Straying from Dave’s Plan

On Wednesday I wrote that I’m reading Dave Ramsey’s Total Money Makeover (again), and using it as a basis for my own financial strategy. Early on in the book, Dave makes it clear that his plan works in every situation, regardless of how special you may think your situation may be. I get what he’s saying. And yet, I’m not going to follow his plan exactly.

The House: First off, I’m delaying really starting the plan because I’m trying to sell my house. I’m setting money aside for repairs, and am going to continue setting aside money until the house is sold. Selling a house means I’ll need to consider Realtor’s commissions, closing costs (in my area the seller almost always pays the closing costs), and unknown other incidentals that may come up along the way. I’m not sure that Dave would 100% disagree with this decision; he does recommend selling everything you can to start with. Once the house is gone, I should be able to cut my expenses considerably. And, it will give me some flexibility, should a better job offer come along, etc.

The Car: Dave Ramsey is famous for advising people to “Sell the car!” He believes in buying inexpensive, used cars with cash. When I sold the Nissan and bought the Honda, I was trying to follow the plan. But then I ended up selling the Honda and getting a loan for a brand new 2014 Ford Escape. I know, I know. But honestly, I don’t regret it. Following my plan, the car will be paid off in 31 more months, maximum. I plan to keep the car for at least 10 years, but probably closer to 15. And that car has been a life saver this winter. The Nissan nor the Honda would have fared well, with the temps staying below freezing, and 50+ inches of snow so far this winter. It may not have been the most financially savvy decision, but I don’t regret the car.

Dave breaks his plan down into “baby steps” that should be followed in order.

Baby step #1: Build a $1,000 emergency fund. Except in very special circumstances you should have no more, no less. This is a temporary fund, as later in the program you build a 3-6 month fund. I’ve already built my emergency fund, which currently has $3,000 in it. Dave would tell me to keep $1,000 in the bank, and put the other $2,000 towards paying off my debt. Right now, I’m just not comfortable doing that. I’m gearing up to sell a house, and move. Who knows what kinds of expenses I’ll face over the next year? Maybe once the house is sold, and I feel more comfortable with my living situation, I’ll be more willing to cut back the temporary emergency fund. But for now, I’m keeping the $3,000.

Baby step #2: Pay off all debt, excluding the mortgage. That’s my plan, once I have everything figured out with the house. Technically I could pay off my student loan today (~$6,800), if I cut my emergency fund back to the $1,000 and threw everything else I had in the bank at my debt. This would shave a year off the 31 months I estimate it will take to pay off all of my debts. Trust me, it’s tempting. That being said, I think getting out from under the house will put me in a much better position overall.

Stop 401k contributions until Baby step #4: In Dave’s plan, retirement contributions don’t start until step #4. He says not to take anything out if you already have a retirement account, but to stop contributing any more. Even if that means losing matching funds from your company.

That’s a tough one. On the one hand, I get what he’s saying; if you’re sticking to the plan, you’ll be back to saving for retirement in no time! And then you’ll be really able to ramp up your savings! At my company they contribute 6% to my plan, whether or not I contribute anything. And it’s 100% vested. So I wouldn’t be losing any “free” money by halting my contributions. That would be ~$54 each week I could be putting towards debt. Honestly? I’m wavering on this one. But I kinda agree with other experts here; with compounding interest, it’s really hard to catch back up on those missing funds.

Conclusion: If I followed Dave’s plan, including the emergency fund, debt repayment, and retirement savings, I could be done with my debt (except the mortgage) in 17 months, as opposed to the 31 months I’m calculating now. I have to admit, it’s really tempting to switch gears. But then, I’d still have the house 17 months from now. The house that is currently sitting empty. It would still need repairs, plus probably additional repairs. Nothing is certain right now, but I think getting out from under the house will free up more of my income, plus give me more flexibility to be able to take advantage of more opportunities.

I don’t know what the future holds. Maybe I’ll actually make some money off of selling the house, and end up being out of debt much sooner than I expected. Maybe I won’t. Maybe I’d follow Dave’s plan exactly, and be out of debt much sooner, and be able to sell the house then. Maybe major damage would occur to the house in that year and a half, or I’d have to pass up a great job opportunity in another area, and I’d come out behind. There’s no way of knowing for sure which route would turn out the best. The most I can do is decide on a plan, throw everything I’ve got into it, and hope for the best.

Hard work and careful choices will get me there, no matter what path I choose.

– Cindy W.

Comments

  1. Lol. I don’t think you are following his plan AT ALL so wouldn’t say you are straying from it.

    That’s not an attack. You have a plan and that’s what important. Maybe his plan just doesnt work for you (emotionally). As long as you stick to whatever you come up with (and don’t keep adjusting it) then you’ll be fine.

    I’m a believer that not everyone is ready to be gazelle intense. And whether you get out of debt in 6 months or 1.5 years you are better off than the person that stays in debt forever…so whatever road you’re okay with. Not everyone sees it as a race.

    Good luck! looks like you have solid grasp of your situation and you have been making positive progress over the years!

    1. You’re certainly entitled to your opinion. I think it’s a stretch to say that I’m not following Dave’s plan AT ALL though:

      1) I haven’t used credit cards in years. I have a zero sum budget, and plan for all of my expenses. I cut all of my expenses down, and am looking for ways to trim them further (like selling the house). These are all things that Dave covers in all of his books.

      2) I am following the baby steps. I setup a small temporary emergency fund, and am snowballing my debts. Even Dave allows for some adjustments: In Total Money Makeover, he encourages people in unstable work environments to up they’re temporary emergency fund until things become more stable. I’d consider my job unstable at the moment. And one of the examples he uses is of someone who sold their home in order to put themselves in a better position financially, so they could pay off their debts quicker. This is also what I’m doing. He talks in his other books about getting your home ready to sell. Even Dave understands that sometimes you need to put a little time and money into a home in order to get it sold.

      I’m putting my gazelle intensity into selling the house right now, which I think is a great plan. This was never a forever home for me, and now that we’re two people with a dog, a tiny house doesn’t work. It would be ridiculous to keep paying for a house that I’m not even living in.

      I think the overall plan is going to stay the same (sell house, payoff debt, save for future). But yeah, I’m going to keep adjusting things along the way. I’m continually finding new ways to save and make money. I expect my life to completely change in the next 5 years. Marriage? Kids? New job? Moving to a new state? It’s all a possibility right now. I just don’t know exactly what the future has in store for me. So I’m going to keep adjusting and changing, trying to create the best life for me, and take advantage of the opportunities available to me. Change isn’t a bad thing!

  2. Hi I am a long time follower of dave he has an app that let’s you listen to his daily radio show for FREE. On there if you listen long enough he has advise on if your car is out of line or not. Now he wouldn’t have said you should go take out the loan. But he does have a formula as to if you should keep the car or not.

    Dave’s thing on cars is that it must be paid off in three years or less. You must really like your car. It must not be more than (I think) it’s a third of your yearly income. If you can’t get your snowball rolling he says sell your car if it is way out of line. You like your car, it will be paid off in 31 months and your snowball seems to be rolling fine. Depending on how much you make a year v.s. Price of car in your situation would dictate if you should get rid of it or not.

    As for the house dave would also say push pause on your snowball not minimum payments and stock pile your “war chest” for the sale of your house. If you don’t use it all press play and dump it on the debt. If you don’t and there are extra fees where are you going to get the money from? Take out a loan? HECK NO.

    A slightly larger emergency fund of $3,000 is ok to you own an older home. dave just doesn’t want you sitting there with 30,000 in the emergency fund and you sitting on your but. “Having a thousand dollar emergency fund puts people uneasy it is that fear that makes the gazelle run as fast as it can to escape the cheetah.” If you are still kicking it with extra job and that drive he would be ok with a slightly larger emergency fund. On his radio show he recommended to one woman to have one month income saved as her “baby” emergency fund as her job situation was so unstable.

    As for stopping all retirement contributions I have to agree with dave here. It adds extra fire to get the debt paid off ASAP. It really helped us. That being said my husband kept contributing 4% because his company would put in 8%. We could not pass that up and will be done in a year anyway. Not sure what your interest rate on your debt is but it easily could earn you more by not having debt with 20% interest. Than you can earn in the market. And you can make up for lost time by putting your snowball into catching up on step 7.

    Kudos to you on not using credit cards.

    1. Thanks Kristan for your feedback!

      The house right now really is my biggest issue. I’ll be so happy when I can get out from under it and really start making progress. I’m definitely building up my “war chest” to put the house on the market. It’s also part of the reasoning behind the larger emergency fund. I have some hope right now that things will work out in my favor.

      The car is on the edge of those guidelines. I do like it. And it will definitely be paid off in less than 3 years. The income guideline is pushing it a bit. Although, if you consider “household income”, I’m fine there as well. I’m just not really comfortable considering us a “household”, since we aren’t married.

      My debt rates actually aren’t too bad: 5.27% on the car, and 3.88% on the student loan. That won’t slow me down from paying them off though! I haven’t written about it here yet, but I did decide to suspend my 401k contributions. I’ll still get the 6% company portion, so it’s not like there’s nothing going in. And, after accounting for taxes, it’s enabled me to squeeze an extra $40 a week into my house “war chest”.

      1. Dave wouldn’t count your boyfriends income as family income until you are married, and when you do combine incomes you also combine cars and any other thing with a motor in it. That total of all vehicles is needed to be under the 1/3 of your family’s yearly income. And unfortunately for your family that would include the sons truck. I think you would be better off figuring out single. That being said the car is close to the third and you love it so I say keep it if you are willing to work hard and pay it off early.

        1. My gut reaction was “But his son’s an adult!” But I guess we wouldn’t be having the relationship issues we are if his son was acting like an adult. *sigh* And I don’t even want to think about all the “things with motors” that the boyfriend owns. You’re right, it’s best to figure it on my own for now.

          1. His son may be an adult (age wise) but the rule stands also for anything you (he) has consigned for as well. Dave gave great advice to a woman who consigned for her mother, got her debts paid off but then her mother stopped making payments. So she was liable the bank would come after her if the other person doesn’t pay. So dave put the woman back on the debt snowball for the car. (They traded cars as well but that took some convincing, after dave said take the car away and sell it if her mother was going to miss behave.) dave radio show is also on Iheart radio, and he has a free app that let’s you see his show for free daily and audio archives as well. It has been good for me to know “what dave would do” by listening.

            1. When his son bought the truck, he was making enough money that he didn’t need a cosigner. The boyfriend isn’t financially liable for the truck, but he feels emotionally responsible. He seems to think if the truck gets repossessed, HE’S taking it away from his son, by not doing anything to stop it.

              The student loan for his other son is a whole other ball of wax. I completely agree with everything Dave says about cosigning. I know first hand the kind of damage it can do to relationships. Which is why I would much prefer we paid for his son’s education outright, rather than him cosigning (or taking out) some pretty serious loans.

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