Thu, 19 May 2022 | Serving Your Family
Our Get out of Debt Plan: Intro
Confession: I am not out of debt. But we do have a plan, and I want to share with you how you can get your own plan. I want to inspire you that if you have even $50/month (and you probably do!), you can start the process. Every story is different, and this is ours. If you’re willing, I would love for you to take this journey with me! I’m going to walk you through our steps of planning and progress, and I hope you’ll share yours as well.
When you have a mortgage (or other large debt), seeing the end of it can start to look like the pot of gold at the end of the rainbow—something you spend your whole life chasing after, but never find.
When I first started thinking about living on a budget and paying down debt, I researched a lot online. I stumbled across Dave Ramsey’s site in the midst of this research, where I read stories of doctors, lawyers, and families with two fat incomes. People who were making an average of $100,000+ each year. I read stories of people who inherited $20,000 unexpectedly from long lost relatives, people who had received a new car as a gift, or in some cases even free housing. I read of people who had $35,000 items sitting in their basem*nt just waiting to be sold for extra cash. They had large resources and many areas in which they could easily cut back.
We didn’t have any of that. We already had a bare bones budget. On his site with all those high-income debt free stories, Dave Ramsey says that becoming debt free is for everyone and not just the rich, so I sent an email through his site with our numbers, hoping he could refer me to a lower-income family who had done it, or give us some tips I might be missing. I never received a reply.
We were stuck, and each new success story left me feeling more disheartened. I could easily see how people making $100,000+ per year could dial back spending and get out of debt. But what about us? My husband’s salary is around $36,000/year before taxes, much less than all the other stories we were reading. Despite seeing the repeated message that “anyone can get out of debt,” I continued to only see stories of people with double our income.
Despite being discouraged, I continued with our frugal budget, and maintained an emergency savings account of around $1000 (funded mostly by tax refund money). I thought that was the best we could do and celebrated the fact that we now made our meager budget stretch enough for necessities. This continued for about 3-4 years, but I lost hope of getting out of debt, because we were already living with every dollar accounted for.
Throughout this time, finances became a source of constant tension in our family. My husband comes from a family that loves credit cards and never had to pinch pennies. He’s never really had to consider his purchases, so getting used to a frugal lifestyle on a budget was an adjustment for him. However, when it came down to it, numbers don’t lie. Our bills ate up most of our paycheck and we were left with precious little to live on after that. There was (and is) no wiggle room.
We got a breakthrough one night when I was lying in bed, unable to sleep, and pondering our budget. After crunching some numbers in my head, I realized that with SMALL, affordable changes in our budget, we could be debt-free (including our mortgage!), in about 6-7 years! That is what I’m going to share with you in this series, how small affordable changes can make a big difference in debt reduction.
So, for anyone who ever wished for a story of how a lower income family can get out of debt, I’m excited to share our journey with you!
(Disclaimer: I am NOT a financial advisor. I am just a mom with a family living on a single income and I want to encourage others that it is possible to live on a tight budget and still have your needs met and be content…and get out of debt! I really hope that our personal budget information will help someone.)
Continue reading here: First Day of School!
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FAQs
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
What order should you budget in Ramsey? ›
What expenses should I budget for first? Cover your Four Walls—food, utilities, shelter and transportation—before you budget for other essential expenses and fun.
How to budget when you're broke? ›
How to Create a Budget With a Low Income
- Step 1: List your income. Every budget starts with your income, no matter how much you make. ...
- Step 2: List your expenses. ...
- Step 3: Subtract your expenses from your income. ...
- Cut out extras. ...
- Skip the restaurants. ...
- Don't buy new clothes. ...
- Sell your stuff. ...
- Save money on expenses.
HOW TO MAKE A BUDGET:
- Write down your total income for the upcoming. month. — This is your take-home (after tax) pay for both you. ...
- List ALL of your expenses. — This includes regular expenses (rent or mortgage, electricity, etc.) ...
- Subtract your expenses from your income. This. ...
- Track your spending throughout the month.
The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.
Is $4000 a good savings? ›
Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.
What is the 80 20 rule Dave Ramsey? ›
There's an 80-20 rule for money Dave Ramsey teaches which says managing your finances is 80 percent behavior and 20 percent knowledge. This 80-20 rule also applies to constructing a healthy life. Personal wellness is 80 percent behavior and 20 percent knowledge.
What are the 4 walls of finance? ›
Simply put, the Four Walls are the most basic expenses you need to cover to keep your family going: That's food, utilities, shelter and transportation.
What is the David Ramsey method? ›
The Snowball Method refers to paying the smallest debt first, then the next smallest – and on and on until you are living debt free. Ramsey suggests lining up debts “by balance, smallest to largest,” then paying as much of the smallest debt as possible while making minimum payments on the rest.
What are 6 common budget mistakes you can t afford to make? ›
Failure to Adjust the Budget: A static budget may become outdated as your financial situation evolves. Life events such as job changes, salary increases, or unexpected expenses can impact your financial landscape. Regularly review and adjust your budget to reflect changes in income, expenses, and financial goals.
While there are many different budgeting philosophies, the 50/30/20 rule is popular because of its practicality, flexibility, and effectiveness. According to this rule, budgeting is divvied up like so: 50% of your income goes toward needs. 30% of your income goes toward wants.
How to live off low income? ›
These seven tips may be able to help.
- Understand your current financial habits. Not sure how to start spending less? ...
- Create an effective budget and stick to it. ...
- Look for ways to reduce spending. ...
- Set financial goals for future success. ...
- Save for emergencies or major purchases. ...
- Pay down debt. ...
- Stay aware of lifestyle creep.
Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings. Once you've been able to pay down your debt, consider revising your budget to put that extra 10% towards savings.
What is the average household income Dave Ramsey? ›
“Good income is not a moral statement,” Ramsey explained. “Good income is relative to the average household income in America, which is $78,000 right now.” Real median household income in the U.S. was $78,250 in 2019 and fell to $74,580 in 2022, according to the Census Bureau. "You're not a bad person.
How much does Dave Ramsey say you should spend on rent? ›
You should spend no more than 25% of your monthly take-home pay on rent. Spending 30% or more will mean not having enough room left over in your budget to put toward other important financial goals like saving for a down payment on a home.
What is a 50/30/20 budget example? ›
Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000. 30% for wants and discretionary spending = $1,500.
Is the 50 30 20 rule outdated? ›
However, the key difference is it moves 10% from the "savings" bucket to the "needs" bucket. "People may be unable to use the 50/30/20 budget right now because their needs are more than 50% of their income," Kendall Meade, a certified financial planner at SoFi, said in an email.
What is the disadvantage of the 50 30 20 rule? ›
It may not work for everyone. Depending on your income and expenses, the 50/30/20 rule may not be realistic for your individual financial situation. You may need to allocate a higher percentage to necessities or a lower percentage to wants in order to make ends meet. It doesn't account for irregular expenses.
When should you not use the 50 30 20 rule? ›
The 50/30/20 has worked for some people — especially in past years when the cost of living was lower — but it's especially unfeasible for low-income Americans and people who live in expensive cities like San Francisco or New York. There, it's next to impossible to find a rent or mortgage at half your take-home salary.
