Laurie and I are in week 4 (about to attend week 5) of Dave Ramsey’s Financial Peace University. Our church is hosting the event for all of its members (and the general public) and has been urging all of us to attend so that we will find financial peace to help prevent divorce (money problems are the #1 cause for divorce in America) and serve the Lord more freely. It’s a great program on how to get your finances in order and grow to a point where you can “Live and Give like no one else”.
Laurie and I were already using a pseudo envelope system to manage our budget and finances through an online tool called NeoBudget. That was working pretty well. We were managing things, but we’re just now recovering from many years of hard times. Dave Ramsey’s program is awesome. It’s a little hard to get used to because he asks some very hard things (cut up your credit cards in front of your group in class), but it’s worth it (we still didn’t cut up our credit cards…yet – sorry Dave).
NeoBudget treated everything like an envelope and you managed “virtual” envelopes on the web that represented different categories. Then, you could create a budget that let you break out different budget items into the various envelopes. When a paycheck came in, it would use the budget you created to disperse the money into the envelopes based on what you assigned it to in the budget. Then, when it was time to pay bills or buy groceries, you simply took the money out of the envelope.
While it was a dramatic improvement over Quicken, it wasn’t exactly what we needed. It wasn’t until we started Dave’s Financial Peace University (FPU) that we found the perfect way to budget…the “every dollar” budget.
Basically, you create a budget every month that accounts for every single dollar you plan to make and spend that month. Then, at the end of the month, if there is any money that you didn’t spend in a particular budget category (I am reluctant to use the term “extra money” because that implies you can do anything you want with it), you apply it to one of 7 “baby steps” that you are working on:
- Save $1,000 in an emergency fund
- Pay off all of your debt using the “debt snowball” method – pay off your lowest balances first, then apply the payment from them to your next highest balance, then apply all of that money to the next highest until you pay off all of your debt
- Add to your emergency fund enough money to cover 3-6 months of expenses (not income, but expenses)
- Save %15 in a retirement plan
- Create a college fund for your children
- Pay off your house
- Build wealth and give to others
Of course, the baby steps aren’t just met by using the leftover money from the month, they should also be your highest budgeting priority for your income after meeting your basic needs. Dave calls the basic needs the “four walls” – Food, Shelter, Clothing, and Transportation. Laurie and I both agree that he needs to add a fifth wall – Health. As you progress through the baby steps, you gain more and more money to work with and your finances start to stabilize. You can then achieve financial peace the way God intended.
I believe in Dave’s plan and Laurie and I are dedicated to doing it his way, even in areas where we disagree. I think the most controversial topic so far has been the debt snowball as it seems counter-intuitive to logic – wouldn’t it make more sense to pay off the debt with the highest balance and interest rates first? Upon further reflection and study, our group has agreed that the snowball method is actually the best way because it gives you a sense of accomplishment early on in the process.
My dad posted a great website on my Facebook page that is 100% compatible with FPU. In fact, it’s a Dave Ramsey website, so it’s perfect for use with FPU. It uses the budget form in the FPU workbook and integrates with your bank to retrieve your transactions. The website is EveryDollar.com. We’ve stopped using NeoBudget and switched to EveryDollar.com. We’re finding that it’s much more realistic as not everything is an envelope. In fact, it doesn’t use the envelope scheme as the basis of the process, it uses the budget as the core. And, since it’s an every dollar budget system, it helps you account for every dollar you plan to spend and makes it easy to create a new budget for each month based on the previous month as a starting point. For budget items that span multiple months or for budget items like saving for a new car, FPU (and EveryDollar.com) teaches you to create a “fund” that carries a balance from month to month. EveryDollar.com makes it easy to convert a budget item to a fund so that you can add and remove transactions from it. Once you have a budget worked out, you can withdraw cash from the bank and put it in envelopes for use in things like “pocket money”, or groceries. Dave recommends using cash for things like groceries and gas because he wants you to “feel it”. If you use plastic to pay for everything, you don’t have an emotional reaction.
EveryDollar.com also handles your debt perfectly. Each month, you enter the new balance of your debt and set the amount that you plan to pay during that month. As you pay it down, EveryDollar.com will show your progress on the budget sheet.
It also has a great pie chart and category list that shows the percentages of each budget category. That makes it easy to follow Dave’s guidelines for how much you should be spending in a given category. It took Laurie many hours to get our percentages worked out (she’s the nerd, I’m the free spirit), but we now have a working budget that accounts for every dollar. Since it’s not based on what you have, but rather what you plan to spend, it’s less tempting to “borrow” money from one envelope to pay for a shortage in another (I’m guilty of stealing money from the car repair and grocery envelope to pay for a negative balance in the dining out envelope). By putting a hard (but realistic) number in the budget items, it’s simple to plan for the future.
We’re still working on the first few baby steps, but we’re excited about the future thanks to FPU.
I highly recommend EveryDollar.com to anyone who wants to get a handle on their budget.
I also highly recommend Financial Peace University to anyone who wants to feel good about their money situation.
Thanks to Dave, we’re dedicated to “living like no one else, so we can live like no one else”.