My financial mistakes in life started at a young age. As an adolescent, I made money babysitting. I don’t remember what I did with that money, but I’m sure I spent it as soon as the opportunity arose.
My first “real job” was working at A&W when I was 14 in 1990. I believe I started out making $3.80 an hour. My best friend worked there too that summer, and I remember when we would get our paychecks, we couldn’t wait to spend our hard-earned money, and we would immediately drive to the next town over and go to Kmart or the mall and spend every penny. Occasionally, we would stop by the bank first and deposit a little bit into our savings accounts, but that money wouldn’t stay there long.
I continued this journey when I went to college. My family could not afford to pay for my college, and so it was up to me to do that. They wanted me to go to the local community college where I would have a scholarship for the first two years and could live at home. But I insisted that I wanted to go to the larger, four-year state college a couple hours away from home, and I would pay for it myself using student loans and by working part-time through school.
I took out the full amount of loans I could get every year. When that money would come in, I would be rich for a few weeks. I would pay my tuition, and there would always be some left over for room and board or other expenses. The old bank account would be flush for a few minutes, but that never lasted long.
On my first day on campus, I was walking through the University Center, and there were people advertising free t-shirts for signing up for a credit card. I signed up immediately and was approved for my first credit card. It was a Discover card, and it had a 300-dollar limit, I believe. Wow! They approved me, I remember thinking. I must be doing pretty well!
Next, I needed some new school clothes, and I had no money, but they approved me for a JCPenney card. It had a $150 limit. I maxed that out and the Discover card in no time, and there started my journey of living on credit. I only worked about 10 hours a week because that’s all I could manage and still keep up with school, so every month I made the minimum payments on my cards, then maxed them back out again by the end of the month because I needed to buy groceries, gas, and other essentials. In the summers, I would work full-time and try to save up for the next school year.
I graduated college in four years with a teaching degree. I also got married just after graduation and then moved to Oregon to take my first teaching job. My husband and I thought we were doing great since we both got full-time jobs right out of college. We both went out and bought brand new vehicles. Each vehicle came with a payment of over 300 dollars a month. But we had made it! We were adulting.
Shortly after graduation, our student loan payments started. Between my husband’s payment and mine, the amount per month was a lot for a couple of entry-level paychecks. We decided to consolidate our loans together so the payment would be less. Big mistake.
A few months into our new marriage and new careers, we were realizing that our credit card, student loan, car payments, and rent were eating up our meager paychecks. There was almost nothing left for food and gas. But the banks approved us for those loans, I remember thinking. The banks said we could afford it. But, alas, we could not afford it. I remember having a cart full of groceries and our card being declined. I also remember bouncing a check at a local restaurant, and they hung it up on display until the problem was corrected. That was a low point.
We had to do something. We found out you could put your student loans on forbearance for six months if you were having a hardship. Well, we were, so that’s what we did several times over the course of our loan repayment period. Another big mistake. The interest was accruing during that time. But that didn’t bother us. All we cared about was reducing our payments so we could live our desired lifestyle.
So, for the next eight years or so, we lived paycheck to paycheck. We managed to buy a house. We had a child. We sold a house and made some money. We inherited money when my sister passed away and left her life insurance to us. At that time, we could have paid off our student loans and other debt, but we didn’t. We bought more stuff and a bigger house because, “Life is short.”
Eventually we ended up moving back to Montana to be closer to my family. We sold our house in Oregon and made some money on that. We cashed in our Oregon retirement. (HUGE MISTAKE!) We had to pay a bunch of taxes in penalty because of that move. Oh, well. We bought another house in Montana and proceeded to max out credit cards remodeling it completely to bring it up to our standards.
We looked successful on the outside. Nice house, nice clothes, good jobs, vacations, etcetera. But in reality, we were barely keeping our heads above water. It caused conflict in our marriage. We were always stressed about how we were going to make ends meet every single month. We were good at it, though. Never missed a payment, but we were so stressed.
My best friend could tell we were living beyond our means. She and her husband had read Dave Ramsey’s Total Money Makeover. She recommended it to me, and I remember brushing the idea aside. Thanks, but no thanks. I was afraid to take on our financial problems because I didn’t want to give up our lifestyle. I remember thinking, We go out for pizza every Thursday night. I like that tradition, and I don’t want Dave Ramsey to make me stop doing that. Ridiculous, I know. But that is where my thinking was at that time. My thoughts about money were so flawed and had been my whole life.
After another stressful month of figuring out how to buy groceries after our out-of-control debt payments, I finally sat down and read the book. I think I finished it in two sittings. I was obsessed. It was funny. It was real. It was everything we had been going through, and it gave me hope. We weren’t the only ones, and it wasn’t impossible to change our situation. We immediately started on Dave Ramsey’s “Baby Steps.”
Step 1 – Save 1000 for an emergency fund. (We did that one quickly. We stopped spending and we sold some stuff. We had lots of stuff to sell.)
Step 2 – Pay off debt (except for the house) using the debt snowball. In Dave’s method you start with the smallest debt first. You start by making a budget and putting anything extra at all toward the smallest debt. Once that debt is paid off, take whatever you were paying toward that and tackle the second smallest debt, and keep following that pattern. This step can take a long time. And when you make your budget, you pull out cash and put it in envelopes for expenses. No credit cards allowed. It is much harder to overspend when you’re using cash. There is something about handing over the money rather than just swiping a card.
My ex-husband and I never made it through Step 2. The stress of being in crushing debt for our entire marriage and other issues had caused problems that we couldn’t overcome together, and after being married for 12 years, we got divorced.
It was a soul-crushing, heartbreaking experience. We divorced civilly, though. We were both committed to protecting our daughter in what would be the most difficult time of her life at that point. We got a 200-dollar divorce. We did all the paperwork ourselves and filed it at the courthouse. No attorneys were involved, and we did not plan to exchange money. I kept my retirement, and he kept his. We split time with our daughter 50/50, so no one would pay the other child support. We had also just completed bankruptcy (not part of the Dave Ramsey plan), so most of our debt was gone except for our student loans, and each of us had a car payment. We split the tangible items, and it was all done, except for our student loans. Since we had consolidated those, we could not separate them, so we figured out which percentage of the payment was his and which percentage was mine and we continued to pay that way until I paid mine off when I turned 40. Then he finished paying his off when he turned 50.
When I married for the second time, I was determined to never make the same financial mistakes again. When we got married, my husband Hank and I both had some debt. He had a car payment and so did I. He had a little credit card debt, and I still had my student loans. When we got married, we continued Dave Ramsey’s baby steps.
Step 2: Pay off debt except for the house. (We paid off our small debts first, followed by his car, then my car, and then finally my student loans. We were debt free by the time my daughter completed 7th grade, so this step took us about five years.)
Step 3: Fully Funded Emergency Fund: Dave recommends having three to six months of expenses in savings for emergencies. (We completed this step.)
Step 4: Maximize Retirement Savings – Dave says you should contribute 15 percent of your earnings to retirement. (Our teacher paychecks are set up to do that automatically, so we were already doing that.)
Step 5: College for the Kids – (This is where we are! From her 8th grade year on, we put 1000 per month into an educational savings plan for our daughter. We didn’t exactly follow Dave’s plan here. He says to only pay for in-state college. My daughter goes out-of-state, but she qualified for an exchange program between states, so she does not pay full out-of-state tuition. Dave also says to only pay for four years. Our daughter got her English degree in four years but needs a fifth year for a teaching certificate, so we’re ending up paying for a fifth year. Good thing we only have one kid! We’re almost there.)
Step 6: Pay off Your Mortgage (In 2019 we purchased our dream house. We were able to put 25 percent down and take out a 15-year mortgage just like Dave recommends. Dave also recommends that your mortgage payment not exceed 25% of your take-home pay. Ours is about 35% which is why we are house poor right now especially while still paying for our daughter’s college. That is about to change, though. We inherited some money from my mother-in-law when she passed. That will make a large dent in what is left of our mortgage but not completely pay it off, but it will cut several years of payments off if we continue to make good decisions and put as much as we can toward paying it off early.)
Step 7: Build Wealth and Give (The best step. We’re getting there!)
So, Dave Ramsey has inspired me. We haven’t stuck with his teachings 100 percent of the time, but we’ve followed them pretty closely. My husband and I just celebrated our 13th wedding anniversary a few months ago, and in that time, we’ve completed steps 2-5 (almost) on his seven-step plan. The last two steps will be the most fun. I look forward to the day we make that last mortgage payment and when we can give generously and enjoy our financial security as we get older. We’ll travel more, have money to help our daughter out sometimes (although if she’s learned from our mistakes and hard lessons, she won’t need our help much), and when we’re ready, we can retire and enjoy that retirement.
Without the Dave Ramsey plan, I’m sure I’d be stuck back in that endless cycle of debt. I’m so glad my best friend saw through my showy spending and recommended his book all those years ago. Reading Total Money Makeover was the smartest money decision I ever made, and I recommend it to anyone who feels overwhelmed by debt. It is possible to change that problem, and when you start on this plan, you will immediately feel relief. And the surprising thing is, when you finally go on a budget, you’ll feel like you have more money because you are in control of it.
And you know, we’ve done a lot of living while on the Dave Ramsey plan. Once we got through Step 2 of paying off debt, then we started taking family vacations once a year. We went to London, Italy, Nashville, sent my daughter to Spain on a school trip, and we all went to New York all before she graduated high school. Now that we’re college parent poor at the moment, we’re back to no vacations except to visit my daughter, but we’re about past that hurdle of paying for college too. And we’ve done it all with cash, and life is more enjoyable that way. It can be done.