listening to Dave Ramsey every day is like AA for overspenders.

Here are Dave Ramsey’s steps to financial freedom, which he refers to as the “Baby Steps:”

1. Build an emergency fund of $1,000.
2. Pay off all your debt except your mortgage, from smallest to largest (regardless of the interest rate). This is called the “debt snowball.” You pay minimums on all your debts except the smallest one, and you attack it. Then, when that one is paid off, take all that money plus the minimum you were already paying and apply to to the second smallest debt. Etc. If you have a second mortgage, you are supposed to include it in this step if it is 50% or less than your total annual income.
3. Build your emergency savings up to 3-6 months of living expenses
4. Invest 15% into retirement, not including any employer matching. You should not be contributing ANYTHING to retirement (even if your employer offers a match) until you reach this step.
5. Save for your children’s college.
6. Pay off your home early. (Steps 5 and 6 can be done at the same time)
7. Invest in mutual funds and real estate, and donate lots of money to charity.

So, I am following this basic plan, but here’s where I’m doing things differently:

• We are contributing 5% of my husband’s income into his employer’s 401k because they give a 5% match. I get about 10% from my employer with no contributions on my part, but I’m putting $50 a month into a ROTH IRA. Dave’s basis for saying you shouldn’t contribute to retirement until you reach baby step 4 is that steps 1-3 shouldn’t take that long if you’re really being hardcore, and the 15% should more than make up for it. However, steps 1-3 will probably take us about 2 1/2 years, and I am not going to give up any free money.

• We started our debt snowball with our car loans, which did not have the smallest balances, but did have the highest interest rate. We’ve paid off about $16,000 in car debt since July. As soon as the remaining $3,000 is paid off, we’ll move to the $3,400 credit card, which has an interest rate of 2.99% fixed. I know it doesn’t make much sense mathematically to pay this off, but I’ve been carrying around this balance for 7 years and am sick of it! Plus it will give us the momentum we need to keep with this once we start paying extra on our $35,000 second mortgage.

• Dave says to tithe 10% of your income to your local church throughout this whole process. Well, we don’t go to church, so we don’t do that. I’d like to give 10% to our favorite charities, but I think it makes more sense to make this commitment after we’re out of debt. So for now, we just give $50 here and $25 there.

When I read financial blogs, I like knowing the writer’s financial stats, so here are mine:

Household Income: $105,000

Mortgage: $139,435 at 5.88% Fixed

Second Mortgage: $35,149 at 7.86% Fixed (We took out a 80/20 loan when we purchased our house a few years ago - dumb. But at least our rates are fixed.)

Student Loans: $14,248 at 3.5% and 3.13% Fixed

Car Loans: $2,494 at 6.05% (This is the loan we are currently paying extra on)

Credit Cards: $3,426 at 2.99% Fixed until balance paid in full

401ks/ROTH IRAs: $40,272

College Savings for Stepson (age 9): $2,184 (no longer contributing to this)

Emergency Savings: $1,000

Total Net Worth = $54,000

Our goals for 2008 are to pay off the car loan, credit card and about half of the second mortgage, while contributing 5% to my husband’s 401k (he has a 5% match) and $50 a month to my ROTH (my 401k has a 3% employer contribution with no match required, and approximately 7% for profit sharing). I’ll be giving an update on our progress every month or so.

Whether you’re in a relationship or not, being broke on Valentine’s Day is no fun. But that’s been my situation for the last five years or so.

It used to be because my and my husband’s birthdays are both within five days of Valentine’s Day, and my stepson’s birthday is in early March. So, we decided we’d rather spend money on our birthdays than spend a lot of money on Valentine’s Day. But now that we’ve gotten serious about paying off our debt, there isn’t much money for Valentine’s Day or birthdays.

So tonight we’ll be eating dinner at home and watching “The Wedding Singer.” We each bought each other a small gift and a card out of our weekly personal “allowances,” and my stepson is getting a card and a plastic heart with Reese’s Pieces in it. While it’s not very romantic, I’d much rather have a paid-for car than a piece of overpriced jewelry and a night in a crowded restaurant.

I think this is the case for a lot of people, but there is a lot of pressure to participate in Valentine’s Day. Luckily, I work in a small office where no one receives flowers on Valentine’s Day, so it’s pretty much just like any other day. But there is still a lot of pressure on men to make these kind of gestures, and even some unspoken competition among women about whose partner is the most romantic. So I feel bad (mostly for my husband) when people ask me what we’re doing for Valentine’s Day and I don’t have a “good” answer.

But, staying true to our long-term goals at times when I may have caved before is pretty liberating! So, happy Valentine’s Day to you, no matter what you are doing tonight.

Since I’m trying to get out of debt (and am a tad cheap), here are some ways I save money:

1. I hardly ever wash my car. Which is black. I’ve been seriously tempted to use the little windshield cleaning stations at QuikTrip on my entire car though.
2. The only lattes you’ll ever see me drinking are the ones I can get for free at McDonald’s before 2 p.m. on Mondays.
3. I do not buy napkins or Kleenex. Use a paper towel or toilet paper, dammit!
4. When I go to the movies, I buy non-special engagement discount tickets from AAA. I also sneak in Cokes and candy from the gas station.
5. I’ve used TurboTax in the past to prepare my taxes. Now, they have a TurboTax online system where you don’t have to pay until you print out or e-file your return. I simply input my info into TurboTax.com, then do it all on paper and send it in for free. I can verify that I am doing it correctly by making sure I get the same refund/balance due amount that TurboTax does. Since I owe money this year, there’s really no need to e-file. Side note: If your household income is under $50K or so, you can file your taxes online for free from a variety of sources.
6. When I attend baby showers, I look on the registry for diaper rash cream, medicine and baby first aid kits, which are things I can purchase tax-free through my health care flex account.
7. I don’t have caller ID, call waiting or any of that other fancy phone stuff. In fact, the only reason I even keep the landline is in case my stepson needs to use it for an emergency.
8. I enter contests at online-sweepstakes.com. I’m not a ’sweeper’ - I just enter contests for things I want or need. So far, I’ve won a gift set of cleaning supplies and a holiday gift set from Bath & Body Works.
9. Although I think most free sample offers are not worth the time to fill out the form, I do request samples on mysavings.com for things like tampons, shampoo/conditioner and other necessities.
10. I do not buy anything without checking Craigslist first. If I buy something new and buy it online, I go through the Upromise website for college savings and check Retailmenot.com for coupon codes.