New and Motivated

**momsquared** · 07-16-2009, 03:52 PM

Hello! I just finished reading TMMO and have Financial Peace and More Than Enough on my bedside table thanks to my library. I started a budget last month and found out we randomly spend around $600 a month inexplicably yet have $88,000 in debt NOT including cars and the house (I can only stomach so high a number at this point in my journey). We have been good about saving so we have retirement pensions, $4000 in savings, $3000 in CDs and always a few hundred dollars in checking. I have been selling off items around the house and consistently online paying our first debt - a small student loan.

My question is - DR says we should run our savings down to $1000 during this stage and leave retirement alone. Therefore, he would suggest that we spend the $7000 we have in savings and CDs. Don't get me wrong I understand the purpose, I just am consistently worried about emergencies that go beyond the $1000 mark. I am not sure what these would be, but I worry none the less. For those of you that went in with money saved, did you really wipe it out to get out of debt?

I believe drastic times call for drastic measures, but my mind works in baby steps too.

**FrugalMomof3** · 07-16-2009, 04:30 PM

Firs off, welcome to FV!

DR says to have a small EF of $1000 then start snowballing debt, once all debt is paid off start saving 6 months of living expenses. I personally dont follow his plan in the order he mentions because we are all different.

I am paying down debt first (CC's) then doing the $1000 EF then going straight to the 6 months EF, then putting extra towards mortgage, although I follow his steps, I dont go in his order.

**Debbie-cat** · 07-16-2009, 04:50 PM

Hi and welcome from Minnesota!

**Contrary Housewife** · 07-16-2009, 05:18 PM

I would not cash the CDs because you'll pay penalties on those and any new rates you get when you open new ones will be lower than what you have now.

You might consider paying some smaller bills with the savings, just to get rid of them, but I believe DR also includes a savings of 3-6 months living expenses as part of the plan and your savings is a good start on that step.

That misc $600 in spending looks like a good snowball for debt payments, though.

**momsquared** · 07-16-2009, 06:33 PM

This is sort of the way I felt about it. I know I am sending extra money to bills than before and am focused on that so I am wondering how much it would be worth to wip out savings you know?

Originally Posted by Contrary Housewife

I would not cash the CDs because you'll pay penalties on those and any new rates you get when you open new ones will be lower than what you have now.

You might consider paying some smaller bills with the savings, just to get rid of them, but I believe DR also includes a savings of 3-6 months living expenses as part of the plan and your savings is a good start on that step.

That misc $600 in spending looks like a good snowball for debt payments, though.

**semo_mom** · 07-16-2009, 06:47 PM

Welcome from Missouri.
I'm very new to DR as well, trying to find the motivation.

**a.nonymous** · 07-17-2009, 02:56 AM

Hi momsquared, welcome to the forums!

To answer your question: Yes, I have liquidated my modest savings in order to pay down debt.
Now, having said that, it wasn't all that much saved up compared to my debt, but it surely did help to put that first big dent into my balance.

Now, we've got a BEF of 1k and some more cash stashed up for our move abroad.

If you don't feel comfortable with a small BEF, then it's up to you to to make it a bit larger - enough so you can sleep at night. It won't help much if you're out of debt but a psychotic nervous wreck by then.

**ladykemma2** · 07-17-2009, 07:40 AM

i would use the 4000 in savings as your baby emergency fund. Now you don't have to use the credit card. i am a dave-ite but i don't think 1000 is enough.

**nuclear_j** · 07-17-2009, 11:01 AM

Hello momsquared and welcome to the forums! This is a great resource to use as you probably already see.

I would say follow Dave's plan as closely as you feel comfortable. And with that in mind I think people can follow it to the 'T' with no adverse affects. Dave recommends that you take the penalty on the CDs and cash them out for instance. Don't think of it as wiping out your savings, think of it as wiping out your debt so you can save more money later; imagine all those debt payments are now payments to savings. (it will happen sooner than you think) Even if things don't go the way as planned, you just get to the drawing board (budget and allocation sheets) and redesign your plan.

I am a risk taker, so I encourage you risk it as well. It really requires trust in yourself and trust in DR's plan. Fear is the number one killer of speaking ideas and doing actions.

If you like, I could send you my excel template I use for budgeting and planning if you needed one. Good Luck!

**Luckybustert** · 07-17-2009, 11:27 AM

Hi and welcome! I just finished reading TMMO and must have missed something because I got the part about the $1k BEF, but I didn't walk away with the impression that we should liquidate savings above that much. Maybe I promptly forgot that part because I also feel that $1k is not enough? It's very interesting (and inspiring) to read the different approaches to DR's plan - thanks everyone!

**momsquared** · 07-17-2009, 11:30 AM

I think you make a good point about risk - and I do know what Dave would suggest about the CDs and the savings. I personally have to have those there. We have been fortunate that the one time I was laid off and the one time my husband was laid off we both had new jobs before it made any difference financially. I guess I am the "what if" person. Like - what if my house explodes...even though I have homeowners insurance...

I know 95% of our problem was needless spending. I could easily spend $25 a week+ just on Starbucks before. Now that I pay cash I would never do that. We were also people consumed by our things so we tend to always feel the need to have the latest and greatest.

I anticipate being done with one student loan debt of $2500 within the first 1.5-2 months. Then I will move on to the $5000 CC and then on and on. I plan to use some of the savings towards these debts, I just need a little more confidence in myself and my husband to take this step.

**Greebo** · 07-17-2009, 11:35 AM

Originally Posted by Luckybustert

Hi and welcome! I just finished reading TMMO and must have missed something because I got the part about the $1k BEF, but I didn't walk away with the impression that we should liquidate savings above that much. Maybe I promptly forgot that part because I also feel that $1k is not enough? It's very interesting (and inspiring) to read the different approaches to DR's plan - thanks everyone!

Dave would tell you yes, any savings above 1k you should put towards paying off your debt, for a few reasons:
1) Would you borrow money to put it into savings? If not, how is keeping money in savings that could pay off debt any different?

2) The intention of the small BEF is NOT to give you total security, its to give you just enough security that when (not if, when) Murphy calls, you do not have to go immediately back into debt because you need, for example, 2 new tires. It's a SMALL buffer against murphy, and its deliberately small to provide you with that sense of fear. The fear is intended to drive you to pay down your non-house debts *as fast as you possibly can*, so that you can then start saving up that fully funded emergency fund.

Now, for our own part, when we started the DR plan, we modified the BEF slightly. We set the limit originally at $2000. We also put $200 per my paycheck into that BEF account. We also sold a stocks that Ceashels had, and applied some of that to our rental property work and some of that to reducing the debt on her car. (Had we sold it all at the time, my car would have been paid off too - now it's worth about 1/4 what it was, stupid CEG...but anyway...)

In practice, however, we've found that by being responsible with money, keeping our sinking funds properly funded, etc. we're comfortable with a smaller BEF, and so we actually let the BEF grow to $2,000 and then take $1k of that and apply it to the car debt.

You *can* tailor the plan, is the point. If you make a large income, then $1k, probably is NOT enough. If you make a very small income, then $1k may well be too much.

**Greebo** · 07-17-2009, 11:37 AM

Let me add too - we didn't rush out and sell ceashels stock. We were on "the plan (slightly modified)" for several months before we decided we were ready to take that step.

We've found that as we adjust (me particularly) to using Dave's plan, we get more comfortable with the more extreme measures of it. Like he says - baby steps.

**frugalfranny** · 07-17-2009, 06:37 PM

Welcome to FV from the pacific northwest........

I will just lurk around for the DR stuff........

**Karen1** · 07-17-2009, 07:02 PM

WELCOME

I am a risk taker and a saver for emergencies type person. I must have money in savings for "what if", especially medical type situations.

I don't follow DR, just do what I can. I paid off tons of debt using the snowball type schedule. I tackled the smallest, giving it huge payments, while paying the others with just above the mins. It takes a while but it all gets paid off.

I didn't cash in savings to do this (one small acct. I did) .....I just cut expenses everywhere I could, put that money on the bills and committed to pay them off...and after a long while it was done.

So for me, I have 2 savings accts. One my "bigger" one and the second was a smaller acct...just putting in some bucks here and there. It came up to like $980 and I did wipe that out, put it on my debt and kept the larger acct. for emergencies.

Life happens and money will be needed. So if you are like me, keep the savings as a what if...and tackle your debt best you can! So that is just how I handled my problems.

Hope all goes well.