Guest post by Ariane Arensdorf, Data Coordinator at Buffalo County Community Partners.

Did you know 78% of Americans live paycheck to paycheck. This doesn’t necessarily mean you are below the poverty line-you could be making $50,000 a month, but if you are blowing it all each month you qualify as living paycheck to paycheck.

Financial wellness is so important. For couples who get a divorce, FINANCES are the number 1 reason. When your spouse comes home with shopping bags in hand or a new set of golf irons, what is your reaction? That’s rhetorical because it is probably similar to the reactions I have had.

I took Dave Ramsey Financial Peace University class and my stress about finances has dramatically decreased. I know there are many other programs out there, but Dave Ramsey is such a household name his program is the one I chose. Not to mention, I had seen so many of my “closest” Facebook friends who were sharing amazing success stories, I thought it was worth a shot.

Dave has seven baby steps to follow, which I love because…STRUCTURE! I want to share a few of the key takeaways from this program.

Number 1: Use Cash

What’s in your wallet? Does that question sound familiar? Probably because you have heard it a hundred times on your TV in a certain credit card commercial (I bet you even read it in Samuel L. Jackson’s or Jennifer Garner’s voices!) Credit (and even debit) cards make it so easy to spend money. You just swipe your card and you are approved! I know it certainly gave me no pain to swipe my plastic…until I saw my account balance! Dave teaches that you need to start using cash in order to FEEL the pain of spending. There is psychological research that shows when you spend with cash the pain center of your brain ignites. The first time I started using just cash and the envelope system for most things I certainly thought a little harder about the items and price checking everything. If I could save a penny, you bet I was going to save that penny! I think this is probably one of the BEST first things you can start doing in taking steps to managing your money—FEEL THE PAIN of paying with cash.

Number 2: The Budget

I am a Business major, so when I graduated I told myself I was going to be so financially savvy. I got my excel spreadsheet (what is a good business major without a spreadsheet, right?) and I started putting line items of expenses. I was pretty sure my method was flawless…well, guess what? It wasn’t. I was like the 68% of Americans who do not have a budget (well, at least an effective one). I had all of these expenses, but some months the expenses were more than my income and some months they were less. It was more of a “tracking” system, not really a budget. I was not telling my money WHERE TO GO, it was telling me WHERE IT WENT that month. This is probably the main thing that made me so passionate about what Dave Ramsey was saying because his Cash Flow Plan is all about the zero budget. At first, I was like, ”WHAT? SPEND DOWN TO ZERO? YOU ARE CRAZY!!!” Then I understood. I was still able to save money and pay off debt, but I was assigning certain dollar amounts to those categories. The Cash Flow Plan works like this: you take all of your expenses and assign the dollar amounts to them then you want your income minus your expenses to equal zero.

This way of thinking helps you plan for the month and you don’t have to bat an eye at your bank account because you already know how much you are spending and on what. This also helps with point #1 of using cash—certain categories, like groceries, you use cash. Trust me, grocery shopping will become a whole new ball game for you when using cash! Lastly, the budget is great because you don’t have to stop yourself from having your daily latte—it may help you cut back when you see what expenses you have that month—but you can still budget for your lattes and enjoy life! That is my favorite part about the Cash Flow Plan. (FREE TIP: Check out the Every Dollar website/app to very easily track expenses the second you spend money! It is like balancing a check book, but for the modern age :))

Number 3: Debt Snowball

When I started Financial Peace University we had some debt. Many people would say it is “normal” debt, but let’s not kid ourselves-DEBT IS NOT NORMAL! We need to change that mindset! Anyway, we had two car loans and a student loan. We had just been paying the minimums and looking 5 years into the future at how great life will be when we don’t have any more debt. Well, Dave taught me the Debt Snowball method. While I am still working through the snowball because of my “normal” debt (insert eye roll), I think this method is a very helpful tool to structure the way you pay off your debt. Not to mention if you get really aggressive about it then you have a quick method to get some easy wins and pay off some of your smaller debts early. You will start feeling like a champion! The debt snowball entails listing your debts from smallest to largest and paying the minimum payments on everything except your first (smallest) debt. You want to get that paid off quickly-sell some junk! Then you take that first payment’s minimum payment and add it to your second debt’s minimum payment. Once you get that second debt paid off…RINSE, LATHER, AND REPEAT!

See why it is called a snowball? It picks up more money to pay off debt as it goes. The debt snowball plus the budget is why you hear of SO MANY success stories with Dave’s program.

 

Number 4: Savings 

The VERY FIRST baby step in Financial Peace University is to save $1,000 for an emergency fund. Baby step 2 is to pay off debt, so the thought is that you want to have $1,000 saved right away for any emergencies that may come up because you will be so focused on paying off debt you may not have a whole bunch of money laying around for emergencies. Actually, 62% of Americans have less than $1,000 in savings. Also, 83% do not have enough savings to cover an emergency. Scariest of all, 26% of Americans have absolutely zero savings. When I started the class, I was feeling like a rockstar. I saved my $1,000 Emergency Fund, I had a budget, and I was using cash…and then the truck needed fixed. For those who know me, this would have caused me to stress out, complain, become negative and I started doing that at first, but then I remembered I had an emergency fund. My mood shifted to the fact that this was no problem to get this truck fixed because we had money to do it! I have found through this program and structure that I do not stress out about money anymore. When bad things come up, I know I have a back-up fund that will take care of it. I look forward to the day when we have paid off our debt and moved to baby step 3, which is save 3-6 months of expenses. Can you imagine having a fallback like that? You are setting yourself up for success because you do not have to worry if you get laid-off or have to take time from work because you can pay 6 months of expenses!

Number 5: Credit Score

Forever I have heard, you need to have good credit if you want to buy anything. Being the competitive soul that I am, I accepted this challenge to have the best score possible. In order to do that I needed to start using a credit card and being responsible with it. I needed to take my school loans and make timely payments. I found by doing that my credit card company let me increase my credit limit! All things that increased my credit score! YAY, ME! Do you see a pattern there? Here let me rephrase it: I needed to start accumulating debt to my credit card company, but in a responsible way. I needed to take this HUGE debt I owed for school and pay that debt down each month. By doing all of that, my credit card company increased the amount of debt I could use with them! The pattern is DEBT!!! Credit scores are DEBT SCORES! Don’t believe me? Dave did the research, but since they use the word “credit” we automatically associate that positively—who didn’t want EXTRA CREDIT in school, right? In reality, they need to be saying “debt”. Every element is a factor of debt: making on time payments on your debt (payment history), how much debt you have (accounts owned), how long you have had debt (length of credit history), new debt (new credit), and the type of debt (credit mix).

If you inherited a million dollars tomorrow, your life would be totally changed and financially you would be doing well. Guess what? Your credit score would not move a single point. Your credit score doesn’t care about your wealth, it cares about your DEBT!!!

And, because you have read through this whole thing, I have a bonus lesson I learned from Financial Peace University:

GIVING!

Can you imagine living in a world where people were not in ANY debt? Think about all the spare income they would have…what would they do with it? That is what excites me the most about working my way through the baby steps. One day I will be so financially stable that I can give my money away to help many people and causes. Just think what you could do if you did not owe anyone anything and you could change other people’s lives?

Disclaimer: Ariane is a Financial Peace University Coordinator, but is in no way a paid endorser of the Dave Ramsey group or products. This post is only to share testimonials, tips, and the importance of financial wellness.