DebtFREE-Revolution

Well, today has good news and bad news.  The good news: I figured out how to set up the free personal finance ebook for everyone to download about our multi-blog project from January, Money Matters For All Ages.  Instead of hopping around over a dozen blogs, you can download it all in one spot!  And I have set up a permanent page for it also, so it will be available as long as this blog is online.  But here it is, fresh off the server (who gets to be first to download it?):
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Now for the bad news … as I mentioned in this morning’s post, hubby’s travel pay repayment has finally hit.  This takes $392.45 out of our income for the next four months.  Coupled with my reduction in the GI Bill stipend because I couldn’t fit enough classes in my schedule and got downgraded to 1/2 time status, which hit our income to the tune of $421.02, we will be receiving about $813 less per month for the rest of the spring.  About the time hubby’s pay goes back to normal, I will be on summer break and not receiving the GI Bill stipend but able to pull more hours at either pizza delivery or whatever job I wish to find.

It’s a bit of a bummer to look at the hard numbers, especially after my organic chemistry test this afternoon.  Of course, we will still be able to work towards the goal of putting together the fully funded cash emergency fund.  We just won’t move as fast as we did for the past several months while working on finishing off our big ambitious debt elimination.  For the past three months, we’ve had about $2500 above expenses to throw around.  Now we have just been knocked down to about $1700 per month, which is admittedly still a significant number.

Eh, maybe I’ll feel happier after I run out and make some money tonight.  Oh, and drop off my hourly paycheck from last week.  That’s another interesting side effect of getting out of debt: I’m no longer rushing to the bank to deposits checks while hoping no payments hit before I get there!  That sounds like good fodder for its own post …

Sometimes I get a comment that inspires me to toss out whatever I planned to blog about, and instead go off on an unplanned tangent.  Today is one of those days!  LOL  Yesterday Shanti from Antishay left a short and simple comment on my post about what a debt free budget looks like (emphasis mine):

I think it’s great that we get to keep watching you grow up and up even after debt is gone.

That has been on my mind since last night when I read it after work.  At first I couldn’t pin it down, but this morning as I start my 3rd cup of coffee (yes this blog is 110% fuelled by coffee) it hits me: Beyond the debt is uncharted territory!  Especially for those folks who are where I was last year; that is, grappling with what feels like a mountain of debt.

Back when I was in the Army, there was a saying: “Be able to perform the duties of all ranks below you, but also learn the duties of at least one rank (better yet two ranks) above you.”  In short, always look ahead and be capable of doing something before you get the promotion.  I started unconsciously applying this philosophy in January when I decided it was time to get serious about learning about investing, which is Baby Step Four.

This week I just officially finished Baby Step Two (eliminating all non-mortgage debt).  Now it is time for me to move into Baby Step Three, building up a fully funded cash emergency fund which for me will entail 3 months of expenses plus enough money to replace my almost-antique central heating and air unit.

It’s a very good thing we finished Baby Step Two right now: the Army has finally processed the travel pay overpayment/repayment mess and it hit this pay period.  Hubby got paid a grand total of $192.45 today!  He feels flat broke, and I just spent several minutes pointing out that this is not a big deal anymore.  He only has the cell phone bill coming out of his account, plus filling up his truck.  We can handle this.  It’s no longer a big deal, because we have our necessities covered and will still have money to put into the emergency fund.

Another “whammy” that would have set us back last year is my GI Bill stipend was reduced because my class load was reduced.  There just wasn’t a way for me to arrange a class schedule to get up to 3/4 time, so I am only going half time (organic chemistry is the rock that won’t move, and I just don’t do morning classes … nor will my academic advisor let me after seeing me over the summer dragging in for her 0800 class!).  So my GI Bill payment is about $400 less a month, and hubby’s travel pay repayment is about $400 a month.

And yet even with our income going down about $800 a month, we will still be able to squirrel away money for our emergency fund.  We just won’t be able to zoom through Baby Step Three as fast as I wanted, but it will still be done in a pretty short amount of time.  This is what it looks like on the other side of that mountain of debt, folks … and it’s getting pretty close to that “financial peace” idea Dave Ramsey keeps talking about.

So I completed Baby Step Two this week, and am debt free but the house.  So how does that change my budget for March? (big grin)  Oh I am so glad y’all asked!!

I haven’t put hard numbers up here yet, and I probably won’t for this budget either.  But I will list the categories left standing on my budget to give everyone an idea of just how sweet it really does look on the expenses side!

• Mortgage payment (same as it’s always been)
• Gas & Water company (expecting it to be higher thanks to a rate hike and a very cold month)
• Electric company (no A/C yet LOL so it is holding steady at the winter rate)
• Groceries (rising slowly but steadily, not to mention I have to feed a teenage boy)
• Gas for the vehicles (EEEK!  Stupid gas prices have jumped recently! This category got upped … again)
• Home Phone (stripped down to local line only for the past year)
• Cable (Mostly just internet, TV is stripped to lowest level possible, but must keep to gt the “good” rate for my internet)
• Son’s private school tuition (fixed until August)
• Central Heat/Air maintenance (after last year’s furnace breakdown, a necessity … didn’t know they lasted this long LOL)
• Cell Phones (paid through hubby’s account)
• My puny Roth IRA contribution
• Son’s puny mutual fund contribution (long story)
• Eating out (gonna bump this one up for March to CELEBRATE!)
• Household products and clothing

And … that’s it!  Now that the debt is gone, that is all we have left to pay each and every month!  A couple items got raised for March, with the necessities being gas, groceries, and the heat bill.  Without any debt payments, we will be able to absorb these increases without any problem.  I’ll still gripe about the higher expenses mainly because I really want to breeze through Baby Step Three (the big honkin’ fully funded cash emergency fund) so I can get busy on saving for retirement.

The “fun” extra expense is our celebration plans, set to go down next week Friday.  I’ll ask tonight for that day off, then the plan is I get to drive to Nashville area that morning/afternoon to watch the Dave Ramsey radio show live in the lobby, and make my “I’m DEBT FREE!” call from his lobby.  Then when I get back home the plan is we will go out to our favorite German restaurant downtown for dinner and catch a play at the regional theatre.  Friday is the first night of their annual spring Shakespeare play, and this year is Julius Ceasar.  Then back to the little German restaurant for a beer and open mic night entertainment.  Hubby and I haven’t done this since before he went to Korea for a year!

I started thinking last night about how big of a deal getting out of debt except for my mortgage truly is.  And the question came to me: WHY?  This was considered the “normal” way of living not too long ago.  Now I am considered “weird” in an America that has credit cards and car loans and every other kind of loan imaginable (and many I simply can’t imagine!).

Back in my grandparents’ day, it was considered an embarassment if you couldn’t pay for your things outright.  Yes, people went into mortgage debt, but they paid for their cars in full usually.  If you didn’t have the money, you either got things from family or went without … and my dad tells stories of going without when times were hard because Grandpa was too proud to go on public assistance for food even.  Mom grew up on a farm, so they were never lacking for food, but she tells of going shoeless over the summers when she was a kid.

So just what changed American life so much in the past 50 years?

Was it television?  I’ve heard some folks say this is “the most marketed-to culture in the history of the world.”  (Another Dave Ramsey quote for those keeping track.)  But advertising isn’t a new phenomenom.  Abraham Lincoln advertised when he started practicing law.  If it is advertising and marketing, how has it changed significantly in past 50 years to make such a difference?  Just when did all the credit card and loan commercials first appear?  Because I can vaguely remember the commercials for when Bank Americard changed its name to Visa … yes I must be old!  LOL  I can remember the advertising blitz when Sears came out with Discover card.

I may have grow up watching way too much TV, but I hardly ever watch televison anymore.  In fact the only time I do is in between delivery runs at work since the pizza shop has two TVs on for dine-in customers.  I do listen to radio quite a bit, and debt is marketed on that medium as well … even during commercial breaks during Dave Ramsey’s radio show!

Of course, there is the interesting little fact that the very first ever credit card started up 52 years ago: Diners’ Club in 1956.  Debt is a product, and always has been to some extent.  But now it seems different.  Now debt is marketed as the solution to anything and everything.  It seems every single commercial break during prime time has at least one credit card commercial. 

But the question still lingers: how could attitudes change so quickly for my parents’ generation, the Baby Boomers?  How could we go from a “save up and pay cash” mentality to a “charge everything and be in debt up to your eyeballs” culture?  And even more importantly: is Dave Ramsey’s popularity (and others like him) an indictaion that the pendulum is beginning to swing the opposite direction?

I honestly don’t know the “why” or “how” of this.  I just know that becoming consumer debt free has made me a statistical anomaly now.  I am enjoying being such an anomaly as I drink my coffee on the first morning in many years that I wake up debt free but the house.  But the question still lingers in the back of my tiny, caffiene-fueled brain: Just how did this seismic shift in attitude happen?

It’s now OFFICIAL!!!  I talked to one of hubby’s credit union’s customer service representatives who officially closed out the truck note!!  We have officially finished Baby Step Two, which is paying off all debt except the mortgage!!!!

I’m bouncing around, all happy and excited.  LOL  Just got off the phone with hubby, who said he is excited and happy also.  He also is looking forward to making up a new budget without big honking debt payments in it!

Here are the quick stats:

• Just shy of fourteen months.  Started on 29th of December, 2006.  Finished TODAY the 26th of February, 2008.
• Three “Murphy visits” totalling $1140 in January 2007, $538 in May 2007, and $509 in December 2007.
• Approximately $25,500 in non-mortgage debt paid off (not including amounts paid prior to starting the program … don’t wanna think about all the years of debt payments!)
• Two tax refunds and one part-time pizza delivery job applied in addition to regular income.

Whoa!  Wow!  Did we really do that?  LOL  It’s amazing what you can accomplish when you get mad enough and determined enough.  Y’all will just have to imagine the amount of hope, excitement, and relief in my voice for this one:

WE’RE DEBT FREE!!!!!!

Next goal: the big honkin’ CASH emergency fund (Baby Step Three).

As part of the M-network series on the Dave Ramsey Baby Steps to Financial Peace, I am going to be covering the “unofficial” first step, nicknamed “Baby Step ZERO.”  This is the jumping off point, and lays the foundation for the rest of the Baby Steps.  Interestingly enough, it’s also not on the list over at Dave Ramsey’s site even though many of us who follow the Dave Ramsey plan consider it absolutely vital to success.

Baby Step Zero has three basic components: swearing off debt, getting current on your bills, and making the written budget.  Before you start in on Baby Step One, you need to have these three things covered.

Make a solemn oath to never borrow again: no new debt!  You won’t feel like you are making progress  in Baby Step Two if you keep borrowing more!  Or, as Dave says (in the middle Tennessee accent), “You can’t climb out of a hole when you are still digging out the bottom.”  And the truth is, you won’t make any progress if you keep borrowing.  Put away the credit cards, step away from the HELoC, and don’t borrow from family.  Have a long conversation with the person in the mirror, and if you are married you might want to warn your spouse.  Of course, it will work best if your spouse is on board with your plan and a willing partner … but that said, I made it work while dragging my hubby along kicking and screaming until  he noticed he liked the results.

The second component is to get current on your bills.  This does not include accounts already in collections (with third party collection agencies) but it definitely includes all the necessities.  If you think you might not have enough to bring all your active accounts current at first, then prioritize them … but before you start on the official first Baby Step you need to bring all your active accounts current.  If you have old accounts in collections and are receiving phone calls, ask them to validate the debt and mail you the paperwork so you can work them into your budget  as a delaying tactic while you get your finances in order.

Which brings us to what I feel is the crucial key to success: the BUDGET!  Some people cringe at the word “budget” so you can change its name to cash flow plan, spending plan, or debt battle op-order if you feel really punchy LOL  The point is you need to write out where your money will go BEFORE it leaves your account.  This is absolutely critical to accomplishing all the remaining baby steps.  This will help you see what it will take to get current on your bills.  This will be the key to determining how quickly you move through the remaining Baby Steps as well.

For me, Baby Step Zero happened all on one day: December 29th, 2006.  Yes, I wrote it down and committed it to memory.  It was the day I made the conscious decision to grab control of my financial life and wrestle our debt problems down to the ground.  I wrote out a budget and got current on all the bills.  I made the commitment to never borrow again.  I knew hubby would dig his heels in on this last idea, so I started to solicit advice on how to bring him around to the debt free idea (it eventually took 11.5 months to convince him completely).  By taking the plunge and knocking out Baby Step Zero, I laid the foundation for my current victory: paying off all of our consumer debt (Baby Step Two).

I usually don’t go this far out on a limb and straight up call someone’s opinion about money wrong … but this advice sounds downright financially dangerous to me!  I will state off the bat I don’t know this blogger from Adam and found the post while browsing the popular list over at pfblogs.org.  Here’s my beef:  Personal Finance Guide (dot org) not only recommends using a HELoC as an emergency fund, but claims having a CASH emergency fund is costing “more than you think” and goes on to extoll the virtues of digging yourself deeply into debt when an emergency happens.  (Interestingly enough, a year and a half ago, this same blogger thought emergency funds were a GOOD idea.)

GASP!  CHOKE!  SPUTTER!  This blogger even says to use a HELoC to buy groceries when money is tight!  What is wrong with this picture??  Buy groceries and pay for them for the next several years???  Of all the “debt-is-good” planets people can live on, this one has to be the most hostile to personal financial wealth!

The really bad part is this blogger is not alone with this idea of using a HELoC instead of a cash emergency fund.  Some bloggers are not as specific about using credit instead of an emergency fund, but the idea remains.  There are MANY more examples, but these were mentioned when I brought the subject up on a blogger board I frequent.

I have said it before, I don’t think HELoCs are good for much at all.  Not to “pay down” credit card debt (note the quotation marks!), and definitely not for an emergency fund.  What if the emergency is a job layoff?  Or a double job layoff (both you AND your spouse)?  How about some idiot running a red light drunk and T-boning you, resulting in a prolonged hospital stay and time out of work?  How about an injury that results in permanent disability?  Even worse yet, how about a death in the family?  All of these things happen to people every day in America!  Are any of these situations an example of when you want to go into MORE debt?

Or here’s another real-life example this blogger obviously didn’t consider: what if you live in an economically depressed area … like maybe Michigan?  What if you live in the “foreclosure capital of the USA” as Detroit, Michigan (replacing Stockton, California) has been declared lately?  Or any other region where home values are plummenting as the housing market bubbles burst?  All of a sudden, you might not HAVE equity in your home anymore!  If that happens, using this blogger’s advice …POOF!  You don’t have an “emergency fund” anymore.  Even worse yet: what if you find yourself upside-down in your mortgage because home values declined?

Yes, I know cash actually does go down in value.  It’s what we commonly call inflation.  But I don’t think inflation is nearly as high as some of the declines in housing values going on right now.  Plus cash doesn’t put you in debt.  The last thing I would want in an emergency would be more bills that need to be paid … and a HELoC puts your home up as collateral.  So if the emergency is prolonged and you use a HELoC, not only do you have another bill, but if you can’t pay that bill you are in danger of losing your home.  NOT a good plan!

I will personally stick with my plan of a cash emergency fund.  I personally advocate others do the same.  It just isn’t worth the risk!

As y’all know I am a big fan of Dave Ramsey and his “Baby Steps” to achieve financial peace.  This week and part of next, I will be particpating in an M-Network project exploring those baby steps one-by-one and in-depth.  This should be rather interesting, since most of the M-Network doesn’t follow Dave Ramsey!  Their perspective is Dave Ramsey is a big influence in the PF blogosphere as well as radio (and now television) so his baby step program merits a good going-over.

Patrick over at CashMoneyLife posted the series introduction and overview this morning.  He gives the run-down on just what the baby steps are, and which blogger will be covering which baby step in depth.  I help kick it off tomorrow with “Baby Step ZERO” which does exist (although not in official form on Dave’s website) and is vital to doing the entire program.    More on that tomorrow.

What I will go into today is how following these baby steps (and the general Dave Ramsey money philosophy) has impacted my personal finances.  WOW, what a difference this has made!  HOLY COW, what a financial turnaround!

Fourteen months ago, I was clueless on just how to properly manage money.  I knew what I was doing wasn’t working, even though I was trying to follow the “normal” way of money handling.  We had credit cards which carried debt.  We had TWO vehicle notes.  We had two tuition bills.  We had the mortgage and utilities and groceries and gas tanks needing to be filled.  In short, we had a financial MESS!

Then, I saw that billboard and turned my radio to a talk show (which I used to not listen to) and found out there was a “better way.”  I started to follow that other way of handling money, and fourteen months later my biggest money issue on my mind is “When will the credit union FINALLY process our LAST EVER CONSUMER DEBT PAYMENT?“  I have gone from owing way too many companies money to only owing the mortgage.

Hubby and I no longer stress out about money.  Instead we are dreaming and discussing just what to do with our money to get the best use out of it.  Just how much do we want to save up in our big honkin’ emergency fund?  How much will 15% of our income be to put towards retirement, and even more fun: How big and how fast will that retirement grow?  How much do we want to put towards my son’s college?  How fast do we want to pay off our mortgage?  Just how long of a vacation do we want to take over the summer?

These questions we ask today are SO MUCH more fun than the ones we asked a little over a year ago.  Instead of asking “How can we pay this on time?” we ask “What do we want to do with $X00 or $X000 to invest or enjoy?”  That’s a huge difference … and that’s what Dave Ramsey calls “Financial Peace.”