My Journey to Baby Step #1 ($1,000 Emergency Fund)


The Baby Steps (Dave Ramsey) 

In case you don’t know by now, Dave Ramsey is one of those financial gurus I was talking about before. He is all about “gazelle intensity” (paying off debt very aggressively) and he came up with a list of easy instructions on how to become debt free and what goals you should be pursuing along the way to obtain the ultimate goal, financial peace (and wealth). I don’t necessarily agree with everything Dave preaches, and therefore I don’t follow his plan to a T, but I do think that he does have a lot of great advice that is worth sharing. 

Baby Step One – save $1,000 in an emergency fund. Dave says to keep this money liquid (easily accessible), but keep it separate from your checking account (because it will disappear if it’s in with the rest of your everyday money). Dave recommends that you hustle and put together this baby emergency fund right away (like within a month). Everyone thinks it’s pretty hard to save $1,000 in a month (hello, I make $2,200 take home and more than half goes to bills!) but it’s actually not as hard as you might think. Personally, I just pulled as much as I could from my pay checks and then pushed myself to finally get around to listing my old iPhone for sale and surprise surprise, I actually sold it, for $560. All this time, that money was just sitting there doing nothing! The point I’m trying to make is pinch every penny for a few weeks and sell your old crap to get the $1,000 (it will declutter your house anyway, which is always a good thing!)

Baby Step Two – so you’ve finally got baby step one done, whew. So what next? Baby step two of course! Dave Ramsey wants you to really get “gazelle intense” and knock out your debt (except your mortgage). All of your debt. As in, everything. Even those pesky student loans that you’ve had on deferment forever. So, what does gazelle intense even mean? It means that you’re going all out to make paying off all of your debt happen as quickly as humanly possible. You’re going balls to wall to pay off all your debt. Personally, I totally agree with baby step one – I think everyone should have $1,000 in the bank. It’s baby step two that I have issues with. I’m all for paying off debt, but it’s the level of intensity that bothers me (I like to enjoy my life). But I’ll make a whole other post on Baby Step 2 later because I would love to share my opinion and stories on it from my personal debt free journey (trust me, it’ll be worth the read), but now I’m going off on tangents. Baby step two is crucial because if you have an emergency come up like the loss of a job, you won’t have to go in debt to get through it, because you’ll have the cash

Baby Step Three – three to six months of expenses in savings (keep this liquid also). It sounds absolutely crazy to have this kind of cushion. How in the world could I ever save $24,000 on my and my husband’s measly $4,000 a month take home pay? It’s not as hard as you might think once all your debt is paid off! If you’re anything like my boyfriend and I, we are taking home $4,400 (net income) a month between the both of us. $2,900 of that income is going towards bills. About $2,300 of the $2,900 is going towards bills that are debt and the other $600 is going to the phone bill and other household utilities. If all our debt was paid off and we were saving that $2,300 a month, we would be able to save our six months ($26,400) in 11.5 months, not bad. On top of that, Dave says to save six months of expenses not income. Once your debt is paid off, your expenses will be significantly less (between utilities, property taxes, food and gas, we’d be closer to $1,800 a month total, so only about $10,800 total for six months. This means at $2,300 savings per month, we only need to save for about 4.5 months!) Plus, seeing your bank account balance grow is even more rewarding than paying off old bills. Once your debt is paid off, this step is a piece of cake.  

Baby Step Four – invest 15% of income into Roth IRAs or pre-tax retirement. Discussing all of the options for retirement could probably take up a dozen blog posts on it’s own, so we won’t get into retirement account options now, but the point of this baby step is to invest 15% of your household income into retirement. This step is going to ensure that you remain debt free well into your golden years because you can’t live on social security alone, it’s just not enough. 

Baby Step Five – personal development funding. College funding, down payment for a house, etc. 

Baby Step Six – pay off your home early. This one is self explanatory. Pay off your house, early, end of story. This takes most 5-7 years to do. 

Baby Step Seven – build wealth and give. Max out your 401k/retirement in this step so that you can continue to live debt free well into your retirement years. 


The Art of the Zero Sum Budget 

The best way to pay off debt once and for all is to create a workable budget that is realistic and somewhat easy to stick to. Budgeting is going to be hard as first, but eventually it will bring order and financial peace to your life, and trust me, sleeping well at night because you aren’t worried about money is definitely worth dealing with a budget.

The “Zero Sum Budget” is an excellent tool for telling your money where to go (like go pay off debt instead of getting wasted on eating out or spending frivolously!)

So, what is a Zero Sum Budget? Basically you take your net income (for the month, week or bi-week, depending on how you prefer to do the budget. Personally, I prefer to do bi-weekly Zero Sum budgets so that I do one every time we get paid), so take your net income and make a list telling every dollar where to go. It’s easier to show an example than it is to explain it, so instead I’ll share my upcoming Zero Sum Budget for this Friday, 3/31/17:

Income: $2,200
-$500 (House)
-$305 (Credit Cards)
-$50 (Internet)
-$175 (Utilities)
-$250 (Family Loan)
-$326 Verizon
-$159 personal loan
-$250 auto insurance
$435 left after bills
-$100 gas
-$250 food
=$85 to put on the debt snowball

My trick to having a successful zero sum budget is that I double check all of my accounts the day or two before I get paid, that way I’m sure that I don’t miss anything that’s due and there are no unexpected expenses. The mornings we get paid, I go online and pay all the bills so that the money goes where it needs to right away (versus sitting in the account for a week, with the potential to get spent on frivolous things). The point of a zero sum budget is to “tell every dollar where to go.”

The zero sum budget sounds intimidating at first, but it’s really not as bad as it seems! It was really hard the first couple of times that I did it, but now I have no problem with it. I used to feel really uneasy about working it down to the exact dollar, so at first I left a buffer of $300 in the account. $300 is really too much buffer to leave in the account though. Debt free community members who are really good at doing the zero sum budget leave a $10-20 buffer in their account. Currently I’ve been doing the zero sum budget for about three months and leave a $50-100 buffer in my account.

Doing the zero sum budget really does help cut down on frivolous spending. Since I started doing the zero sum budget, I’ve cut down on unnecessary spending by hundreds of dollars a month.

Some people use cash envelopes for categories like food, gas, spending money and household necessities. We personally don’t do cash envelopes because we are very good at keeping track of our spending and bank account. Not everyone can successfully keep track of their spending, so cash works better. A lot of financial gurus claim that the psychological aspect of holding your money in your hand and letting it go makes people less likely to spend. For me, it’s easy to swipe a credit card and not think about it, but when it comes to swiping my debit card, I know that’s my hard earned cash in there and yes I do have a problem letting it go! But you have to do what works for you. If you don’t check your bank account frequently or keep track of what you’ve spent on paper, then maybe the cash envelope system will work better when it comes to the zero sum budget.


How to Become Debt Free

Sorry to disappoint, but there is no quick easy overnight fix to getting out of debt. It’s going to take hard work. You didn’t get into debt overnight and you won’t get out of it overnight either. Persistence is key. 

The first step to becoming truly debt free is to admit you have debt, and that you may have a bad relationship with money. This step is crucial because until you admit that you actually have a problem, you will never be able to actually deal with it and improve. It sounds cliche, but it’s the truth, the first step is actually admitting that you have a problem.

Okay, I admitted that I have a problem with money and debt. Now what? Now you can set your goals and make a plan. Here’s how I set up my plan once I admitted I had a problem with debt and committed to making a change:

1. List names of all debts, categories (student loans, auto loans, credit cards, etc), balances, minimum payments, interest rates and due dates. Do this on paper. Don’t ask me why it helps to see it in your hand writing on actual paper, but it does. Once it’s on paper, put it into a more organized spreadsheet on the computer if you can. When I did this with our debt, I was shocked. I knew we had debt but I just got online statements every month and paid them as they came in. It wasn’t until I put everything down on paper that I realized that our debt was over $100,000 (not including the house). Over $100k in consumer debt people! That is ridiculously out of control!

2. List all monthly net income and sources.

3. Decide if you are going to sell any major assets (cars, investment properties, etc). Post your ads online once you have decided what to sell.

4. Decide how you are going to do your snowball – from smallest balance to largest, or largest interest rate to lowest interest rate.

I need to pause the list here because I need to touch on #1 and #4. Having a 22-24% interest rate on a credit card doesn’t always sink in. Especially since those high interest cards are usually the store credit cards with smaller limits (think Walmart or Target). Instead of only looking at the APR (annual percentage rate), I highly recommend that you look at how much you are actually paying to interest each month and how much is going toward principal. Most if not all credit card companies will show you the amount paid on your last statement and how much of your payment was applied to principal and interest. This was the biggest eye opener for me when I took a look at my Target card statement and saw that out of my $33 minimum monthly payment, $20.89 of that was going to interest! Yes, I am telling you that more of my payment is going to interest than the actual principal balance on the card. That’s right, I am paying $21 a month for $1,000 worth of household crap that I bought months ago and don’t even remember what it all was anymore! I highly recommend getting actual paper copies of your complete statements when doing your master list of debts and balances because then it will be in black and white, right there in front of you. Once you get over the nausea and sick feeling from realizing that you are giving tons of money a month away to these banks, then you can come back and finish up this list!

5. Get your spouse or significant other on board (if you are doing this with a partner) with your debt free goals/plan (trust me, it is so much easier once your significant other is on board! I will make a whole other blog post on how to get your significant other on board with your debt free plan later). Make the commitment to yourselves and to each other to become debt free once and for all.

6. Commit to the journey and set some rules for yourself. One of the most important rules to set is that while on this journey, you don’t charge anything else on the credit cards! Paying them off is only going to work if you stop using them altogether. Cut them up if you have to. I don’t care how you keep yourself from using your credit cards, just do it. 

7. Give yourself a goal date. I hate to call it a “deadline” because it reminds me of work and I hate my job, lol. So we will just call it a goal completion date! (It’s okay if this date changes from time to time.. In fact, it most likely will change because things will come up, constantly. For example, three weeks into my debt free journey, the plumbing under my house burst and I had to replace everything, setting me back $6,300. I paid $1,500 cash that we had saved and borrowed the other $4,800 from a family member because we just didn’t have it, but we sure had to fix that plumbing right away!)

8. Make a budget. Yuck. And stick to it. Double yuck. (More on making a budget later.. See the next blog “The Art of the Zero Sum Budget”).

9. Have an accountability partner. Instagram is a great way to find one if you don’t already have a friend or family member in your life who is ready to embark on the debt free journey with you. I met my accountability partner @debtfreepeach on Instagram and we’ve actually become great friends in the process of pursuing our debt free dreams! It’s great to have someone to share the wins, set backs and your goals with. Having a debt free Instagram is also a great accountability tool in itself. The community is extremely supportive (with the exception of a few cocky ones, who I’m convinced are lying in their posts anyway, lol). A lot of debt free instagrammers post their budgets and updates on their debt balances frequently, so if you find yourself posting your update and your balances increased, prepare to explain! I’ve learned that I actually think twice about buying some things now because I want to be able to update my Instagram and share that I’ve paid something off instead! Everyone in the community is at a different stage in their journey and this group of people has great advice!

10. Calculate the debt free equation and see if it’s working for you. Chances are that it is not working and that’s why you are in debt to begin with. The equation is simple:

Income – expenses = surplus of money left over

If you don’t have a surplus after all of your expenses are paid, then we have found the reason you are staying in debt! When I first wrote down all of our income minus our monthly expenses, I was negative. We were spending more money per month than we were bringing in. No wonder we were in $11,486 of credit card debt! We were using credit cards to pay for paper towels and toilet paper because all of our hard earned cash was going towards living expenses, car payments and credit card payments. (I am happy to say that now we do have a surplus of money at the end of each month, although it is a very small amount).

Most importantly, stick to your plan, but don’t beat yourself up if you get off track from time to time. Realize your mistake, pick yourself up, dust yourself off, and continue on the journey. Realize that it’s not going to be easy. It’s going to take some time, dedication and sacrifice, but you can do it, and you will do it!

Money, Uncategorized

The Debt Snowball

What is the “debt snowball” and why is it important to the debt free journey? 

The debt snowball is a tried and true method that many people have had success with in their debt free journey. Many notable financial gurus preach about the debt snowball method, because it works. 

The idea behind the debt snowball is to focus on paying off one debt and when that debt is paid off, you are supposed to take the money you were paying on it monthly and apply it, along with the minimum payment, to the next debt on your list.

There are two different ways to do the debt snowball.

  1. Order your debts from smallest balance to largest balance. Start paying extra on the smallest debt. When that debt is paid off, move to the next one.
  2. Order your debts from highest interest rate to lowest interest rate. Pay extra on the debt with the highest interest rate until it is paid off, then move to the next on the list.

There are advantages and disadvantages to both methods and to be honest, you just have to choose the one that works the best for you.

Debt snowball version 1 is great because psychologically it is very rewarding. Dave Ramsey preaches that seeing the smallest debts get paid off gives you a psychological boost and gives you encouragement to keep going. As you get more of these “small wins” as they are called, you get more gratification and are thus more motivated to continue your journey and attack the bigger debts more aggressively.

Debt snowball version 2 is great because it saves you the most money in interest in the long run. Paying off your largest interest debt first means you aren’t racking up high amounts of interest as you tackle the rest of your debts. You will be paying less over all by doing the snowball this way. The problem with this version of the debt snowball is that it isn’t very instantly gratifying if your highest interest debts are your larger debts. Many people that try the snowball this way get discouraged easily and give up on the journey altogether. It is for this reason that many financial gurus advise of doing the snowball version 1, so that you continue on with the journey and actually get the debt paid off.

I have several different types of debts (car loans, credit cards, student loans, cell phone device payments, personal loan and money I owe to a family member). I chose to focus on my credit cards first on this journey because they were costing me $393 a month in minimum payments, have the highest interest over any of my other debts and the interest I am paying on them is the biggest waste of money ever. I started out my journey with 12 credit cards and now currently have 8 credit cards. Yes, that’s right, I paid off 4 credit cards in 4 months (granted, the 4 I paid off did have small balances), but still, progress is progress.

Here’s a list of my original credit cards and balances from the start of my journey:

  1. Fingerhut – $42 – ($6.99 per month minimum payment)
  2. Kay Jewelers – $138 – ($25 per month minimum payment)
  3. Credit Union Card 1 – $236 – ($25 minimum payment)
  4. Credit Union Card 2 – $411 – ($25 minimum payment)
  5. Capital One Card 1 – $467 – ($25 minimum payment)
  6. Walmart – $779 – ($25 minimum payment)
  7. Credit Union Card 3 – $941 – ($25 minimum payment)
  8. Credit Union Card 4 – $942 – ($30 minimum payment)
  9. Target – $1,051 – ($32 minimum payment)
  10. Credit Union Card 5 – $1,943 – ($40 minimum payment)
  11. Barclay Card – $1,464 – ($44 minimum payment)
  12. Capital One Card 2 – $3,076 – ($90 minimum payment)

I also included my cell phone device payments along with my original credit cards but wasn’t focused on paying off the cell phones as aggressively as the credit cards since they are on interest free payments. I have four cell phones on device payments because I pay for my two sisters to have phones as well as one for me and one for my boyfriend. The cell phone balances at the start of my journey were as follows:

  1. Line 1 – $848.61 – ($40.41 per month minimum payment)
  2. Line 2 – $848.61 – ($40.41 per month minimum payment)
  3. Line 3 – $424.92 – ($35.41 minimum payment)
  4. Line 4 – $389.51 – ($35.41 minimum payment)

These cell phone device payments are costing me $151.64 a month, on top of the monthly phone bill.

So in the first four months of my journey, I have paid off credit cards 1 through 4, $827 in principal balances. I paid off roughly another $400 in credit card debt by paying the minimum payments on all the other cards. This is not to say that I didn’t make any mistakes. The debt free journey is hard work. It is a struggle and it is a learning process.

During these first four months I used credit cards for two separate online purchases. One for $41 and one for $46. That could have been another $87 paid off, had I used my debit card for these two purchases instead. I told myself, “oh, I’ll just use my credit card to make these two purchases, I’ll send an extra payment to the credit cards when I get paid.” The problem is that I never followed through with making those extra payments. This is exactly the behavior that gets us in debt to begin with, and keeps us in debt as time goes on.

After four months on the debt free journey, here’s what my updated snowball looks like:

Credit cards:

  1. Capital One Card 1 – $456 – ($25 minimum payment)
  2. Walmart – $754 – ($25 minimum payment)
  3. Credit Union Card 3 – $861 – ($25 minimum payment)
  4. Credit Union Card 4 – $840 – ($30 minimum payment)
  5. Target – $1,008 – ($32 minimum payment)
  6. Credit Union Card 5 – $1,944 – ($40 minimum payment)
  7. Barclay Card – $1,405 – ($44 minimum payment)
  8. Capital One Card 2 – $2,871 – ($90 minimum payment

Cell phones:

  1. Line 1 – $767.79 – ($40.41 per month minimum payment)
  2. Line 2 – $767.79 – ($40.41 per month minimum payment)
  3. Line 3 – $354.10 – ($35.41 minimum payment)
  4. Line 4 – $318.69 – ($35.41 minimum payment)


… to be continued


Why I Want to Be Debt Free

I have a lot of goals for myself, probably too many goals. In fact, I should probably just focus on a few particular goals so that way I can actually accomplish something, instead of just having a never ending list of things I’d like to do. One of my goals is to lose weight (I am on a weight loss journey along with being on the debt free journey). I am always on Instagram, and I had been following some weight loss and transformation pages for inspiration for that goal of losing 60 to 80 pounds, when I came across some pages dedicated to becoming debt free.

Of course it’s always been a goal of mine to get completely out of debt (who doesn’t have this goal?), but I had no idea that the “debt free community” even existed or that it was actually as big as it is! There are tons of pages on Instagram dedicated to “becoming debt free.” Some are Dave Ramsey enthusiasts, some are making up their own rules, some like other financial gurus like Dave Ramsey’s daughter, Rachel Cruze, or Suze Orman, or that Barefoot Investor author guy. My point is that I stumbled onto this community and fell in love with it!

Dave Ramsey has some great advice with his “7 Baby Steps.” The first “baby step” being that we should stop and save $1,000 in an emergency fund before we do anything else. The second baby step is to sell everything and pay off all our debt, all of it. Then he advises of going to Baby Step 3, which involves saving a six month emergency fund ($10,000 to $15,000 for most people). He says that if we follow his baby steps to a T, we will all build wealth and “live like no one else.” I think he has some great points and advice, but I just don’t agree with everything he says. This is why I’m taking bits and pieces of his advise, mixing them with my own knowledge and other financial guru’s advice that I like, to create my own plan for getting out of debt once and for all!

I have many reasons for wanting to get out of debt once and for all, and I’m sure my reasons are the same as everyone else’s.. I want financial peace (not having to stress about bills and money, and not having to worry when an emergency pops up). I want to start my own business and quit my job that I absolutely despise (but have to keep going to day after day because the bills have to be paid somehow!) I want to have the freedom to travel if I wanted to (I’m not an avid traveller, but I would like to take a vacation to Hawaii one of these days, or hit up the Vegas strip!) I also don’t want to keep paying my credit card companies, student loans and car loan companies hundreds of dollars of interest every year anymore. I don’t want to continue giving my money away to these companies for no reason! (Well, they did loan me money at one point, but it’s like am I really still paying Target $15 a month in interest on crap I bought a year ago that I don’t even have anymore?)

One of the mistakes I made when I had my own business in 2009 is that I went into it with debt. This made it harder to keep the business going. After a year of struggling to keep the business going and keep all of my other bills paid, and putting 10-12 hours a day into running the business, I decided that it was better to shut it down because it just wasn’t profiting enough to sustain itself and my debt burdened life. I closed down my business in mid 2010, worked for a family member for until she retired in mid 2013, and then I joined the corporate world, which I absolutely despise. It wasn’t so bad working for my family member, but this corporate world life is really not for me, not even a little bit. So one of my main goals of my debt free journey is to get out of debt so that I can once again open my own business and do something I love while having flexibility and freedom.

I want to actually enjoy my life, and I absolutely do not enjoy life working in the corporate world. In fact, here I sit writing this blog post on a beautiful Sunday afternoon, dreading the fact that I have to wake up at 6 am tomorrow to go to a job that I hate, to get money to pay for crap that I bought months ago on credit cards. We only have this one life, and I have wasted the last 3.5 years of it working at a corporate job that I can’t stand. The corporate job keeps me captured for 9 hours or more a day (8 hour shift plus mandatory 1 hour lunch), usually there is over time, and although they say it’s optional, it’s really not because if you don’t stay caught up, you are at risk to lose your job. Then there is the commute. I spend 1.5 to 2 hours or more a day in the car going to and from work. By the way, did I mention that this job doesn’t even pay that well? I am grossing a little over $3,000 per month and netting about $2,200 per month. That is hardly enough to live in sunny Southern California! (Thank God my boyfriend also works and brings in another $2,200, or I don’t know how I’d survive).

So, to recap, my reasons for wanting to be debt free:

  1. Get out of the corporate world/job I hate.
  2. Open my own business, do something I love with a flexible schedule.
  3. Have the freedom and funds to travel at my leisure.
  4. Have more time to enjoy life.
  5. Do a job I actually enjoy and am passionate about.
  6. Stop paying interest (aka giving my money away) to credit cards, student loans and auto finance companies.
  7. Have financial peace, meaning I don’t obsessively worry about money, bills and emergencies when they pop up.

I am about $111,600 in consumer debt, not including the mortgage on my house, which is roughly $168,000. I was even more in debt than that when I started this journey, but my boyfriend and I sold two cars (quickly paid off $30,000 in loans by selling those two cars), a third car was totaled (which wiped out an $11,000 loan) and I have paid off about $1,200 of my credit card debt since starting my journey in November 2016. I guess I should mention that these numbers include my debt AND my boyfriend’s debt also (we have been together 8+ years and do all of our finances together).

My main focus since starting this journey in late November 2016 (right before Christmas, am I crazy?!) has been to pay off my credit cards first. I have paid off $1,200 in credit cards from end of November until now (end of March 2017). I have about $10,135 in credit card debt left to pay off and will then be working on my student loans or autos or maybe that pesky high interest personal loan I have. Most likely the personal loan will be the next focus after the credit cards. I am working on using the “debt snowball” method for paying off my credit cards (I think I should make another post, because you see, here I am already jumping from topic to topic, making this blog post way longer than it should be!) Okay, okay.. Another post coming up soon!

Happy Sunday everyone!

-debt free in 2017


A Little Bit About Me

Hi Everyone,

It’s just me, from Instagram. I decided to start a blog here because I find that when I am making a post on Instagram, I tend to have a lot to say, more than should be said on a simple IG post. I am new to blogging and still fairly new to my debt free journey, so I am in no way claiming to be some kind of financial guru of any sort, I just want to share my thoughts and journey with more details for anyone who is interested! My goal is to become debt debt free while sitlk enjoying life along the way.

I am 30 years old (almost 31), live in Southern California, work full time (screw the corporate world!) and live with my boyfriend of 8+ years. I also go to school part time (trying to finish my bachelor’s degree).

Welcome to the Debt Free in 2017 blog! (Still trying to think of a better name, if anyone has any suggestions, lol)   😀