Before I got into budgeting I never once thought about financial goals. We paid our bills, we used credit cards, and sometimes we had “extra” money and other times we didn’t (hence the credit card debt). We were just your typical American family, doing our thing.
Oh boy. Then, I was introduced to Dave Ramsey! Ya heard of him? I have known of Dave for awhile now. He introduced me to financial goals and to the debt free lifestyle.
Creating a family budget is just part of the equation, creating (and sticking too) financial goals is the next step. I know, sounds so boring. But I promise this is a much needed intentional act for EVERYONE!
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You already created your budget, right? If not, check out How to Create a Budget In 4 Simple Steps and then come back here! Don’t worry, I will wait for you.
Now that you have your budget all set, let’s look at financial goals.
Why Is Setting Financial Goals Important?
What would happen if you (or your spouse) lost their job today? Would you be in panic mode or would you be financially stable until you (they) found a new job?
If you said, “panic mode” then THAT is WHY you need financial goals. You need to be in a place of financial stability so when Murphy hits, because he will, you have time to recover without losing it all.
Dave Ramsey’s Baby Steps
Dave Ramsey is a very well known money guru. He has a 7 step program to help you reach financial freedom. Dave says,
“If you live like no one else today, you can live and GIVE like no one else tomorrow.”
These are Dave’s baby steps:
Baby Step One: Save a $1000.00 emergency fund.
Baby Step Two: Pay off all debt (besides mortgage) using the snowball method.
Baby Step Three: Save 3-6 Month of expenses.
Baby Step Four: Invest 15% of income into a pre-tax retirement account.
Baby Step Five: College funding for children.
Baby Step Six: Pay off your mortgage early.
Baby Step Seven: Build wealth and give.
Let me be honest with you for a second. We did NOT follow this plan to a “T” the first time around. We completed baby step one! Whoop, whoop!! But that is where his steps ended for us.
We had credit card debt that we wanted to pay off but we didn’t use his method of snowballing, we paid it off slowly and not very intentionally. It took us about 5 years to pay off $18,000 in credit card debt. The ONE good thing we did take away was to make sure we did not get into any more credit card debt. So we are officially debt free from CREDIT CARDS. We still have debt. I will get to that a little later.
Our FIRST Financial Goals
Goal 1: Pay Off Credit Card Debt - DONE!
Goal 2: Not Get Into Any More Credit Card Debt - DONE!
Goal 3: LIVE WITHIN OUR MEANS - Sorta Done! Let me explain.
We were living within our means, but we weren’t putting a lot into savings. We were just living, not extravagantly but we could have been WAY MORE INTENTIONAL! We “wasted” a lot of money.
My husband was promoted and received a raise, I think in May 2018, around the same time we sold our house. For the past 7 months our finances have been a little crazy… not going into extra debt crazy (expect for that one thing, I will mention later)... just not “normal”.
We were saving like crazy over the summer while living with my dad and our house was being built. We were saving for things we knew we would need for the new house.
We moved into the house, the money was spent (at least we had cash).
Then the holidays hit.
I felt like money was flying out the door left and right, faster than I could keep up with.
FINALLY, January came! Breather. A new year, a new house, and NEW financial goals.
We are getting back on track! Saving for a car! Saving for vacation! Hopefully be able to put a little extra on the student loan debt (because that is the only debt we had left… the never ending black abyss that is student loans).
Financial Goals: Falling Off Track
January 16: left the dealership with a BRAND NEW (new to us) Honda Odyssey.
Legit, my dream van!!
It also came with a shiny price tag, and because we didn’t have CASH we are also now in MORE DEBT!!
Financial Goals: Scrambling To Get Back On Track
January 23: Walked my happy (not so happy) butt into the Dave Ramsey class being put on at our church. This was week 2. I missed week 1 because we were getting a nice new car loan. Which, by the way, goes against EVERYTHING Dave stands for.
Why did I walk into that class. Because I was TIRED of living this way. I wanted so much to pay cash for a car. My suburban was on its last leg and was becoming unsafe. We knew I needed to get a safer and more reliable family car.
OK, listen Sally, I know what you are thinking. You didn’t HAVE to get that van, you could have gotten something cheaper. Yes. I know. BUT honestly, I couldn’t have paid cash for any car at that moment.
How To Create Financial Goals
FINANCIAL GOALS ARE IMPORTANT!!
I think we have that figured out now. Sometimes it takes a few of us (aka ME) a little longer to get the picture. Debt ties you down! We are now forking out over $500 a month in debt payments (not including our house). I know it is small compared to others but this could have been avoided if we would have STUCK WITH DAVE the first time around!
It’s hard. I know! The world says we need this and need that. But the world is in debt! A LOT. OF. DEBT. Most couldn’t handle a financial catastrophe, I am included in that statement. We aren’t terrible with money, but we also aren’t great with it. We have made bad financial decisions and we have made good financial decisions. But the bottom line is, if something MAJOR happened we would SINK!!
Our CURRENT Financial Goals
SAVE $1000 for an Emergency Fund - DONE (Dave’s Baby Step 1)
SAVE $1000 for a Car Repair Emergency Fund - DONE
SAVE $500 for a Health Care Emergency Fund - DONE
SNOWBALL Cell Phones - DONE (Dave’s Baby Step 2)
SNOWBALL Car Loan - Working On
SNOWBALL Student Loan - Future
SAVE 6 Months of Expenses - Future (Dave’s Baby Step 3)
We created a couple more emergency funds than Dave recommends. This was for my own personal peace of mind. I have been through transmissions going out in a vehicle and emergency airplane costs for funerals, $1000 isn’t enough for that. My husband’s car is getting older and will be needing work soon which is why I created the car repair fund. In fact, I had another fund created and saved for, a House Repair Emergency Fund, but we are in a brand new house so my husband said we could put that one onto our snowball this month!
After we complete Baby Step 3 we will move on to Baby Steps 4-7 which can be worked on simultaneously.
Your financial goals may look different than mine. That is OK. I am not saying Dave is for everyone. However, he went from bankruptcy to being a multi-millionaire and he has led thousands to a debt free life. He knows what he is talking about!
Financial Goal Planning
We have our goals. Now we need a PLAN!
I highly recommend checking out my Goal Setting post. It will walk you through 11-Steps to Creating Your BEST Year Ever!! You can use the goal creating, planning and tracking steps to help you with your financial goals!
In lesson 4 of Financial Peace University Chris Hogan says,
“Know your numbers. Know your dreams. Know your PLAN. Build a legacy.”
The first 3 Baby Steps seem impossible at times, Baby Steps 4-7 is the WHY behind the importance of the first 3 steps.
Step 1: CREATE A BUDGET! You need to know where your money is going so you can create a PLAN for it each month. You need to see where your money wasters are and eliminate them. I sit down at least once a week to look over my numbers! I am a little obsessed. If you are married, sit down with your spouse. Have what Dave calls a “budget meeting”. You both need to be on the same page with this.
Step 2: Baby Step 1! SAVE the money you were wasting and start building your $1000 emergency fund. Don’t have any wiggle room in your budget? SELL, SELL, SELL… what can you get rid of that you don’t need?
Step 3: Baby Step 2! List all your debts SMALLEST to largest!!! Take all that EXTRA money that you were using to build your emergency fund and combine it with the minimum payment of your smallest debt. Start paying extra on that debt payment. When that smallest amount is paid off then you rollover (snowball) the whole payment amount onto the next debt. You do this until everything is PAID OFF! If you come up with even more extra money that month, throw that on to the debt payments as well. The purpose of Baby Step 2 is to PAYOFF DEBT FAST(er)!
I know there are situations where you have skimmed the budget so much and you still aren’t able to make extra payments. This is no longer a spending/budgeting problem, this is what we call an income problem. Ever heard the term “Dave job”?
A Dave job is a job you pick up on the side and it’s sole purpose is for the paycheck to go towards your debt payment. I know what you are thinking, trust me, I know. As a SAHM my last thoughts are about getting a job, I am not sure who would even hire me at this point and who will watch the kids? Daycare is EXPENSIVE!!
Maybe a night job? Babysitting? Spouse gets a second job? There are a ton of ideas out there, you just have to look into them and do your research. If there is a will there's a way!
Step 4: Baby Steps 4-7! Invest, college funds, mortgage payoff, and GIVE!
We are still on BS2 (baby step 2) so I can’t really vouch for these steps yet. However, I can’t wait to get here so I can share with you what I have learned through this process.
Currently, it is looking like it will take us close to 4 years to snowball everything. Life happens, so it could be sooner or a little later. This is a journey, and I know it will be full of ups and downs. But this NEEDS to happen for us to have financial peace.
This system has worked for THOUSANDS of people!! You can search YouTube for “Dave Ramsey debt payoff stories” and listen to people who have been in your shoes!!
A few other things to note:
We budget using the 50/30/20 percentage rule. Which I will go over in a later blog post. Dave does have his own set of percentages to consider, but I find the 50/30/20 method way easier to calculate.
We use Dave’s cash envelope system for almost every spending category (besides automatic bill pays taken from our account). A future blog post to come!!
We do have 2 credit cards (Dave says 0 credit cards). I have my main credit card which I use like most would use their debit card. I pay at the pump when getting gas, use it for grocery shopping and when shopping online. One thing I do different is, I still keep within my cash budget set aside in the envelope. I then use that cash to pay off the credit card within 1-2 weeks (just whenever I make it to the bank).
I am also a big fan of shopping at Kohls and I very rarely go there unless I have a 30% off coupon which you can only get and use if you are card holder. However, you can pay off the card with cash right after you use it.
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