“Formal education will make you a living; self-education will make you a fortune.” – Jim Rohn
The Truth: We have just started a major self-education in the area of finances and have started a huge overhaul of how we do things. Like many people we thought we knew what we were doing with money because we’ve had it and used it for a long time. Unfortunately, we really didn’t know anything!
Our bonus book this past month was Dave Ramsey’s The Total Money Makeover (The Workbook- which had tons of worksheets to copy and fill in for assistance) This is a MUST READ, seriously, even if you think you know what you’re doing with your money (like us!) it’s definitely possible that you really don’t.
In this post you will hear from each of us to share our side of what we’ve been through so far, baby steps 1 & 2 – starting an emergency fund, creating a budget, and getting rid of all debt…
MARISSA: When we started our business, finances was the part I knew I’d be handling because I like math and dealing with numbers, but honestly I put it off for a few weeks (ok maybe a month or two) because it scared me. I didn’t know what I was doing and knew that it was going to be a gigantic learning curve for me. The extent of my money knowledge was paying bills online, investing in a ROTH account, and trying to put money away each month in savings – that’s it. We’ve been lucky that we’ve always had enough for what we needed or wanted in our not too outrageous lifestyle, but we haven’t put much thought into the future or into emergency planning. When we started the business it was a totally different playing field because we were dealing with an irregular income. Some weeks our cash flow is big and some weeks it can be zero so we had to learn ASAP how to budget and manage our income. Once we realized that we couldn’t afford a down-payment on a home (our next goal!) we had to get serious.
I heard about Dave Ramsey from a friend and found one of his workbooks at Half Priced Books after trading in a few of my own. I got home and poured into it, soon realizing we were in serious trouble. Not only were we dealing with an irregular income, but a lot of our savings are tied away in ROTH accounts and we didn’t have enough saved for a serious emergency, let alone a home down-payment. Luckily Dave takes it slow, gives you baby steps to accomplish, and taught me a ton as I began actually learning about finances, not just what I thought I knew (which, turns out, was hardly anything!). Baby step #1 was having a $1000 emergency fund. Our money was all over the place in different funds, savings, checking accounts, even different banks so the first thing we did was simplified our finances. We canceled a checking account and 2 credit cards. We now have 1 personal checking, 1 business checking, 1 credit card (hopefully we will get rid of this too, Dave is a big advocate for no credit cards, but for now it seems safe to keep it in the drawer for emergencies) and one savings account that’s divided into a few different sections. (By the way, it really is fun cutting up cards!) We made sure we had our $1000 emergency fund tucked away- not to use – and then we started on baby step #2 – Getting rid of all debt. We had always thought of ourselves as debt free because we paid our credit cards off each month. What we realized was a lot of our money was going towards loans and interest, which Dave also considered debt! In 2 months we scrambled to pay off 2 personal loans, 1 school loan, and sold our car which was financed and costing us about 350 a month plus gas and insurance, not to mention the interest.
Then came another hard part, coming up with a budget we both agreed on that fit our irregular income. It took awhile and every month we still make small adjustments, but after 4 months we finally have a working budget – every dollar is accounted for. We also use a cash budget, meaning at the beginning of each month we take out cash for each item on our budget (except the few that we pay electronically like rent, utilities, insurance) and put the exact cash from our budget into the envelope for that category (ex: clothes). At the end of the month if we’ve run out of money in that envelope it means we wait until next month when it’s filled back up (ex: if we have $5 left and want to buy a $7 shirt we wait until the next month). This part sounds confusing, but once you have your budget it’s easy, just don’t forget your envelope when you’re going to the store!
The best part of the process for me so far is we can officially saw we are 100% debt free! The only bills we pay are for necessities like rent, utilities, and insurance. The rest of our income can now be spent on things we have a cash budget for, such as groceries, dates, gas, entertainment, etc. This baby step was grueling because we had to switch some of our savings over and change some habits to pay things off but we are so happy we did because now we aren’t paying interest on small monthly payments, they’re all gone!
ERIK: BUDGETING FREAKING SUCKS! But….I’m learning that it’s very helpful. Actually, extremely helpful. I didn’t realize how much I was swiping the plastic. I’ve always said the easiest thing in the world is talking behind someone’s back. The second easiest thing is using your credit card. There are zero consequences when you swipe. For the past 10 years it’s been (normal) to pay off the credit card on the 20th of every month. I thought that was a monthly payment that needed to happen. All of a sudden it was becoming (normal) to payoff $2,000 every month. Half the time it was much more than that. What was I getting out of spending that money? I honestly have no idea. Marissa and I have seen some of that spending in useless stuff collected over the years. It’s all in closets, corners, and under the bed. All places that are easy to put things you aren’t using. I started to become a master at collecting. (Much of that excess stuff we actually sold on Craigslist to pay off some of our debt.)
One of the most eye opening days I’ve ever had was when Marissa sat down one day to budget. This was even before Dave Ramsey. That day sucked. We were caught. The numbers didn’t lie. We had a problem. Using our credit card was common. We couldn’t see what we were spending so it didn’t matter, right?
Wrong, we had to take control of our finances. We had to look towards the future. Money isn’t just going to come out of the sink one day when we want to buy a house. We needed to start saving. I could write for another two days about the tips and tricks you can start doing to help yourself. My biggest helpful hint is to BUY The Total Money Makeover. Read it, review it, write in it.
A great quote we try to live buy daily is: “Live like no one else now, and you will live like no one else later”. Put in the effort now and your future will be designed how you’d like it to be.
Happy financing and please contact us if you have any questions or if you’re a month into your budget and you want to rip your hair out. We can relate.
This is how happy we were last week when we sold the car and paid off the last loan to erase our debt!
“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Smith
Even Kiki was excited to say we’re debt free!
“Dogs have no money. Isn’t that amazing? They’re broke their entire lives. But they get through. You know why dogs have no money? .. No Pockets.” – Jerry Seinfeld
Thanks for reading! Hoping this helps someone out there take control of your finances or even inspires you to self-educate yourself in something too.
~Erik & Marissa