Personal commentary on the baby steps

[Mochashello]

Taken from Greebo's post on the baby steps:

Ok we know Dave has a financial plan for us following 7 basic steps.
However there are a few things "left out" if you did not attend FPU.
So here goes the "expanded" baby steps.
Feel free to correct anything I missed or that may be in the wrong order.

0.1: Commit to NEVER borrow $$$ EVER for ANYTHING other than possibly a house. Done

0.2: Talk with spouse and get him/her on the same page as you concerning finances.Done, sort of (within a few pages)

0.3 Do a written budget Done

0.4 Temporarily stop all retirement contributions Do I gotta? Not Done (we just started it for the first time in our lives- only $100 per month).

0.5 Get current on all the basics (You MUST have Shelter, Food, Utilities, Basic clothing) Done

0.6 Amputate "toys" (bikes, boats, ATV's etc) if they will keep you from completing the snowball within 12 months Have None

0.7 Cut lifestyle (Cut CATV, Cellphone, Regular phone "extra's", Internet, Eating out, etc) and/or take second job if $1000 EF will take more than 30-90 days. (depending on income) Plans to reduce TV package agreed on by hubby and me, phone and internet package recently changed to cost less, on lowest minute package for cells. Don't want to get rid of landline for emergency reasons and wouldn't be able to agree on ditching any more cell features.

0.8 Get current on ALL bills Done

1.0 Save $1000 In baby EF Working on it- $400 so far

1.1 Chop up CC's (You have an EF now, no NEED to keep those CC's !!) Done but for the one and we are usually quite good at not using it.

1.2 Get Health insurance NOW (chances of getting sick w/ major medical bills are larger than that of death), especially if you have children. Done

1.3 Get Life insurance NOW if you have considerable debt/your family couldn't make it financially if you died. Especially important if you have children !! Social Insecurity provides only a small amount of coverage if you have dependents. Not done

1.4 Amputate cars that you can't pay off within 24 months (You have an EF to fix the "bondo buggy" if something should happen) Cars were bought cash with HELOC

1.5 Consider raising insurance deductables to $500 or $1000 and dropping full coverage on paid for "bondo buggy" (You have an EF ya know) Only have liability

2.0 Do debt snowball, paying all your debts from lowest BALANCE to highest. So I guess this is where I'm at- working on the $1663 balance.

2.1: You can take your first vacation since finding Dave if you can pay cash for it (no using the EF !!!) So this is ok for me, when? I only have one credit card to snowball, but a lot of debt on the house. But then again, the kids won't be young forever. With one entering high school next year, family experiences are important to us- if only we could afford them. How do we decide when that is?

[Greebo]

0.4 Temporarily stop all retirement contributions Do I gotta? Not Done (we just started it for the first time in our lives- only $100 per month).

1.0 Save $1000 In baby EF Working on it- $400 so far

You only have one credit card to pay off, but you can't build up your BEF. How much faster can you build the BEF if you suspend contributions? How much faster will you pay off the card if you suspend contributions?

1.1 Chop up CC's (You have an EF now, no NEED to keep those CC's !!) Done but for the one and we are usually quite good at not using it.

USUALLY?
Ahem --->

0.1: Commit to NEVER borrow $$$ EVER for ANYTHING other than possibly a house. Done

You did say "DONE" right?

1.3 Get Life insurance NOW if you have considerable debt/your family couldn't make it financially if you died. Especially important if you have children !! Social Insecurity provides only a small amount of coverage if you have dependents. Not done

Very very important step. We checked out Zander, but ultimately went with Met Life, on a 20 year term policy for about $130 a month, and my weight puts me in the "expensive" class of insured.

2.0 Do debt snowball, paying all your debts from lowest BALANCE to highest. So I guess this is where I'm at- working on the $1663 balance.

No, you are working on the BEF. Stop thinking about step 2 until step 1 is done. You do not do multiple steps at once until you get to steps 4, 5 and 6.

2.1: You can take your first vacation since finding Dave if you can pay cash for it (no using the EF !!!) So this is ok for me, when? I only have one credit card to snowball, but a lot of debt on the house. But then again, the kids won't be young forever. With one entering high school next year, family experiences are important to us- if only we could afford them. How do we decide when that is?

After step 3 is done.

[Day~Dreamer]

1.4 Amputate cars that you can't pay off within 24 months (You have an EF to fix the "bondo buggy" if something should happen) Cars were bought cash with HELOC

down grade (majorly) and put the extra money towards HELOC. It is HIGH!! How much did you pay for your cars? They are not paid off they are financed through you HELOC.

[Mochashello]

* We'll be adding $565 to the BEF next month, bringing us to $965, plus any bills that aren't as high as budgeted will be applied to bring the BEF to $1K. So this should be funded by the end of October. Yay! Not long. ($400 of that $565 is the first payment of the side job hubby and I got the green light on)

* I say "usually" about the CC because obviously we used it this summer when our unexpected expenses exceeded our EF. But it is in my nature to hate carrying a balance and I am not easily tempted to use credit for wants. Plus we have to have an open credit card for when hubby travels for business.

* Cars were about $14K each if I remember correctly. Hubby would not be open to downgrading at this point. Maybe he'll change his mind after reading Dave Ramsey's book. Although I admit he's not the only one who'd be sad to do so.

[I'd like to point out that until very very recently, we did not carry a savings account, all our extra "savings" went into the HELOC as a holding place so we paid less in interest that way. If you have heard of Money Merge Account, that's what we were doing. Your paychecks, savings, everything- goes into the HELOC bringing your monthly payment down and then you spend from your HELOC to pay your bills, etc. So you track what your income is, what your expenses are, etc. But until you use the money on your expenses, it is sitting in the HELOC so you are not charged interest on it. If I'm not making sense, try googling "Money Merge Account" or "United First Financial". I am now wishing to keep a savings account separately in case the HELOC gets closed due to falling home values.]

* Checked with hubby about the life insurance because I didn't think we were taking advantage of his company's life insurance but I guess we are, so- that's done, though I think it's at a minimum. But I don't think for now we should up it. Is there advice from Ramsey on the amount you should have?


> As for HELOC balance being so high, as I've said before, most of that (about $100K) was for an addition we put on the house a few years ago.

Thank you!

So, step 3 is having 3-6 months of expenses in EF. The expanded baby steps listed the all-cash vacation as step 2.1 Obviously the choice is mine- but still, just curious, is it "allowed" before having the 3-6 months of expenses saved or not? We'd love to plan a vacation for next summer with the kids.

[Day~Dreamer]

So, step 3 is having 3-6 months of expenses in EF. The expanded baby steps listed the all-cash vacation as step 2.1 Obviously the choice is mine- but still, just curious, is it "allowed" before having the 3-6 months of expenses saved or not? We'd love to plan a vacation for next summer with the kids.

I would have the EF fully funded before vacation.

[Greebo]

If you can put that much per month on your BEF, then you can snowball that much, so 100/month wont accelerate the payoff of the CC significantly.

I don't agree with Day~Dreamer - your cars *are* paid for. What you've got now is paid for cars by putting the house at risk instead. Paid for cars aren't the problem.

Honestly my only really big concern for you at this point is the upcoming adjustments to your mortgages, but there's no way to predict what the future rate will be this far out, and there's no way you'll get the balance down to where you can refi in time. So your choices are short sell now, short sell later, or tough it out.

I think I'd be going for "tough it out" at this point. The housing market will come back, sooner or later, and maybe by then you reconsider whether the house is worth it, or maybe you're doing fine.

Insurance: 8-10 years worth of income. You need to think in these terms: If DH died tomorrow, how long would we be able to pay the bills without his paycheck?

[HappyMama]

* We'll be adding $565 to the BEF next

So, step 3 is having 3-6 months of expenses in EF. The expanded baby steps listed the all-cash vacation as step 2.1 Obviously the choice is mine- but still, just curious, is it "allowed" before having the 3-6 months of expenses saved or not? We'd love to plan a vacation for next summer with the kids.

I would have step 3 done but also plan on having my refinance in order , or a solid plan for when you interest is resetting in January. Having come from California and having lots of friends still there that would be my first priority. The market there is a tough one now more so then most states with the decline in market etc. Many are having trouble meeting their new reset ARM or refianancing as the houses are no longer worth what they were etc. Not saying you are in that situation or will be just giving my advice what I would do before I planned a vacation. Though I love vacations ...LOL The Libor ( London Interbank Offered Rate ) just shot up also, not sure if your loan is based on that. Mine isn't but many there with ARM are. Jmo ,Hth

Eto: I personally think we are in for a ride and the market will not be up for the housing in California by January so that is why I am saying have a plan. My husband was born and raised there, lived there many years my self , buying and selling and what is going on there now will not be fixed in a few month time.

[Mochashello]

If you can put that much per month on your BEF, then you can snowball that much, so 100/month wont accelerate the payoff of the CC significantly.

I don't agree with Day~Dreamer - your cars *are* paid for. What you've got now is paid for cars by putting the house at risk instead. Paid for cars aren't the problem.

Honestly my only really big concern for you at this point is the upcoming adjustments to your mortgages, but there's no way to predict what the future rate will be this far out, and there's no way you'll get the balance down to where you can refi in time. So your choices are short sell now, short sell later, or tough it out.

I think I'd be going for "tough it out" at this point. The housing market will come back, sooner or later, and maybe by then you reconsider whether the house is worth it, or maybe you're doing fine.

Insurance: 8-10 years worth of income. You need to think in these terms: If DH died tomorrow, how long would we be able to pay the bills without his paycheck?

This is the same conclusion I came to, glad to see I'm on the same page with you here.

As for the BEF monthly amount, that isn't every month (although it could become so). Hubby and I got a side job that will pay us each $400. Yesterday we got the official green light on it. We will get $400 upfront and the other $400 at completion. If we do well, this could become a more regular thing. But for now, I am not planning on the extra income beyond this first job. Obviously I am hoping it will be just the start of a lucrative second stream of income. But I am not counting my chickens before they hatch. So for now I am calling this extra money a "windfall" of sorts. Oh, and when we get the other $400 at completion it will most likely go toward Christmas and birthdays. (We have sooooo many bdays in Nov!)

[Mochashello]

I would have step 3 done but also plan on having my refinance in order , or a solid plan for when you interest is resetting in January. Having come from California and having lots of friends still there that would be my first priority. The market there is a tough one now more so then most states with the decline in market etc. Many are having trouble meeting their new reset ARM or refianancing as the houses are no longer worth what they were etc. Not saying you are in that situation or will be just giving my advice what I would do before I planned a vacation. Though I love vacations ...LOL The Libor ( London Interbank Offered Rate ) just shot up also, not sure if your loan is based on that. Mine isn't but many there with ARM are. Jmo ,Hth

Yes, obviously if things look bad in January with our rate adjustment, then we won't be able to save up for a vacation. We'll know that well before summer vacation time comes around. We are already in a very upside down mortgage as our value has plummeted nearly 50% in the last year. So a refinance is out of the question right now. My 1st mortgage is indeed tied to the LIBOR and I am not at all happy to hear that it has shot up. It had been nice and low all year and I was of course hoping it would remain so until January. I really can't do anything but pray and wait.

[HappyMama]

If you can put that much per month on your BEF, then you can snowball that much, so 100/month wont accelerate the payoff of the CC significantly.

I don't agree with Day~Dreamer - your cars *are* paid for. What you've got now is paid for cars by putting the house at risk instead.

Yes agree !!!

[Mochashello]

if our rate were changing today, our payments would go up $200 per month. Our rate would be 5.71% and is currently 4.125%. This isn't TOO dire, but if this upward trend continues it could be.

[khaski]

Life insurance, even if one of you stays home with the kids, you both need it on you. Should something happen to one of you tomorrow, how would your other half hold up financially? Term life insurance is CHEAP.

[Mochashello]

* Checked with hubby about the life insurance because I didn't think we were taking advantage of his company's life insurance but I guess we are, so- that's done, though I think it's at a minimum. But I don't think for now we should up it. Is there advice from Ramsey on the amount you should have?

We have a small term life insurance policy in place. I believe it is for $100K.

Update: We got The Total Money Makeover and started reading it last night. I had read to page 5 and then handed it over to hubby, who read to page 15 before going to bed last night (I was thrilled he was reading it!). This morning I caught up to where he was before leaving for the day (plans with mom and sisters), and teasingly told him I expected him to get pretty far in the book while I was away. When I got home he had read to page 85 and told me he thought we should consider selling the Camry! Wow, what a difference a day makes! Not that this would be easy for me, but just the attitude and openess is so exciting to see! I of course spent time reading and catching up to where he was- I want to keep reading at about the same pace so we are quite literally "on the same page".

[ansley]

Not for everyone but a good (could be cheap) vacation, go camping. The first time we went we bought sleeping bags and borrowed a tent (word of caution, IME, for comfort the tent will sleep 2 less than it says). The camp site had rest rooms and a grill. We just needed to provide the charcoal, tinfoil, food and etc. We had most of that on hand. We plan to go camping this coming weekend and it is $6 for the camp site, for the weekend. Camp chairs are nice but you don't have to have them. There is hiking, fishing, bike riding, animal watching and etc. My dc love it. Just something to think about.

[Mochashello]

Thanks. I may have to be open to that (I personally loathe camping but the kids might enjoy it).

We've always talked about putting a priority on special family memories around the adolecent years when teens tend to drift away from their family bonds. Unfortunately that time has come upon us overnight (so it seems!). I cannot believe that in 2 months I will be the parent of a teenager!! It's crazy. So maybe a trip to the Grand Canyon is out, or maybe we aren't going to be jetting off to Hawaii, but we have to do something we can bond over. At least, we really really would like to.