Total Money Makeover by Dave Ramsey

[Ultralight]

I am almost finished with the book, though I skipped the section about putting kids through college.

My ladyfriend and I met up to talk about it. She does not have anything near a gazelle-like intensity or enthusiasm brewing yet.

When I am reading Dave's stuff or the success stories I feel pumped up by it!

Next month I will have to spend roughly half my emergency fund on Harlan's dental care. Then in November I will have to spend the other half on car/renter insurance.

So I am essentially starting Dave's system from the bottom.

I will save the $1,000, then hammer at the medical debt, then build the real emergency fund.

My buddy Jeff wants to do the Live Below The Line challenge again, where we live on $1.75 a day of groceries for a week. So this will give me a little jump start.

[Tybee]

That sounds great, UL. I had the same reaction with Dave's book--it really does get you inspired to try the system. The class helped us to both get inspired--my husband found the class helped him get pumped, but he was not pumped by the book the way I was.
The class is great because you get support from the group, and other people are also getting pumped and changing the way they think, so it really works.

But the system is totally doable without the class! It just helped me and appealed to my husband's way of learning. I think the book would have been adequate for me. I think the class is available as cds, or it used to be? He has lots of good examples when he speaks, which reminds me to start listening to the podcasts, which also help me to focus on the message of no debt.

[Ultralight]

Anyone use Dave's envelope method?

[catherine]

Anyone use Dave's envelope method?

I did it for a while. Not doing it now but I will say that it definitely makes you more mindful, and keeps money under control. Even though I track spending religiously and I have access to exactly how much money I've spent on food, clothes, entertainment, etc., there's nothing like the thought of running out of money at the supermarket line to keep your spending in check. I definitely was able to significantly lower discretionary expenses using the envelope system WITHOUT sacrificing my lifestyle.

Here are the pros and cons:

Pros:
See above: you're much more mindful. Nothing like REAL cash to drive home how much you're spending.
Makes your budget pretty simple. You don't have to go through bank and credit card statements to figure out what you spent.
Facilitates communication with your SO. "Hey, I'm taking 80 out of the envelope for food. I'll stop on the way home." "Do we really need to spend $80?" OR "Why is there only $20 left in Entertainment?" "Remember, when brought KFC over to Kim and Joe's for Movie Night we decided to put that under Entertainment, not Food?"

Cons:

• You have to be vigilant about asking for or keeping receipts. An alternative is downloading an app where you can input cash purchases as you make them, otherwise it's hard to remember
• You have to be organized. If you leave for the day, you have to be sure you have the right amount of money to take with you.
• Sometimes you don't have the right mixture of currency for what you want so you wind up raiding the gas envelope for food or something like that. I solved that by going to the bank once a week and getting the cash I needed for all of the envelopes in small-to-larger (up to $20) denominations. It was like playing with Monopoly money.
• If you need to bring a larger amount of cash with you it can be a little scary. But I have never lost money or had it stolen, and even if I lost money, I told myself that that would be nothing compared to the money I would have "lost" if I were still freewheeling spending.
• There aren't any pretty or durable envelopes. Paper envelopes have to be replaced pretty frequently. You can buy those nylon cases with dividers in them at the dollar store, but I never used one of those. I just used paper--I could write stuff on the paper envelopes like how much I was starting with.

[ToomuchStuff]

I will save the $1,000, then hammer at the medical debt, then build the real emergency fund.

So not exactly following the plan.

[Ultralight]

So not exactly following the plan.

Am I forgetting something?

[ToomuchStuff]

Before you build your 3 to 6 month emergency fund, paying off all debts BUT THE HOUSE (you don't have a house)! That does include those things you don't want to face.

[Chicken lady]

From a practical standpoint, it seems to make sense to have your emergency fund before paying off debts that are not growing. The idea behind paying off the debts first is that it saves and frees up money that would have been going to interest. But am I right in remembering that UL has a forgiveness provision in his loan such that if he pays it off early he simply ends up paying more total? Also, is the medical debt stable or accumulating (interest) - in an emergency, a paid off credit card could be used to get you through if needed, but a paid off medical debt doesn’t help you.

we have debt at interest that we could pay off, but the money for that is invested elsewhere (for retirement) and the numbers don’t make sense to cash it out and pay the debt. So, while a “one size fits all” plan may be simple and workable, sometimes it makes more sense to look at the ideas behind the plan and tailor it for your circumstances.

[catherine]

we have debt at interest that we could pay off, but the money for that is invested elsewhere (for retirement) and the numbers don’t make sense to cash it out and pay the debt. So, while a “one size fits all” plan may be simple and workable, sometimes it makes more sense to look at the ideas behind the plan and tailor it for your circumstances.

Not sure how much you know about Dave Ramsey's plan, but the overarching idea is to get rid of ALL debt because debt=slavery. You are right that UL may have mitigating factors with regard to his student loan forgiveness plan, but DR's plan does not include things like paying off higher interest debt first, or doing what you are doing--keeping low interest debt and putting the money in higher-earning investments, because he believes that a) if you have any debt, you are not free, and b) people who need his program do not do well with the strictly rational money management approach. That's why his snowball plan requires that you list your debts smallest to largest regardless of interest. Reason: small wins are very motivating. It's better to pay off a $300 bill with no interest than concentrate on a $3000 bill at 20% because you will never have the motivational steam to keep going.

[Tybee]

That's a good summation of the rationale, Catherine, and why it works. He is very motivated to get you out of debt. I think of it as debt robbing you of your future, as you have to work that much harder just to catch up to zero. Without debt, that money could be working for you.