What to do with that Snowball

This is where I go all Dave Ramsey. I'm a firm believer in his process as it has helped us pay off almost $8,000 in debt in a little over 6 months. I believe the most important part is having an emergency fund. It has saved my family many times since we established one and just knowing it is there gives me peace of mind. Your emergency fund should start out with at least $1000 (depending on your income this may be more or less but generally speaking $1000 does the job). This isn't for an "OMG I have to have that purse" emergency, or that "I want to go on a trip with my friends to Vegas sooo bad" emergency but a "My car broke down and it's going to cost $500 to repair" emergency, or the "Little Billy fell out of the tree and broke his arm" emergency. Sure you could put these things on a credit card no problem but why create new debt if you don't have too?!? Debt is for suckers! You're smarter and better then that so let's get rid of the "Charge it" mentality right now. Say this out loud with me: It is ok to pay cash for things. Repeat it till it sticks folks! The world will not stop turning, hell will not freeze over and you will not drop dead if you pay for things with cash. So until you have $1000 in that emergency fund all of your snowball should go into a savings account that is NOT to be touched for anything but a true emergency. To establish our emergency fund I worked lots of overtime and my husband did extra hourly work. Working together we had our emergency fund fully funded in a month. Now if you don't have much wiggle room in the budget, make room. Are there any expenses you can give up (cable TV, internet, movie/video game rental subscriptions or cell phones), can you work overtime or get a second job, or maybe have a garage sale or list items in the classifieds or on Craigslist. There are ways to make wiggle room but you may have to get creative. Dave Ramsey calls this Baby Step 1 (abbreviated BS1) but I call it insurance! Keep in mind anytime you dip into the emergency fund you need to replace what you have taken ASAP.

Now that you have your emergency fund in place, what's next? Remember how I told you to list your debts in order from smallest to largest? Well let's get out of debt starting with your smallest debt first. At the end of the month take your snowball and make an extra payment to the smallest debt until it is $0. Now take the amount of the monthly payment from that debt and add it into your Snowball and apply that to your next debt on the list. For example we had a student loan with a balance of $3200 with a monthly payment of $75, our Snowball amount was $500, so at the end of the month we made an extra payment of $500 until the loan was paid off. Once the loan was paid off we had $575 in the Snowball which was applied to our next debt on the list. This process can be slow and tedious but paying off your debts smallest to largest helps you to see your accomplishments while growing your snowball more rapidly. You can make this process go faster by incorporating the income boosting techniques I pointed out to make wiggle room to establish your emergency fund. I regularly work overtime and my husband works hard to earn more then what we have his income budgeted as. Here comes another one of my warnings: You have to really want it! This won't work if you just try to half ass it, as my father would say. Do this for yourself, for your marriage, for your children. Do you want to be able to help little Billy with college? What about being able to retire while you can still enjoy life? Find your motivation and go for it! Dave Ramsey calls this Baby Step 2 (BS2) I call it overwhelming but worth it! Something to think about here is the option of including your mortgage in the debt category and working toward paying it off early. However if you're like me this is more debt than your little heart can handle so you don't have to think about that yet which is fine.



We've covered a lot of ground and I am sure your head is spinning so I will stop here for now. In later issues we will cover investing for retirement and savings for children's education but for now focus on establishing that emergency fund, paying off those debts and investing in an extended emergency fund. Have faith in your self and make your money work as hard as you do!


-Valerie