If you have been coming to this blog for a while, you know that I’ve been sharing the story of how we changed our financial lives over the past three years. You can read the whole saga here, but the headline is this: Three years ago, we were $30,000 in debt; today we have no debt (other than our home mortgage) and 6+ months of expenses in a fully funded Emergency Fund.
To make such a radical shift in our financial position, we have been following the Total Money Makeover by a guy named Dave Ramsey. I’ve talked before about the fact that Dave is a Christian financial counselor and how we decided that, despite this, we — a modern Orthodox Jewish family — were going to use his 7-step plan to “financial freedom”. (You can read more about that decision here.)
Just as a review, Dave’s seven steps are:
Baby Step 1: Put $1000 in a savings account as your “Baby Emergency Fund”
Baby Step 2: Use the debt snowball method to clear all debt, other than your mortgage
Baby Step 3: Save 3-6 months worth of expenses in a Fully Funded Emergency Fund
Baby Step 4: Put aside 15% of your income into retirement savings
Baby Step 5: Save for your kids’ college (theoretically, this step can happen at the same time as Baby Step 4, if your income allows)
Baby Step 6: Pay off your mortgage early (also theoretically, this can happen in tandem with Baby Steps 4 & 5, if income allows)9
Baby Step 7: Build wealth, so you can “live like no one else” — which includes giving (tzedakah) like “no one else”
When we started our Total Money Makeover, we stopped funding our retirement funds, per Dave’s advice. Until you are out of debt and have an emergency fund set up, he wants you to have as much disposable income as possible to focus on those two goals. Once you are finished with Steps 1-3, you step up your retirement savings big time.
As soon as we hit Baby Step 4 last summer, we were gung-ho to put away some serious retirement savings. We set up an IRA account and started sending money to it every month. But then we hit a few snags.
Because we are self-employed, and therefore have to deal with variable income — which can range up to a $2,500+ difference from one month to the next — we don’t always have enough to save 15%. Sometimes we didn’t even have enough to save 5%.
So here’s what we’ve decided: When we are in an “income valley”, our retirement savings just doesn’t get fully funded. And all the money we are supposed to be funneling toward our kids’ college savings accounts? Well, that doesn’t happen either.
But when we have a “peak” month, we not only do Step 4, but we also do as much as we can toward Step 5. (Until our income increases — or we stop sending our kids to day school — Step 6 is going to have to wait.)
The other thing we have realized is that unlike paying off debt or saving up an emergency fund, Step 4 never ends — at least not until you retire. And Step 5 doesn’t end until your kids are through with college. Which means that the pace of our Total Money Makeover has radically changed. We went from an all-out sprint for Baby Steps 1, 2 and 3 to a laborious power walk for Baby Steps 4 and up.
For a goal-oriented person like myself, this slower pace can be extremely frustrating. Dave is famous for saying, “Live like no one else so you can live like no one else.” Translation: Cut your lifestyle down to nothing and eat the proverbial “rice and beans” diet so you can get control of your life. The implication, of course, is that once you have done this, you will be able to live large, eating “caviar” and sipping champagne.
Well guess what? I’m still drinking tap water! And my fanciest appetizer is still homemade hummus and pita chips!
The realization that we’re not living any larger than in our pre-Dave Ramsey days — and in fact, one could argue that we’re living more modestly — was very disheartening at first. But once I stopped whining and took a look at our budget, I remembered this simple fact of life:
We have a relatively modest income and a lot of financial obligations.
As self-employed freelancers, for example, our health insurance premiums are more expensive than our mortgage payment. Plus we have lifestyle commitments — the most obvious of which is that I work part-time hours, so that I can homeschool our kids.
Frankly, I don’t know when we are going to be able to crack open that bottle of champagne.
But that’s okay, because “living like no one else” has taken on a different meaning for us now:
It means we aren’t saddled with the burden of consumer debt.
It means we only pay cash for our cars.
It means I no longer hate my mail box, because there is nothing in it that can scare me.
It means I never have to worry about bouncing a check or getting charged late fees on a credit card.
It means that if there’s a crisis — if someone gets sick, or has a car accident, or loses a job — we deal with the issue at hand, rather than getting twisted into knots over the money part of it.
And it means that the things we choose to buy, the investments we choose to make, and the contributions we choose to give are truly a blessing to us and the people we love.
Now that I think about it, Dave was right: We are living like “no one else”.
This will probably be the last post in this series, at least for a while, since we’ll be trudging along with Baby Steps 4, 5 and 6 for the foreseeable future. If you have any questions or comments, though, feel free to leave them below or contact me personally if it’s something you’d rather not share publicly.
As I said back when I started this series two months ago, my goal in airing our most private financial struggles was simply to let any of you going through something similar know that you are NOT alone. You will get there – some slower and some faster than us. But it is not impossible. You can control your financial future!