dave ramsey

Taking Advantage of The Housing Boom

10.08.2010 by juliegumm@yahoo.com //

The next huge step in our financial journey really came in 2004 when the housing market in Phoenix went absolutely crazy.

The house that we bought for $199,900 over a year earlier was suddenly worth about $350,000. Crazy right? So of course Mark starts talking about selling and I start rolling my eyes at him.

At this point we’ve been married 11 years and moved 7 times. I was tired of moving. Plus I loved our house and our neighborhood.

And, as I was quick to point out, what was the point of moving when everything was hugely over inflated.

So we did some research and began to look at new housing developments that were a little further west (the city of Phoenix just keeps spreading out) and had not yet peaked like the rest of the city.

And I learned something. I shouldn’t look at model homes unless I want to move. Because of course once you look you find something you love.

It didn’t take us too long to decide to make the leap and we signed on the dotted line for the construction of a new home. We downsized a bit (going from 3300 sq ft to 2700 sq ft) and after our construction options I think our final sticker price was $215,000.

They told us construction would take 6-8 months.

It took about 12.

Of course all that time we were praying that the market would hold because we weren’t going to put our current house on the market until we were closer to the move time. The market had been so crazy that houses were literally being bought within hours and I was NOT going to have to deal with a whole temporary move thing.

When it finally came time to sell we listed the house and sold it within a few days for $385,000.

From the proceeds we held back money for movers (my stipulation although we packed all the boxes ourselves), paint, landscaping, window treatments, etc.

But everything else was spent on the down payment which left us with a $65,000 mortgage.

And then we started to do some math. By this time we were making more money and we had continued to keep our budget pretty simple so we moved money around and figured out that by dumping everything extra at it, we could pay off the mortgage in 2 1/2 years.

And so we cheated. We totally skipped baby steps 4 & 5 and went straight to paying off the mortgage. We were so motivated because we could see the light at the end of the tunnel and could almost grasp total financial freedom.

Only later would we realize how important that freedom would be.

…to be continued

The ever-important emergency fund

08.20.2010 by juliegumm@yahoo.com //

Hm, so where did we leave off? Ah yes, we’ve made a budget, we’re using the envelope system and now it’s time to attack those baby steps of Dave’s. For a refresher, they are:

$500-1000 in an emergency fund
pay off debt except house
3-6 months expense in emergency fund
invest15%; college funding;
pay off mortgage
build wealth

The sad truth is that up until that time our savings account probably fluctuated somewhere between $50 and $350. Maybe. It was obviously so minuscule that I don’t remember.

And what happens when something happens (the car breaks down, etc.) and you have no savings. Well odds are it’s not in the budget so that means it’s taken care of by something plastic with 18% interest. Yick!

So the key to paying off debt is to NOT skip baby step #1 – $500-1000 in an emergency fund.

Depending on your income this is something you might be able to do fairly quickly now that your budgeting wisely. If not look around and see what you can do to get the money. Got an old piece of exercise equipment? Sell it. Tons of junk? Have a garage sale. Pick up some overtime if that’s available.

Now I know it’s taboo to talk about how much money you make, but as you’re reading our journey I think it’s important for you to understand where we were coming from financially. Families with a smaller income will obviously take more time and I don’t want you to get discouraged by comparing yourselves to us. If you’re making even more well heck, you should be able to beat us.

We were fortunate that when we started the baby steps (2000) we were making pretty good money – between the two of us we were earning about $85-90,000/yr (gross). (Um, this in NO WAY reflects our current salary – we work in full time ministry and have to raise support for Mark’s salary…enough said!)

Once we nailed down our budget, and cut back on a lot of unnecessary expenses we were able to save up that starter emergency fund within two months.

The next piece was going after our debt (student loans, car payments and credit cards) – like gazelles. Come back next week for the REALLY good stuff.

THE REST OF THE STORY

The Envelope System – It Makes Your Budget Work

08.13.2010 by juliegumm@yahoo.com //

Part 6 of our Debt-Free Story

At some point after graduation when we had real jobs and were facing a budget crisis we SORT OF tried the cash envelope system. It kind of worked but was frustrating and not fool proof and we soon gave up.

The problem was that we didn’t have a good budget in place and so it was doomed to failure.

Really it’s an age old system and has been around for a long time. Another signal that it’s a good idea.

So here’s how it works.

After you do your budget look at all the categories that aren’t either bills paid online or auto drafts. So this will be your groceries, eating out, entertainment, date night, clothes, toiletries, car repair, gas etc.

On payday withdraw the total amount of cash for these categories and divide it into envelopes labeled with the category. You can use just regular white mailing envelopes or you can get one of the envelope systems from Dave Ramsey. (If you’re crafty there’s even ways to make your own and have some fun like here and here. Check out etsy.com and search “cash envelope system” for some really unique ones like this and this.)

The idea is NOT to use your debit card! Why? Numerous studies show that people spend 12-18% more when they use plastic (debit or credit) then when they use cash. Think about it. When you go to pay for your groceries what do you think is going to register with you more – laying down 4 $20 bills or just swiping your card. If you’re spending $400 a month on groceries now (using plastic) and start paying cash that’s about $60 you might be able to save.

It took us several months of adjusting both our budget and our envelope categories to get it right. We (and you may be different) have the following categories:

Groceries (which includes toiletries, household cleaners, detergent etc since we buy most of it at Wal-Mart)
Entertainment (eating out, movie rentals, going to the movies, date night etc)
Clothing
Gifts (birthdays)
House (repair stuff, landscaping, bug spray, stuff like that)
Misc (trust me, there is always a misc. that comes up – buying stamps,
Babysitting
Fun Money (this is an agreed upon amount that Mark and I get monthly to spend any way we like)
Kids Allowance (although it never stays in the envelope long – we pay monthly on the 1st)

You’ll notice there’s no envelope for gas. That is our exception to the rule and we use our debit card. Because, let’s be honest, it’s not like your going to SPLURGE on extra gas. Or buy a more expensive gas because you’re using debit and not cash. Besides, what mom wants to drag all her kids out of the car to go inside and pay cash.

Now here’s the kicker. When the money in your envelope is gone, it’s GONE! What do you do if, 3 days before payday, you are out running errands and the 3-yr old is whining from the backseat and your too tired to even think about dinner and are contemplating the drive thru? You look in that entertainment envelope. If there’s money you’re in luck. If not, well suck it up and drive home (turn the music up to drown out the whining).

Now, theoretically you can borrow from another envelope if one has the surplus but beware lest you spend something you need before payday.

I will be totally honest and admit to you that we fall off the wagon REPEATEDLY. Like this summer? Total bust when it comes to the envelope system. And it’s my fault as I’m the budget/cash manager. But I also know that when we are off the system, we are off the budget and nothing comes together like it should.

Be patient – it’ll take you a few months to work out the kinks but I promise, if you use it, it will work. And, most likely, you’ll be spending less which means more money to save or pay off debt. More on that next week!

(Here’s some more tips on the envelope system from Dave.)

THE REST OF THE STORY

Taking Advantage of The Housing Boom

The ever-important emergency fund

The Envelope System – It Makes Your Budget Work

Financial Freedom

Taking Advantage of The Housing Boom

I Met Dave!