How Did We Initially Begin Reducing Our Debt?

The book and radio show by Dave Ramey gave my wife and me the confidence, motivation, and resolve to conquer our debt finally. We adopted his recommendations and made diligent efforts to implement them.

Creating a financial plan is the first step.

The dreaded letter “B” term. On the last occasion, my partner and I attempted a budget; I had been uncooperative beyond belief. My dictatorial approach to budgeting has made the process unpleasant. DO NOT Attempt This.

We did eliminate our debt at the time but failed to maintain our financial stability. We gradually regressed as soon as there was a financial bind or an unexpected expenditure. This provides a clue about what will come next. I’d want to explain our budgeting process in more detail first.

Budgeting can be fun, despite common notions to the contrary.

There are low-cost strategies that can convince someone actually to do it. You need to understand a few key points, but first, let’s go over the structure we used.

This is Our Initial Budget

I used a ledger book (I wouldn’t say I like paper) to help us get out of debt as we paid off our loans. I made a spreadsheet with column headings for our monthly bills and costs, the total amount owed, and the due date. The specific date for each transaction or budgeting activity will be recorded along the left side of this sheet. Please note that this is NOT what I recommend. I found out it doesn’t work (at least not for me and my wife).

Because of my background in engineering, I find that numerical solutions often provide the most satisfying outcomes. I calculated how much we would save throughout the loan’s life, the interest rate, and other factors to determine which debt would be best to pay in full. To ensure we had enough money to cover the bill when it was due, I also determined how much we would need to allocate to each column from each paycheck.

Although effective, this strategy required a significant time investment in its development and maintenance. Neither my wife nor I much enjoyed this chore, so we frequently fell behind and found ourselves in hot water. However, I decided to give a similar idea another shot, using a spreadsheet program like Excel to keep score.

Surely things will be different this time. I had anticipated that manually entering each transaction would be a breeze. I was incorrect; it wasn’t, and we started to fail again. Fortunately, we were able to use a novel approach that none of us had before. Yes, it’s the Internet! And I also run a company that creates apps for use on the web. I did what any sound application engineer would do and tried to fix the issue with some software.

Now, I’m not going to pretend that budgeting doesn’t have unpleasant elements, and I know that it causes worry for many ordinary people. It’s not high on my list of things I’d like to do right now, but it’s significantly improved from how it used to be.

First Error Fixed – Restitution in Rank

The first thing I did to fix my method was to do, as Dave said, which was to pay off the smallest debt first. This is crucial since it strengthens one’s willpower and motivation to complete the program. After we paid the minimums on all our bills, we’d put whatever was left over toward the smallest one. However, I’m jumping the gun a bit.

Step 2: Create an Emergency Savings Account

Put as much as you legally can on each side (up to $1,000), but don’t touch the money unless it’s a genuine emergency. It would take us three months to work together, but it’s the single most effective way to stop using credit cards and getting further into debt. We liquidated unnecessary items until we had the money and stopped going to restaurants. Do this while making the minimum payments required on all of your debts.

We also reasoned that we could make the case impossible to get at. One possibility was to place the money inside a block of ice and leave it there until needed. That didn’t look like it would be difficult to get to, and it might be messy. We went with a local financial firm and opened a Money Market savings account. It’s at the second stage now.

It’s crucial that you cut up your credit cards. This is the purpose of the emergency fund. A small part of me finds Dave Ramsey’s laughable insistence that you must abandon credit cards and never use credit again. On the other hand, I see why he says that. Too often, people will “charge it” only to find themselves right back where they started.

Do me a favor, and don’t do it until you’re debt-free, even if you know you can pay off the entire amount by the due date. When you’re done, I guarantee you’ll be happy and never want to use debt again.

The components of my most recent approach to budgeting will be discussed in greater depth the next time we meet.

Thank you very much for watching!

Brian

Visit http://www.OwnYourCash.com for valuable resources on eliminating debt and developing a personalized debt management strategy. The site also features our no-cost budgeting program, which can help you finally conquer your debt.

I do not hold any professional credentials in law or finance. This is just my personal view and is meant to be light reading. You should consult a financial planner who can tailor advice to your circumstances.

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