I first came across Dave Ramsey while I was a senior in college at The University of Texas. I had recently taken an accounting class and finance class, and decided to listen to one of his books on CD to entertain me on the three hour drive back home for the weekend.
My first impression was that he’s just preaching to the largest audience he can get. The average american family that makes $52k per year, and is buried in debt. Of course, I was smarter than the average american household. I didn’t need his baby steps, I wasn’t a financial baby. I was a financially astute, educated adult. I could use my credit card and pay it off every month. I could keep on top of my finances, of course I could. I had just aced both my finance and accounting classes. Those average American households had no where near the intellectual capacity I had at my disposal. That’s what I kept telling myself, and boy was I wrong. Plus he had these horrible jokes that he makes over and over again,
And then I graduated in May 2008 into one of the worst economies our nation had seen in over a decade. As I stepped out of college and into the real world the weight of my financial burdens slowly started feel heavier and heavier on my back. I wouldn’t start my job late July 2008, and to make sure I finished my adolescence with a financial bang I went to a friend’s wedding in Hawaii, spent a week in cruising up the California coast in a rented convertible mustang , and accompanied another friend to back pack around Guatemala for a week. While these trips left me with wonderful memories that I’d remember for years, I was tapped out financially. My thinking then was, when’s the next time I’ll have the opportunity to take a couple weeks off at a time and travel.
I had done my best to travel on a budget, but by the time I was ready to start work I was financially tapped out. I had $55k in student loans and my credit cards were maxed out at $8k. I had basically been living on those and only using my cash to make the minimum payments until I got my first paycheck. Great idea!
My plan wasn’t working so well. I finally relented to trying Dave’s, or maybe sample his ideas. I wasn’t fully on board just yet.
Once the paychecks finally started to roll in, and these were not huge waves rolling in either, My starting salary was $50k, not bad, but not great either. Thankfully I had moved into a friend’s house who had some rooms to rent out, I ended up sharing one with a bunk bed and only paying around $100 per month in rent, everything else was thrown at my credit cards. Soon enough they were paid off and I was on track to saving up my first emergency fund, and that’s when home buying fever started to hit.
Just under a year later I was back to my same old astute financial self, except now with a house, and a brand new $122k mortgage on a $125k town home! And as the saying goes, when it rains, it pours. Different expenses would pop up here and there and I would just put them on my credit card until I could pay them off. And next thing you know I was back into credit card debt!
Five and a half years down the road and having taken Dave’s 9-week class I’m on a much better path. I don’t have any credit card debt, my student loan debt is down to a much more manageable $24k, and the mortgage is down to $111k and I’m sitting at 12.5% equity. I also keep a little bit larger emergency fund than Dave recommends for my rental house. I even paid cash for a car, more on that later, and my fiance’s engagement ring. Things are looking much better following Dave’s plan. I guess I wasn’t as smart as I thought I was.
For those of you not familiar with Dave Ramsey’s baby steps I’ll list them below:
- Save up $1,000 as a beginner emergency fund.
- Pay off all your debt except the house, smallest to largest, with the debt snowball.
- Finish building your emergency fund of 3-6 months of expenses.
- Invest 15% of your income into pre-tax retirement accounts.
- Start saving for your kid’s college.
- Pay off your home early.
- Build wealth and give.
I plan to provide monthly updates on my debt elimination progress.