Baby Steps
Hi, everyone! Last post, I mentioned that we are in the process of moving. We've hit a slight delay in that process, but it's turned out to be a blessing in disguise. The purchase of our new home has brought me to the topic of the baby steps.
In my post, "Hello from the Other Side", I mentioned that we were Dave Ramsey followers. For those of you unfamiliar with his Baby Steps, they are as follows:
Baby Step 1: Save up $1,000 for your start up emergency fund.
Baby Step 2: Pay off all your debts in order smallest to largest with the exception of your mortgage (this is your snowball).
Baby Step 3: Save up 3 to 6 months worth of expenses for your actual emergency fund.
Baby Step 3b : Save up for a down payment on a house. (Note: Not everyone hits this one as many already have a mortgage when they hit Baby Step 2)
Baby Step 4: Save 15% of household income towards retirement.
Baby Step 5: Save for children's college
Baby Step 6: Pay any extra you can to your mortgage until it is paid off in full.
Baby Step 7: Be crazy generous!
I remember trying to conquer Baby Step 1. At the time, my husband wasn't totally on board with my scheme to get out of debt (there will be more about this later), but I remember thinking that getting $1,000 into our savings account was an impossibility. I felt that it may as well have been $1,000,000. That goes to show you just how disorganized we were with our spending. I think about those days and oooh...it does not bring back happy memories. Here's how we accomplished Baby Step 1. It was clear we had an income problem and needed to do something about it, so we focused our career paths. My husband landed an actual grown up job and I had just been accepted into an education program where my annual pay was doubled and I earned my teaching license as well.
We were in Baby Step 2 from about June of 2013 until September 26, 2016. This was a long road. In July of 2013, my husband was hospitalized for four days and then received what thankfully turned out to be a misdiagnosis of a chronic illness with extremely expensive prescriptions. Along with these expensive medications, we had to cash flow some graduate tuition for me and eventually a specialist degree for my husband. With all of these new expenses popping up, the disorganized pre-Dave couple would have gotten nowhere. Absolutely nowhere. However, now that we were working the plan, I wasn't fazed by any of these new hiccups. What would have normally been chronic emergency status simply turned into some tiny bumps in the road coupled with creative problem solving.
I began to notice another trend once we got our financial act together: windfalls. Shortly after we were tested with my husband's hospital stay, I began to notice that because we were responsible with what little money we had, we began to get more and more money from unexpected sources such as family, unexpected bonus money, and grants. Our blessings became more and more abundant as we became more and more responsible. I've heard that for many other people going through this journey that this is also the case for them.
Next, we hustled through the first part of baby step 3 by getting our three to six months of expenses in the event of a major life emergency which brought us to Baby Step 3b. This is where we've been for the past two years. And I'll be honest...there were a lot A LOT of months when it was hard to be patient, but by this point we knew we wanted to put at least 20% down on a house. We knew that we had to have our mortgage low enough so we could pay everything (mortgage included) on just one pay check. And here's the thing: there are so, so many websites out there that say you can (and should!) borrow more for your house. However, we knew what we were comfortable with paying and while we may not live in a palace, we found a house with plenty of space where our family can live and we can watch our daughter grow all while I can be home with her. To me, that is a beautiful, beautiful thing.
We are set to close on our house next month. When this occurs, we will officially be in Baby Steps 4, 5, and 6. These are the only baby steps done simultaneously. We will be putting 15% of our household income into pre-tax retirement accounts, contributing to The JuJuBe's college savings, and throwing any and all extra funds we can to the principal on our mortgage. I'm so excited to hit Baby Step 7. Once our budget is more fine-tuned to our new house and expenses, we will be able to sit down and calculate a realistic goal of how much mortgage we can pay down each year in addition to the monthly payments. This will let us calculate an approximation of when we will arrive in Baby Step 7. I can hardly wait!
Thank you so, so much again for reading this blog. It means so much to me. I've had many people say that this is helping them in their own financial journeys. My entire goal with this blog is to help others out there.
If you're interested in reading about the Baby Steps in depth, check out "The Total Money Makeover" by Dave Ramsey. It's a very quick and easy read and will absolutely do one of two things: 1. Light the fire underneath you or 2. Make you think none of this is possible. Well, we're living proof right here it is possible. All you have to do is make a plan and see it through. See you next time.
In my post, "Hello from the Other Side", I mentioned that we were Dave Ramsey followers. For those of you unfamiliar with his Baby Steps, they are as follows:
Baby Step 1: Save up $1,000 for your start up emergency fund.
Baby Step 2: Pay off all your debts in order smallest to largest with the exception of your mortgage (this is your snowball).
Baby Step 3: Save up 3 to 6 months worth of expenses for your actual emergency fund.
Baby Step 3b : Save up for a down payment on a house. (Note: Not everyone hits this one as many already have a mortgage when they hit Baby Step 2)
Baby Step 4: Save 15% of household income towards retirement.
Baby Step 5: Save for children's college
Baby Step 6: Pay any extra you can to your mortgage until it is paid off in full.
Baby Step 7: Be crazy generous!
We went to see the Dave Ramsey Show live! We got to meet Dave and he signed my copy of "The Total Money Makeover"!
"...the disorganized pre-Dave couple would have gotten nowhere."
We were in Baby Step 2 from about June of 2013 until September 26, 2016. This was a long road. In July of 2013, my husband was hospitalized for four days and then received what thankfully turned out to be a misdiagnosis of a chronic illness with extremely expensive prescriptions. Along with these expensive medications, we had to cash flow some graduate tuition for me and eventually a specialist degree for my husband. With all of these new expenses popping up, the disorganized pre-Dave couple would have gotten nowhere. Absolutely nowhere. However, now that we were working the plan, I wasn't fazed by any of these new hiccups. What would have normally been chronic emergency status simply turned into some tiny bumps in the road coupled with creative problem solving.
I began to notice another trend once we got our financial act together: windfalls. Shortly after we were tested with my husband's hospital stay, I began to notice that because we were responsible with what little money we had, we began to get more and more money from unexpected sources such as family, unexpected bonus money, and grants. Our blessings became more and more abundant as we became more and more responsible. I've heard that for many other people going through this journey that this is also the case for them.
"...we knew we wanted to put at least 20% down on a house"
Next, we hustled through the first part of baby step 3 by getting our three to six months of expenses in the event of a major life emergency which brought us to Baby Step 3b. This is where we've been for the past two years. And I'll be honest...there were a lot A LOT of months when it was hard to be patient, but by this point we knew we wanted to put at least 20% down on a house. We knew that we had to have our mortgage low enough so we could pay everything (mortgage included) on just one pay check. And here's the thing: there are so, so many websites out there that say you can (and should!) borrow more for your house. However, we knew what we were comfortable with paying and while we may not live in a palace, we found a house with plenty of space where our family can live and we can watch our daughter grow all while I can be home with her. To me, that is a beautiful, beautiful thing.
We are set to close on our house next month. When this occurs, we will officially be in Baby Steps 4, 5, and 6. These are the only baby steps done simultaneously. We will be putting 15% of our household income into pre-tax retirement accounts, contributing to The JuJuBe's college savings, and throwing any and all extra funds we can to the principal on our mortgage. I'm so excited to hit Baby Step 7. Once our budget is more fine-tuned to our new house and expenses, we will be able to sit down and calculate a realistic goal of how much mortgage we can pay down each year in addition to the monthly payments. This will let us calculate an approximation of when we will arrive in Baby Step 7. I can hardly wait!
Thank you so, so much again for reading this blog. It means so much to me. I've had many people say that this is helping them in their own financial journeys. My entire goal with this blog is to help others out there.
If you're interested in reading about the Baby Steps in depth, check out "The Total Money Makeover" by Dave Ramsey. It's a very quick and easy read and will absolutely do one of two things: 1. Light the fire underneath you or 2. Make you think none of this is possible. Well, we're living proof right here it is possible. All you have to do is make a plan and see it through. See you next time.
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