For those of you not familiar with Dave Ramsey and his program, I highly suggest you learn more about his Total Money Makeover. Since learning about it 2 years ago it has changed our life and how we view credit and money. You can be wealthy or very well off if you plan right. Dave’s saying is “if you live like no one else, then later you will live like no one else.” Meaning that if you can avoid getting sucked into keeping up with the Jones’ and having a new car and new toys and credit cards, then later you will be living much better than the people still stuck in debt.
We haven’t followed Dave’s plan to a T. I do believe it can be customized based on your lifestyle. If you do follow his plan to a T you will get the best results. We started 2 years ago and have paid off 25k in debt. Which honestly isn’t much at all. We could have paid off much more, but we had a baby and traveled and lived. I’m not too upset, but I know we can do better. We have $14k left to pay off and the goal is to have that paid off by July. Then we are going to start attacking our mortgage.
This is what got me so excited and motivated this morning. Mr. Wright really is a smart guy. I just have to show him WHY my philosophy on finances is right. He wanted a new car. A new fancy car, which honestly we can afford, but why? Why pay that car payment when that money could instead go towards paying our mortgage down? So when I talked to him about putting more money towards our mortgage and how low our loan will be by the time we leave, he was convinced. I used an ammoritzation calculator and if we don’t pay extra on our loan, over the course of 30 years we would pay 150k IN INTEREST!! And that’s with a 4.89% interest rate! Whereas if we pay extra then we will only pay 30-50k over the course of 30 years or so. Oy vey!! Another good calculator to use is an auto loan calculator. Amazing to see how much interest is paid on a car over 4 years. Take that interest and car loan and think about it….that could be money in your bank if you didn’t have a car payment!
So here is our plan, right back on track with Dave:
-Buy a second used car paying cash or mostly cash and having a low monthly payment instead of a new car
-Continue to contribute to 401k
-Put away money into savings
-Have buffer/play money
-Everything else goes to the mortgage
Now we live in Europe. And for the next 3 years we will definitely travel, so we will budget for those trips. But if we can stick to our goal and pay off as much as we’d like on our mortgage than a few scenarios can pan out:
1) We pay our mortgage down enough that when we go back to the states in 3 years we can sell and make a profit of 50-70k (maybe more depending on the market)
2) We pay the mortgage down and refinance to a lower payment, thus keeping it as an investment property and actually making money on it each month
Either way both scenarios are financially smart. I feel like I’m back in Gazelle Mode! (That’s what Dave refers to as being very aggressive about paying off debt and building wealth).
The thing with our country is people feel like credit is a way of life. Instead credit is what holds people back. Each month people’s paychecks are going to bills instead of their bank account. I know there are many different philosophies and practices for financial success. Different things work for different people. What I love about Dave Ramsey and his plan is it is doable! It’s practical and very realistic. He teaches finances from personal experience and he is not corny at all. His story in a nutshell is he became wealthy fron being in the real estate industry and lived beyond his means. Eventually he had to file for banktrupcy and hit his low in life. It is from that experience he learned how to manage money and rebuilt himself…debt free.
His site also offers a huge support system and so many friends of mine follow his plan, so it’s encouraging. We haven’t used credit in 2 years. Everything we buy, we pay cash for and it feels SO GOOD to not owe a bunch of people money each month.
I hope to encourage others to become educated on finances. I grew up thinking credit was a way of life and thinking a car payment was just a normal bill to have. Dave Ramsey really helped change my way of thinking on money and to realize we can build wealth at a very young age. There are many inspiring stories on his website and of people who call into his radio show. I remember one young couple who said they made a combined household income of $80k per year and paid of their new home mortgage of 160k in 3 years. For that 3 years they lived VERY tight. No eating out. Homemade gifts for everything. No trips. Nothing fancy. No car payments. They sold things and every ounce of extra money they got, they put towards their mortgage. They then sold their house for 180k. So after 3 years this young couple in their mid-twenties had 180k cash. Such an inspiring and amazing story. It can be done, but are you willing to sacrifice?