Back to school at Dave Ramsey's FPU

Well it's back to the Dave Ramsey plan for me. I think I really fell off the wagon when I moved my kid to an out of state college and attended back to back McCartney shows last summer. I broke open that credit card dam and now I feel like I flooded myself with debt. I had started listening to Dave Ramsey's show over the internet over the last couple of years and he is the personal finance guru I like the most. I had read The Total Money Makeover and started a debt snowball back in 2010 and somehow lost momentum.

I was on his website about a month ago and on a fluke checked where he was going to have his 13 week financial peace university classes and found that they were starting that weekend near my house so I contacted them and signed up... at about a 25% discount, of course. So far I have attended four weeks, sometime solo and sometimes with my guy. I am trying to do the budget and stay within certain limits such as $600 a month for groceries. I've dusted off my ynab program and am using envelopes for the first time ever. A month into the program and it's looking pretty good. I am on baby step 2, trying to pay off credit cards. I don't have a big income so finding that $260 a month to pay on those cards is hard. I just put them both on autopay to pay weekly, sending card 1 $50/week and card 2 $15/week. When the first one is paid off, the other will get paid $65/week and whatever else I can add to get it paid off faster. I am charged up and gazelle intense and ready to become debt free!

Dave Ramsey has an awesome 7 baby-step plans for getting out of debt and building wealth. I'm on #2, paying off consumer debt. Here are the baby steps. It is very important that they are done in order or at least be well into baby step 3 before doing the later ones, which can happen concurrently. The main thing is that you have credit cards, car loans and school loans out of the way to free up the money to invest.

Baby Step 1
$1,000 to start an Emergency Fund (check)

Baby Step 2
Pay off all debt using the Debt Snowball (working it)

Baby Step 3
3 to 6 months of expenses in savings (haven't started)

Baby Step 4
Invest 15% of household income into Roth IRAs and pre-tax retirement (cut 401k from 7% to 4%, I'm nearly 50 so didn't stop completely)

Baby Step 5
College funding for children (thank goodness for scholarships cuz I ain't there yet)

Baby Step 6
Pay off home early (ooooh, that would be sooo nice)

Baby Step 7
Build wealth and give! (Financial freedom!!)

I am really enjoying my 2 hour classes on Saturday mornings. There are about 8-10 couples and we watch Dave on video giving a class and then have a discussion period. It's sort of like being in a support group like weight watchers and it really does help when you have the others going through the program too. Dave has a solid program and is very entertaining. Listen to his show live on weekdays from 1-4 through daveramsey.com. I hope to someday be one of his callers on a Friday afternoon screaming, "I'm debt freeeeeeeeeeeeeeeeeeee!""

The Tri-level Emergency Fund

Here's something I've been doing for some time and just saw an article on the Frugal Dad blog that showed me that a lot of others are doing it too. It is called the tri-level emergency fund and its a great idea.

Basically, you have three emergency funds. One within arms reach, the second fairly close by and the third one for the long-term.

The first would be a cash stash at home for when you need money on the spot and can't run to an ATM, power is out, etc. I've been doing this for years just for piece of mind. Frugal Dad suggests stashing about $500 or so. I generally like to keep $200-$500 in what I call my piggy bank account...my secret cash stash. And, no, I'm not telling you where it is!

The second is a local checking account where you can write checks for those things that happen that aren't always budgeted for such as busticated something or another or some kind of budget busting situation. This is the curve-ball or Murphy fund for when shit happens and things that pop up once or twice a year that would blow your normal monthly budget, such as car repairs, home repairs, speeding tickets... that type of thing. Dave Ramsey would probably call this the baby emergency fund so let's put about $1,000 there ($500 if your income is under $20K). The way I personally work this account is that I have a savings account at the same bank where I have my checking account. I transfer a set amount from my checking account every month to take it out of my normal spending allowance. Since they are both at the same bank, I can transfer money back and forth as needed online to take care of life's little emergencies. Ideally, I would like to see about $2-3k here as a more liquid account. Murphy seems to visit my house often, you see.

The third emergency fund is that real one people talk about where you have several thousand dollars socked away. That's my money market account over at the credit union which I will fund to 3-6 months of expenses after I dig myself out of debt. (I'm still only on baby step 2). Suze Orman says 8 months expenses is the correct amount. Personally, that is really a stretch goal for my situation and I'm sure many others feel that way. It's one of the reasons I can relate more to Dave than Suze. She's more for the yuppy crowd.

Many people put this main emergency fund (#3) into a higher paying online savings account at ING or Ally or a money market account or CD. This is the emergency fund for the big emergencies such as job loss or major illness when you are literally living off your savings so don't touch it for anything less. Life's little curveballs are paid from account #2. Unfortunately, right now I am nowhere near fully-funded in the main emergency fund, but I'm making direct deposits from my paycheck to get it going. I think that when I get it up to $8-10K I will be happy and start investing and working more on college and retirement goals.

I hope this idea of a tri-level emergency fund helps you also. I think it is the one thing that I am personally doing that will help me avoid credit card debt.