Monday, May 16, 2011

Financial Peace... even in tough times

In this economy or in any other I have never heard anyone say "There is just too much money at the end of the month...".  Unfortunately what I have heard is "There is just too much month at the end of the money".  I know exactly what it is like to need a small budget to stretch a long way and then stretch a little more.  We used to have 2 kids and a great paying job, in a house with a small mortgage (we have always believed in not becoming house poor with  a huge mortgage).

 Since then we spent about a year overseas doing mission work on our own dime on the island of Efate in Vanuatu in the South Pacific, adopted Bella from birth while there.

We also put our life savings into a piece of beach land there

thinking we were going to stay longer term there and then came back broke into a bad economy just in time to have another baby! :)
 Financial stressors?  We have seen them all...  Aside from the peace that comes from knowing God is in control we have been able to stay relatively calm and be debt free due to a few things..

Contentment which is the key to not spending what you don't have, friends and relatives helped us along quite a bit, and following the Dave Ramsey model one "baby step" at a time.

If you are not familiar with Dave Ramsey you should check him out.  He has a very comical no nonsense approach to money that is simple to understand albeit not necessarily easy to commit to.  However if you make the commitment and work at it faithfully you will reap the rewards.

Here are the baby steps..

1) $1000 emergency fund. (Please be warned Dave Ramsey does not consider pizza an emergency!)  You do not move on to ANY other baby step till this is in place.

2) Debt Snowball - pay off all debts starting with the smallest throwing any income at it that you can.  Sell sell sell whatever you can till you are DEBT free.  Do not pay off the debt with the largest percentage rate first unless it happens to be the smallest one.  The point is that you gain momentum by paying off one and then throwing all the money you would be paying on that debt toward the next one, and continuing till all debts are paid!  Attack this as hard and fast as you can.  Put a thermometer style chart on your fridge to chart every last dime you are putting towards the debts and where you are so you can be encouraged to drop every spare dollar in that direction, and kill it off FAST!

3) 3-6 months living expenses saved- Now we are getting somewhere! This step may take a while but it is an important step.  This money needs to be liquid, not wrapped up in real estate or mutual funds you can't sell off.  It must be accessible. Dave reminds us this money is not meant to be a cool exciting investment it is peace of mind and therefore must be accessible.   This is the step we are currently on. We have a chart on the fridge to show our progress toward our goal.  That we are encouraged and constantly reminded of the big picture goal.  If we get a spare $20 this is where it goes!

4) Invest 15% of household income into ROTH IRA's and pre-tax retirement. We have already spoken to our financial advisor and have a plan to have it automatically taken out monthly on we are on this step. At this step you start doing the last 4 baby steps all at the same time as opposed to earlier when you worked through them one at a time and didn't move on till it was completed.

5) College Funding This one will be a hefty step as we have 4 kids.  Good thing they are still young and yet running off to college or we would be in trouble!

6)Pay off home early Dave has a great financial calculator for this on his site here to see how much you could save if you pay off your house early! It is very inspiring and I highly recommended you check it out.

7) Build Wealth (Mutual Funds/Real Estate) Dave's web site has great resources and info on this step too.  But remember  you can't do this step till you have completed Steps 1-3.  No jumping ahead.  Dave has his reasons for setting it up this way.

Here is a link to  Dave's site to do a little more searching around and get to know his methods if you are interested.  He has a TON of great resources.  Good luck and let me know in the comments what your best money saving tips are.  

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