Did you know that in Proverbs 22:7, the Bible calls those of us who are in debt “servant to the lender”? I don’t know about you, but I don’t want to be a servant to anyone except the Lord Jesus Christ.
We don’t want to be in debt to anyone – not even for our house. Romans 13:8 says
“Owe no man anything, but to love one another…”
So a few years ago we read “Total Money Makeover” by Dave Ramsey. I highly recommend it for anyone who desires to get out of debt and become more financially secure.
Our first step was to set up a budget. If you have no budget, you will spend spend spend, because there are always things we “need” (rolling eyes). But if there is no money left in the budget, then we wait until the next month to get what we “need”. (need is an overused term – do we really need another pair of shoes? Yes, we need one pair to protect our feet, but more than that? Can we really call it a “need”?). Maybe I’ll write about setting up a budget some other time.
And of course a given is that we always tithe. Malachi 3:8 tells us that if we don’t give God 10% of our income, we are robbing Him! That would definitely not be a good way to begin any journey to becoming debt free. Even Dave agrees with tithing as a first step.
Okay, so with a budget in place and tithing taking place, we then began Dave Ramsey’s plan. If you haven’t read the book, here’s a quick rundown (but please read the book if you want to start the journey yourself!).
You begin with step 1 – save $1,000 for your starter emergency fund. This is so that when things come up, like a flat-tire, washing machine breaks, roof starts to leak, etc., you have some extra cash to pay for it without going into debt. If you can’t find any extra money in your budget to put towards this, then you have to rearrange your budget. Eat beans and rice every day, cancel the cable service, ride your bike to work – whatever you need to do to have some additional funds to saving and paying off debt.
Step 2 is to begin the debt snowball. You list out your debts (except your home) in order with the smallest payoff or balance first. You continue paying the minimum payment on all debts except that first one. For the first one, you put any and all money you can find in your budget towards it. And then when you get it paid off, you move onto the second, using all the money you had used for the first debt plus what you were already paying towards the second debt. And so on until all are paid off.
Thankfully when we began this journey, we had no credit card debt because hubby’s parents had drilled into him the danger of credit cards (thank you David and Jan!). We did have a loan on hubby’s car though. We paid it down fairly quickly (there wasn’t much left on the loan) and then we got to move onto step 3.
Step 3 is where we’re at right now. We have step one in place ($1,000 in cash for emergencies), and all debt is paid off except our house. Now, we are to save 3-6 months of living expenses for our emergency fund. This is in case hubby gets laid off and we lose our income. For now, we’re planning to just save 3 months worth of living expenses. Since hubby is still young and has very marketable skills, we’re fairly certain that he wouldn’t be out of a job for long if he were to lose his current position.
It’s taking us a little longer than it should to finish out step 3 because we just bought our new (used) van with cash that we had been saving for, knowing that our family was growing out of our former vehicle, and now we’re also trying to save some for a car for hubby in the next 2 years or so, as his is getting up there in mileage. I guess maybe we’re disobeying Dave’s plan by doing that. But it makes sense to us – we needed a new vehicle now, and hubby is going to need one soon. We definitely don’t want to add debt to do that so we’re saving for cars in addition to saving for our 3-6 month emergency fund.
In my estimation, we will probably be finished with step 3 in about a year.
Then step 4 will be saving 15% of our income for retirement. We’ll look more closely at that step when we get there. I personally think that seems like too much. Assuming that our house is paid off by the time we want to retire, it doesn’t seem like we would need quite that much to be comfortable in retirement. We have no desire to be “rich” – just enough to live on.
There are 3 more steps after that, but we’re a long ways off. One step at a time is all we can wrap our minds around right now as to not get discouraged and overwhelmed.
So, that’s our plan. We aim to live frugally in all areas of our life so that we can be good stewards of the money God has entrusted us with. Because after all, it’s His money – we’re just the caretakers of it while here on earth.