This is part three in the story of how my husband and I became debt free, built an emergency fund and embraced financial responsibility. If you haven’t read the first two parts, you can do so here and here.
When I last left you, my husband and I had faced the truth about the magnitude of our debt (just over $30K) and, even more concerning, the size of our monthly deficit (about $1,000 a month). We had also decided to get on board with the Dave Ramsey plan — despite our obvious religious differences with this Christian financial counselor.
The first step in Dave’s plan is to set aside a “baby” emergency fund (BEF) of $1,000. While one grand certainly won’t inoculate you from every imaginable calamity known to man, it will protect you from the little mini-crises that always seem to pop up — and, at least in our case, that always seemed to get paid for with the credit card. Since what else were we going to do?
Before you can save this $1,000, Dave says you need to be current on all your bills. And given that we were spending $1,000 a month more than we made, well, obviously we weren’t exactly current. So, our first order of business was to slash and burn our budget. Since we had been tracking our expenses for two months already, we knew where we had to cut. Among other changes we:
- Stopped contributing to our retirement plans*. Savings… $450/month
- Stopped eating out at restaurants. Savings… ~$150/month
- Canceled our cable. Savings… $70/month
- Canceled our bottled water delivery service. Savings… $55/month
- Got on a strict and mostly meat-free menu plan. Savings… ~$125/month
- Cut waaaay back on cell phone useage. Savings… ~$110/month (We would have turned at least one of them off all together, but our cell phone company had such steep early termination fines that it didn’t pay to do this.)
- Stopped using the dryer. Savings… ~$15/month
- Walked more, drove less. (Gas costs @$10/gallon in Israel!) Savings… ~$80/month
- Paid attention to every shekel we spent. If it wasn’t in our written budget, we didn’t buy it. No pack of gum. No bottle of water. Period. Savings… A lot!
It was an austere budget plan, for sure, but we were so pumped to get out of debt, that we didn’t care. (Actually, you may need to ask my husband how he felt about it, because I seem to recall some objection to the whole cable thing now that I think about it!)
Cutting back got us nearly to our goal of living within our means, but it didn’t give us enough wiggle room to pay down our debt. That’s where the second part of our plan came in — to increase our income. As a freelance writer, I had always worked with one or two clients in America, but the bulk of my customers were in Israel. These Israeli projects were mostly long-term, so I’d get paid once every several months. Which would have been fine for a financially responsible family, but we didn’t have time for feast-or-famine. We wanted to get out of debt quick.
So I made it a priority to look for quick turn-around projects. I was very fortunate to quickly land three clients — all of whom I still work with today — via Craigslist and Freelance Writing Gigs. The projects started out small (a few pennies per word), but the work was steady and I got paid immediately via Paypal.
With this infusion of some new income, momentum built quickly and by the end of the first month, we were completely current on our bills and we had put $700 in our baby emergency fund. My very next Paypal invoice topped off the BEF. I felt like I could fly, I was so excited! In five short weeks, we had seen a net change of $2,000 in our financial position — we had cut $1000 out of our budget and put aside another $1,000 to create our BEF.
Looking back, I think achieving that step so quickly was really the key to our future success with the program. I/we had NEVER had an emergency fund before. Not $10,000, not $1,000. Not even $100. Our credit cards were our emergency fund. Our parents (I’m embarrassed to admit) were our emergency fund. Until we saved that $1,000 (in just five short weeks!), I simply could not imagine that average-earning people like us could ever live within their means, let alone save for a rainy day.
But we had defied my own lack of imagination. We had done it. We were doing it! No matter what would happen after that, we had proved to ourselves that we could spend responsibly and save wisely!
Stay tuned next week for the really good stuff… How we paid off $30,000 in less than six months and cash-flowed a move to America.
* Dave says to suspend all new retirement contributions while working baby steps 1, 2 and 3 of his plan. Once you are out of debt and have a fully funded emergency fund, he tells you to turn your attention back to saving for retirement, to the tune of 15% of your annual income! Please, do not take this information or anything else in this post as me giving out financial advice for you and your family. I’m just sharing what we did, based on what this guy Dave recommended.
This series is now completed. You can read the rest of the parts here: