As you probably already know, and might be sick of hearing, we took Financial Peace University recently and it completely changed the way we think about and handle money! I feel like we kind of went from "where did all our money go?" to "this is where our money is going!" every month. Which may not sound like much to you. But for us, it has been HUGE! I want to be intentional in every area of our lives, so money is a great place to be intentional too.
1. Emergency Fund
In Financial Peace University Dave Ramsey has these 7 baby steps. The first is a little $1000 emergency fund. I call it little not because I don't think that $1000 is a lot, because I do, but because a "full" emergency fund is 3-6 months of expenses that is Step 3 though. Anyway, step 2 is to pay off all debt except your house if you have one. Then you move on to the full emergency fund, and house down payment in 3 a & b. Like that saying “It's not a matter of if but when” for a disaster, emergency or other big expense to come up. The Emergency Fund is intended as an insurance policy NOT a savings account.
2. Paying off debt. (and other baby steps)
I guess I always kind of thought we'd have our student loans or some sort of debt payments, so we were saving up aggressively for a down payment for a house up until January. Then we started this class and it changed the way we think. We decided to use most of what we'd saved up for a house to pay off all our student loans and some of the car loan we still had. We are poised to pay off the rest of our car (that we bought two years old in January 2016) at the beginning of June. From there, we’ll finish off our full emergency fund (Baby Step 3a) and begin saving aggressively for our Down Payment for a house (Baby Step 3b) that we hope to purchase in the spring/summer of 2018.
3. Budget-telling your money where to go.
I really kind of hate to admit this, but Jesse and I never really lived on a budget until February, like as in a few months ago. I mean, we'd plan out what we wanted to spend on groceries, etc... but when some categories got overspent we'd just sort of give up and just check our bank balance. If there was money we'd go to the store. If there wasn't, we wouldn’t. Or if we really needed some food or gas or something, we’d put it on the credit card and pay that off as soon as we got paid again. We were very much living paycheck to paycheck. (Not that we aren't now...but I'll get to that in a minute.)
We have been using EveryDollar for our budgets, like I’ve mentioned before. We’ve been keeping a zero-based budget, for the last four months and that’s where every dollar and cent is accounted for. I love the way that EveryDollar has it set up with categories like this: Income, Giving, Saving, Housing, Transportation, Food, Health and ‘Lifestyle’ which is basically everything else (clothes, haircuts, misc.…). It makes it so easy to budget for things and to rearrange when life happens.
4. Sinking funds.
We have been using a ‘sinking fund’ as Dave calls it for years for regular bigger expenses like car insurance. Now we even have a place in our budget for a vacation sinking fund for any trips we’d like to take and Christmas gift sinking fund. A Sinking fund is where you take the amount you need for something, like say your car insurance is $600 every 6 months (or $1200 a year). You divide that total by how many months you have to save for it, which would be $100 a month, and then you put that in a special savings account and use it for just that. When the bill comes around you already have the $600 ready for the bill! Makes those bills so much less stressful.
Now, I do have to admit that there was one place we strayed from Dave's plan a little. We did cut up our credit cards (they didn't have any balances on them anyway) one of the first weeks of the class but when we took our nest egg to pay off debts we saved some of it for a bit bigger of an initial emergency fund so that we felt comfortable not relying on using a credit card even just to carry us from month to month. Dave would likely disagree with what we did here. We did it because that way we knew we'd have peace of mind and be able to not fall back into the trap of credit cards. We also knew we'd be able to pay off all our debts in about four months still. So for us, that just worked.
Have you taken FPU? If you are interested in taking the class here is a link to where it is offered near you! What has been most helpful to you in changing the way you think about and handle money? What would you add to this?
***I’m not getting paid to recommend any of this stuff! (Because no one knows who I am!) It has just completely changed the way we think about and handle money, so I wanted to share some of this with you!***