Over the years, I struggled through several periods of poor spending. I would spend half the year spending and the other half cleaning up the mess. I would eventually calculate the damage in dollars and would feel so much guilt that I would automatically shift into a frenzy of aggressively paying off the debt. During these moments, I would convince myself that I was finally ready to put aside my atrocious spending habits. I always thought of myself as a pretty logical person so I was able to rationalize that spending $5000 on "stuff" was illogical. The only problem was that I would repeat this pattern of behavior year after year.
When I first learned I was becoming a parent, I made a couple smart financial changes (more on this in a future post) that signaled the beginning of long term financial planning. However, everything else in my behavior said otherwise. I was still spending and operating without any real goals. At the start of this year, I decided it was time to take control of my finances. As I reflected on my poor money habits, I felt disgust and anger because I realized I was robbing my son of his future. That single thought fueled my desire for change.
I was suddenly motivated to change my relationship with money but wasn't sure where to start. There are a plethora of articles available on money topics but I wanted to be connected to something more concrete. Then I discovered Dave Ramsey and his daily podcasts. I heard the name before and knew he was a financial guru but never intentionally tried to learn about him. Dave Ramsey is a money management expert, NY Times Best Selling author, radio show host that has helped millions of people get out of debt. His podcasts involve him taking calls from listeners who are seeking financial advice. The callers would often reference the Baby Steps but wasn't really sure what that meant. A quick search later and I would discover Dave Ramsey's Baby Steps to financial freedom. This was the tried and true method that helped his listeners experience some level of financial freedom. The 7 Baby Steps are:
- Baby Step 1 - $1,000 to Start an Emergency Fund
- Baby Step 2 - Pay off all Debt except the house using the Debt Snowball
- Baby Step 3 - 3-6 months of monthly expenses in savings
- Baby Step 4 - Fund retirement accounts using 15% of household income between 401K, Roth or Traditional IRA
- Baby Step 5 - Establish college fund for kids
- Baby Step 6 - Pay off mortgage early
- Baby Step 7 - Build Wealth and Give
The opening line for the podcasts starts out with Dave saying "This is the Dave Ramsey show where Debt is DUMB, Cash is KING and the paid off home mortgage has taken the place of the BMW as the status symbol of choice". Talk about an opening! Dave takes calls from listeners who are seeking financial advice and those who want to do their DEBT FREE SCREAM. The DEBT FREE SCREAM involves people recounting their debt journey by using Dave's recommended GAZELLE approach towards paying off debt - think of a gazelle frantically running away from a cheetah. People were paying off $50,000 in 11 months making a household income of $65,000-$85,000 or in a more extreme case, paying off $285,000 in 5 years making $78,000 in the beginning with an ending salary of $150,000. Talk about gazelle intensity. After listening to a week's worth of podcasts loaded with these amazing debt repayment stories, the light bulb went off in my head. I decided I wanted to experience the financial freedom that Dave Ramsey was talking about. I want to live a life without ANY debt except for our home. This was my idea and my motivation. I just needed to finesse this idea to get DH motivated to make this a family goal.
What are your thoughts on Dave Ramsey's Baby Steps? Where are you in the Baby Step process?