In this previous post, I went through the basics of the Dave Ramsey method for achieving financial independence. In that post, I alluded to the fact that while we subscribe to the general plan, there are a few areas where we differ from Dave’s recommendations. I would say that we generally follow about 85% of what he lays out (which is, incidentally, my approach to almost anything- diet, exercise, sleep, etc. As long as it is good/works 85% of the time, it doesn’t need adjusting).
The parts we do follow:
- Save $1000
- Not acquire any new bad debt– both our cars are paid off and we never use the credit card we have. Any further cars will be purchased with cash.
- The debt snowball– it’s REALLY motivating to pay off debt, so the structure of the debt snowball really works for us. Also, at this point, the only debt we have is federal student loan debt, so the interest rates are all reasonably low.
- Budget meetings and zero-dollar budgeting– When B was stateside, we had budget meetings at a minimum of weekly. Usually one big meeting toward the end of the month and little weekly check-ins each week. Also, at the end of each month, we zero-out our money for the month and put whatever excess we have left (from areas where we spent less than we budgeted) toward student loans.
- Dave’s philosophy: “Live like no one else so you can live like no one else”- We are very conscious of our spending and make decisions that are different from a lot of those around us, in order to gain the financial independence we want. We rarely go out to eat, my toddler and I get all our clothing from consignment or thrift stores (for some reason, good quality consignment men’s clothing is hard to find), our cars are 15 and 11 years old, we rarely eat red meat, our phones are refurbished, older models and all our furniture is the “Ikea/Craigslist” special. We agree with Dave’s philosophy that being intentional with your money allows your money to work for you and those are items that we just aren’t interested in spending money on.
The parts we don’t follow:
- The baby steps, in exact order– When we started this journey, we knew that even if we were laser-focused on paying down debt, we’d be looking at a minimum of 4-5 years to pay off all the student loan debt. Paying down debt is important to us, but not so important that we’re willing to sacrifice all our family time trying to hustle and pay it down faster. We’re content with a 5 year plan. BUT. That means that not planning for the future doesn’t make sense. As such, we have a fully funded emergency account (baby step three) and we both fully contribute to our company 401k accounts up to the amount the company matches. Since we’re going to be paying off debt for at least 5 years regardless of whether we do these things, it didn’t make sense to us to forfeit five years of essentially free money (in the 401k match) while we paid down debt. It’s true that in five years we will be able to pay a lot more toward retirement, but for now, we’re at least not leaving money on the table.
- We have a credit card– Dave swears that it is possible to not have a credit card, but that hasn’t been our experience. None of the car rental places around our metro area will accept a debit card (we’ve tried)! Also, right now, the international charge for using the credit card is lower than our debit card would be, so B has mostly been using the credit card instead. However, we don’t use it for daily purchases, mostly because we aren’t fully in a financial place where we trust ourselves to use it responsibly. Hopefully we’ll be there one day, but for now, it mostly sits around. I use it for gas once every six months so they don’t cancel it!
- We don’t pay cash for most things– We totally used cash for clothing, restaurants, car repairs and fun money in the beginning, but we’ve gotten to the point now where there aren’t any areas of our budget that we’re likely to overspend on. I think that years of paying with cash was very necessary for us, as it helped us think about how much we were spending and how much we had already spent. But the thing is- that ability didn’t go away when we stopped using cash. I update our budget daily, so I’m always very aware of how much money we’ve spent and what we have left. As the need to self-regulate by using cash has receded, so has our cash usage.
- We are not “gazelle-focused”– When you look at our budget, there are certainly areas where we could cut back. We could move to no restaurant budget at all. We could get rid of the maid and the lawn care. We could decrease our grocery budget and buy more rice/beans, rather than meat. We could get rid of our fun money. But realistically, we both know that we won’t be able to stick to a budget that restrictive (and are profoundly grateful that it isn’t a necessity at the moment- I am acutely aware of the privilege inherent in being able to choose to afford luxuries). So we tried to put together a budget that allowed us to put a decent amount of money toward debt while still allowing us to live our lives for the next five years.
So there you have it. My philosophy toward life in general is that most situations aren’t all or nothing propositions and our approach to budgeting and finances is no different. We took a lot of Dave Ramsey’s principles, combined them with our knowledge of what would and wouldn’t work for our situation and personalities and managed to come up with something that works for us, and works well. Is it 100% Dave Ramsey? Not at all. But it’s helping us accomplish our goal of financial independence so I’m okay with not following the plan 100%.
Any other Dave Ramsey followers out there? What parts do you follow religiously? Where have you fudged the rules?