In the last post, I gave you an overview of Dave Ramsey’s 7 baby steps to financial success. Over the next several weeks, I’m going to break each one of those steps in more detail. Remember, this is not my stuff, it’s Dave’s. This is just my take on it. Step 1 is save $1000, but it should really be divided into step 1A and step 1B.
Step 1 A: STOP using credit cards
Stop borrowing money at all. If you have debt, it is because at some point in your life, you were spending more than you were earning, and that led to trouble. It might not be your fault, but the result is the same. And we’ve got to deal with it. Maybe you are still doing it. If so, nothing else can help you. Before you do anything else, you’ve got to stop spending money you don’t have.
There are a lot of ways to do this. Most people can get their spending in line by doing a budget. Yeah, it’s about as fun as a pap smear (well, not quite THAT bad), but it works. You’d be amazed by the number of people who swear that doing a budget is as good as getting a raise. They suddenly have to pay attention to where their money is going.
Online apps
And there are tools that make it a lot more appealing. Ramsey solutions developed “Every Dollar” and online budgeting app. I’m old, so I’ve always just done mine in excel, but I’ve tried Every Dollar and it’s super user-friendly. There are a lot of other ones out there, but Every Dollar is the only one I have personally tried. If you’d like to know other options, check out this list.
The ugly truth
With all that said, I have never been successful doing a budget. I hate it, and I generally end up ignoring it. However actually sitting down and figuring out guidelines is essential. So even if you make it and then ignore it (like I do) I still recommed giving it a go. The big thing is that you need to know how much you’re spending and keep it under control. If you cut up your credit cards and don’t have a realistid idea of how much money you need at the end of the pay period for food and gas, you’re going to be in a world of hurt.
Step 1B: Put $1000 in savings as fast as you possibly can
DO NOT TOUCH that money unless there is a serious emergency. And no, a great sale isn’t an emergency! If you already have $1000 or more saved up for emergencies, you can go ahead a skip on down a bit. If not, this is important stuff. Now, if you don’t have even $1000 you could use for an emergency, DO NOT beat yourself up. According to a CNBC article from January, 2018, you are not alone. Only 39% of families could cover a $1000 emergency. So this is normal in America. But normal isn’t always fun. If worrying about money keeps you up at night, this is an indispensible step in your journey.
Why does Dave recommend saving before putting a single dollar (beyond minimum payments) toward debt? Because if you want to get your finances in real order, this ain’t no sprint. It’s a marathon. And if you don’t warm up and stretch out before a marathon, you gonna hurt something. Well, this is that warm up to help you keep from getting messed up on the way.
But I want to pay off debt, why delay?
Nothing is going to make it harder to actually get out of debt than, well, life. You know how it works, right? You’re chugging along toward a goal and then something comes along and stops your progress. You have to take 3 steps back and it’s so discouraging that you never get that momentum back.
Here’s how it works with money: You swear to yourself you are going to stop using the credit cards and pay the off. “NO. MORE. DEBT.” You say to yourself. And everything is just fine until (dramatic music – dun, dun, dun!) – a child gets sick and there’s an unexpected trip to urgent care. OR the water heater goes out. OR gas prices spike and you’re paying twice as much for gas as you thought you were. OR grandma dies and you have travel expenses for her funeral. OR _________________ (fill in any of a godzillion possible emergencies here).
You’re paying off debt and every penny is going to extra payments. There is nothing in the bank, so you whip out the credit card. STOP RIGHT THERE. I thought you weren’t going to use the credit card any more. I thought you said “NO. MORE. DEBT.”
Well, $1000 in the bank will take care of about 85% of those emergencies. (That’s a statistic I totally made up, but it’s based on personal experience.)
How fast do you think you could save $1000? Could you sell something? Have a yard sale? Do a little tutoring or teach summer school? Totally give up eating out until you have $1K in the bank?
This might seem impossible, but it creates the base for absolutely everything that happens to you financially. This is the reason. Our goal is to get you out of debt, right? If you have absolutely no savings you’re going to keep going further into debt every time an emergency happens. And THAT is going to do a huge number on your belief that you can actually do this.
So just save the $1K and be done with it. Then move on to step 2: Eliminating ALL debt.