I'm a prepper, and need a plan. Especially when it comes to high-stress situations like finances. That's why I love Dave Ramsey's Baby Steps, because it gives you actionable steps to be more financially stable. But, I disagree with the order of his steps and think they need one little tweak.
Dave Ramsey's Baby Steps
Dave Ramsey is a wonderful resource if you're looking for help with how to save money, and create financial freedom. His ideas are definitely on the extreme side though, like ideally paying cash for a house (no mortgage). For our family, we use his ideas as a baseline and then adjust them for our comfort level.
For example, Dave Ramsey's Baby Steps. Dave has created a "proven plan to paying off debt, saving money, and building wealth." Instead of floundering, start at the first point, by saving your starter emergency fund. Save what you can, where you can, to hit that $1000. And then don't touch it unless it's an absolute emergency. Find a bank account that you won't see. Put it in cash in a secret place. Forget that it exists, just don't forget where you put it.
After some practice, I've learned to keep my emergency fund in my standard bank account. I just equate $1000 to actually meaning $0. When I pay bills, I use a separate calculator to show me what my true account total is. Account total minus $1000 emergency fund equals my spending allowance.
Our Family Adjustment, Switch Steps 2 and 3
Step 2 is where our plans adjust from Dave Ramsey's Baby Steps. Instead of paying off all debts first, we focus on our 3-6 Month Emergency Fund (switching Steps 2 and 3). It would be wonderful to have our debts fully paid off, but I prefer having extra cash available for emergencies. Especially when lay-offs are common and inflation is rising on necessities like groceries.
Our student loans and roof loan will still require monthly payments, whether or not we're still employed. Having the larger emergency fund will give us some time-cushion to find a new job, instead of being stressed immediately.
Until we do have our loans fully paid off, we are keeping our Emergency Fund closer to the amount needed for three-months worth of expenses. Instead of the full six-months. It's all a balance game of paying off loans quickly, so you don't accrue the interest, but still planning for potential emergencies. While Step 1 of having $1000 saved is a great first step, it won't pay for much if you lose your job. It'll be great for if your car breaks down, or you have an emergency healthcare expense. But it's not long-term enough protection, at least for our comfort level.
Saving Baby Steps, Our Step 2
Living with tighter budgets is something I definitely understand, especially with inflation. After years of being poor students, things were financially improving, and then life happened. In the last year alone, my job dropped to part-time and my husband's new job came with a $10k pay decrease. We were blessed to have our Airbnb income increase (which we host in a back room of our house), but things are still tight.
Even though it may not seem like much, save where you can, adding that savings to your emergency funds. Once the funds are in your emergency funds, pretend they don't exist. Unless it's a true emergency. Look for coupon deals and cash-back programs to save on products you already purchase.
Some deals and money-saving hacks we've used recently:
- Shop with Cash: You'll be less likely to buy frivolous things when using cash. Then put all of your change in a piggy bank (another secret money storage that you can't see).
- Target: Watch for coupon deals (i.e. spend $100 in diapers, get a $20 gift card; spend $50 in groceries, get $10 off your order); sign up for RedCard (get 5% back on all Target purchases, no credit check if you attach to your bank account and use as a debit card).
- Publix: BOGO food and household necessities, plan your meals around sale items.
- Ibotta, Fetch, and Pogo: Scan your receipts and get cash back for your savings account (get bonus points when you sign up with the above links).
- Rakuten: Online shop, and get cash back for your savings account (get $30 when you sign up with this link).
- Credit Cards: Get cash back for your points and put that directly in your savings account.
- Evaluate Your Spending: Is there anything you buy regularly that you don't really need? My husband buys sodas frequently at the work vending machines, so we buy them at the grocery store now instead. While it's still spending, it's less expensive at the grocery store than the office!
- Clean House: Is there anything in your house that you don't use, that might be worth selling? I found a green screen in our closet for a project we never completed, and sold it on Facebook Marketplace.
Dumping Extra On Loans, Our Step 3
I pay bills on Friday each week, and that's when I move onto Dave Ramsey's Step 2 - Paying off Debts. Using a calculator, I see what money we really have available (without touching our savings, see equation below). I keep the due dates of each bill on a calendar, so I can see what's due first. Then I pay our bills for the next week with the available money. If there's more money available, then I pay for bills due the next week. When I've paid bills as far as possible, I apply any leftover money to the roof loan (even if it's only $10). Since I'm already keeping my regular loan payments, any extra money heads straight to the principal of the loan. This means the loan will get paid off faster.
Total Bank Accounts - $1000 Savings - 3-Month Savings = Available Money
Be Gracious With Yourself
There will be times you won't have money for your emergency funds, or to pay extra on your loans. In fact, you might have to cut into your emergency funds. But be gracious with yourself, and don't beat yourself up. Continue looking for ways to build that account back up. Some months have five Fridays, so we get five paychecks instead of the normal four. And that extra paycheck goes to fill in the gaps from previous months. Or your tax return. Or profits from a side hustle. Be studious and watch where your money is going, and have a plan with where you want it to be.
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