Posted by: Brookhaven | July 1, 2008

The Plan

Well July 1st is already here and it’s time to officially start the plan. In reality I started creating and living the plan a week or so ago but I like dates that are easy to remember and the math is easier to work with as well by starting the counting today.

After reading Dave Ramsey’s book, Financial Peace Revisited, I have decided that I really like his baby steps for the most part and his plan seems fairly simple which is important to my success. I am going to modify his plan slightly though to better fit my needs.

Step One: Budget, Budget and more Budget!

For me the most important step right now is the budget. The only way to get out of debt is to spend less than I earn and the only way to do that is by sticking to a budget.  This will also be the hardest step for me. I shredded several credit cards and froze the rest so new debt is really not an option. I travel occasionally for work and am reimbursed for everything so I like to float the expenses on a card so I can’t shred them all.

I am using Mvelopes to create and manage my budget. I have to have things that I hate simple or I will not do them and I hate budgets. Mvelopes is pretty straight forward and I love GUIs so that helps. I’ll post more about my experience with Mvelopes after I have a few months of real experience.

Step Two: Create an emergency savings fund of $2000.

Dave recommends $1000 but on my income, about $100k, that doesn’t  seem like enough. $2000 should cover most things if the need ever arises. I also like having a cash cushion that is there to avoid any new debt. I’m currently looking at the best place to stash this cash. Several bloggers are using ING due to the referral bonus and the decent rate. I will likely do the same but am open to options. I like the idea of keeping this money separate from my regular financial institution so it is a bit harder to get my hands on should the urge to spend it arise.

Step Three: Eliminate Debt using the debt snowball

I waffled a bit on Dave’s recommendation to payoff all debt before saving living experiences. 3-6 months of living expenses would provide a huge amount of financial stability and peace of mind. I originally thought I would save up the expenses before paying off the debt until I ran the numbers. 6 Months of living expenses for me would be about $39,000 and at the $200-300 a month available to save for this it would take 195-130 months to save, not accounting for interest. Obviously unrealistic. By eliminating all debt but my mortgage my 6 month expenses only need to be about $22,000 and instead of $200-300 a month I will be able to allocate about $2,300 each month towards this goal which only takes 9-10 months instead of 9-10 years! Talk about a wake up call. This is a powerful example of being enslaved by debt. My job and career field is pretty stable so I am comfortable paying off the debt without the safety net the expenses fund provides. Besides, I have never worried about that yet right?

Step Four: 6 Months expenses in savings

I would feel the most comfortable with 6 months of expenses saved up. That would buy me plenty of time to find the right job and not be forced to take the first one, or two, that comes along. This will be a significant amount of money so I’d like it to work for me while it is waiting. I will need to do some serious research at this point to find the best option.

That’s all the steps I am going to outline for now. It will be several years before I complete step four so I will worry about the last steps a bit later on. I like Dave’s other steps and will likely follow them but I will cross that bridge when the opportunity presents itself.



  1. Sounds like you’ve got a good plan laid out! Like you, I keep one credit card around for business expenses and I only use it for those expenses for which I’m reimbursed 100%. I only carry it when I’m traveling or doing work-related stuff.

    I kept a couple of my cards available until I had the full “baby” fund funded. At that point, I shredded them… I think you’ll find that you start looking at money and opportunities differently the farther you get into this plan: you start thinking outside the box a little bit about getting money when using credit is no longer an option.

    My .02 re: where to keep the “baby” emergency fund:

    General widsdom is that you should keep part of your emergency fund easily accessible, and by that I mean somewhere you can get to it within hours, not days. I have a savings account with Ing and I think it’s great, but if you really need your emergency stash quickly, having to wait the two or three days for it to transfer to your bank account will hamstring you a bit.

    My emergency fund (just over $1000) is in a basic savings account at my local credit union. I use another regional bank for my day-to-day banking and my only access to my emergency account is through an ATM card (it has no debit card features) or by going into the bank itself.

    There are varying theories about this – some people recommend keeping the first $1000 of your emergency fund as cash; I’m not sure it would remain in tact if I did that… 🙂 So know yourself and figure out the best way to keep it as liquid as possible.

    Ultimately, you’ll have to find what you’re most comfortable with on the amounts: I started by saving $1000 and then started paying off my debts because I was anxious to get going and I wanted them GONE. I was so used to not having any savings and living paycheck-to-paycheck that it didn’t seem like a big deal to only have $1000 in reserve.

    Now, 10 months later, I’m starting to feel uneasy about having so little cash sitting in the bank, so I’m saving up a full month’s wages so I can have a bit more cushion. Once that’s complete, I’ll start living on the previous month’s income, which is one of the principles taught by the YNAB folks.

    Good luck! (And, err… that was more like $2.00 than .02, so I’ll shut up now. 🙂 )

  2. Best of luck! Spelling out your problem, and potential solutions, is the first step to success.

    May I make a suggestion? With an income of $100k, you might not have to focus entirely on debt elimination or savings. Try splitting your goals in half, maybe dedicating 60% of your snowball to debt and 40% to savings, or even 75/25.

    Every year that you chip away at debt, but ignore your savings, is another year without the benefit of compound interest. Why work so hard to eliminate debt if you’ll never be able to slow down to ENJOY your efforts?

    I was enthusiastic about paying down our mortgage (our only debt besides student loans), until I sat down and realized my long-term goal was a chance at early retirement. I don’t stand a chance at retiring in 20 years if I spend the next 15 years throwing every extra penny at our mortgage!

    p.s. Thanks for the link! I feel honored to be listed with such great finance blogs.

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