Manage Your Money Week 4 – GET OUT OF DEBT!

Hello everyone! Welcome to week 4 of the Manage Your Money Challenge! Sorry about the delay for today’s post, but I have been having some serious internet issues and I think even some computer issues as well. EVERYTHING takes FOREVER! My internet will cut off on me in the middle of doing something and I have to wait sometimes for 10 minutes for it to reconnect.

Last week was a great challenge and everyone who participated had great responses. Since I didn’t comment myself I thought I would let you know that I first said yes on an impulse purchase, and then I said no. My mom was going to sell me a really nice bed for $400 that included headboard, foot board, mattress, box spring, and 2 night stands. Great price right? That’s why I jumped on it, but then we found out that it was going to cost us an additional $200 to pick it up. My mom lives 90 miles from me. Even though $600 is still a great price for what we would have got, we were not willing to spend an extra $200 at this time. We were even able to afford the extra expense, without using our emergency fund or messing up our budget dramatically, but we still decided not to.

This Weeks Prize Winners!

(via Random.org)

  1. Financial Peace University DVD Lesson: Dumping Debt – Donna
  2. Financial Peace Revisited (Dave Ramsey) book – Kathleen C.
  3. Dave Ramsey’s Town Hall For Hope Live Event DVD – Julie
  4. No More Dreaded Mondays (Dan Miller) book – Forest
  5. BONUS PRIZE – Free copy of Project M-31: Simplify Your Life in 31 DaysLaura

CONGRATULATIONS EVERYONE!

PLEASE NOTICE: I moved the list of sponsors and prizes to a special page here on EOD. Please be sure to check out who made this first Manage Your Money challenge so very special!

Be sure to thank the sponsors!

Manage Your Money Challenge #4

If you have been a reader of Enemy of Debt for any time at all then you must know how I feel about debt. I hate it. I believe it steals so much from us and keeps us from ever reaching our true potential. Society says that you can’t live without debt, but most of society is flat broke. Dave Ramsey says “if you keep doing what you’ve been doing, then you will keep getting what you’ve been getting.” If debt causes so much stress and friction in our lives, why don’t we try something different?

People complain about not being able to do so many things, without ever recognizing the true culprit—their debt payments. We have payments for everything, and our budgets become inundated with so many payments that it is no wonder we can’t afford to save, give, and run out of money before the month ever ends. I know that feeling well because that feeling used to be a large part of my life, but not anymore. That feeling is becoming a blur and man does it feel GREAT!

The debt cycle has become a lifestyle that people have just accepted as just the way things are. You have to have a car payment. You have to use credit cards. You have to use debt as a leveraging tool in order to prosper. That is such a lie and an incorrect way of looking at things. You need debt about as much as you need to be laid off, hospitalized, or at retirement without a dollar to your name. You need to map out your future so you have one worth living.

That’s where the budget comes in. By telling your money where to go, you can plan for that future with much greater ease. If you eliminate the debt payments from your budget, eventually your income becomes a tool for you to use to build wealth. Building wealth is not bad, because it enables you to save, spend, and give without constraint. You have a better chance at helping your neighbor than the Government does, and you can do it more efficiently. You can not only change your family tree, but you can help change the family tree of others by using your wealth to do so much good in your community.

I always wonder what would have happened had credit never been entered into the equation. What if everyone was debt free? What if the majority had the mindset to use their riches to benefit as many people and families as they could? The Government would be out of a job that’s for sure. Change doesn’t come from Washington, it comes from your budget, and your own decisions!

TODAY’S CHALLENGE

Today’s challenge is going to focus on getting you to think about how debt affects your life. I love getting people to do what I call The Dream Budget. This is an exercise that will show you how much money you are wasting away on debt payments each and every month. This will show you how much of your hard earned money is making someone else rich and wealthy. Someone else had a plan, and in America that plan is working very well. Americans are enthusiastically consumed with debt. In Financial Peace University Dave Ramsey uses an example that illustrates this very well. Just look at the difference between your house and a bank building. Your house represents how your current plan is NOT working for you, while the skyscraper seen from a distance (the banks), represents how well their plan is working for them. Stop the madness and build your own skyscraper!

The Dream Budget (worth 1 entry)

  • Go read The Dream Budget.
  • Do your own dream budget.
  • Answer these questions:
    • Without debt, how much would you have extra each month? (remember this includes no mortgage payments too.)
    • Now take that amount and multiply it by 12 months. How much is it?
    • How would that impact your family and your future?

BONUS CHALLENGE (worth 5 entries)

  • I have created my own 12 step program. The idea obviously came from the principles taught in Alcoholics Anonymous, but with my debt free spin. Are you addicted to becoming or staying debt free? It’s worth 5 extra entries if you decide you want to get rid of your debt, and follow the directions on the post. Follow my 12 steps to keep yourself motivated and on track. Save the picture of the 12 steps, print it, and put it on your fridge, or in your office. Put in front of you a constant reminder of how debt is keeping you from living your dream. Then go and make your dream happen, so it’s not a dream any longer!

Good Luck!

OTHER MANAGE YOUR MONEY POSTS

  1. Manage Your Money Sign Up
  2. Manage Your Money Pre-Challenge Post: On Paper On Purpose
  3. I Love You…Like A Blogger!
  4. WEEK ONE CHALLENGE: Manage Your Money – Wants Versus Needs
  5. WEEK TWO CHALLENGE: Teamwork, Accountability, and Kids
  6. WEEK THREE CHALLENGE: Death By 1000 Cuts
  7. WEEK FOUR CHALLENGE: GET OUT OF DEBT!
  8. BONUS CHALLENGE: Think Ahead and Stay Determined
  9. FINAL POST: TBA April 1st

About Brad Chaffee

31 Responses to “Manage Your Money Week 4 – GET OUT OF DEBT!”

Read below or add a comment...

  1. Jan B says:

    I am so sorry, I crashed and burned. I really tried to make it through the whole week, but ended up giving in to my (brat) child and buying him that video game that he so terribly needed — just to make him stop asking me. So I disqualify myself.

    Figures, just as I did that we had Murphy call big time in that we had a family member die and although we are not and never have been close, felt compelled to send flowers, book a room in another town…I am down two hundred bucks in one week. Why? Because my dh's mom would have made our lives a living hell if we didn't commit to going and frankly, spending the money on a motel room is better than having to spend the night in her house. Man, I sound bitter.

    Sigh,

    I do have Dave Ramsey's Dumping Debt video, can you please give my prize to someone who made it through the week? I feel rotten.

    • Brad Chaffee says:

      Haha, Jan B, just so you know, failing the exercise doesn't disqualify you, but if you still wish to pass the gift on to someone else since you already have one that is fine. πŸ™‚

      This stuff is about getting you to think about this stuff a little harder. It sounds like Mr. Impulse had you wrapped around his finger though. LOL I've been there so don't worry, but let me ask you this: How bad was your buyers remorse?

  2. Kathleen C says:

    * Without debt, how much would you have extra each month? Depending on how I think about sinking funds for replacement of car and/or home repairs etc, I would have about $4000 – less if sinking fund is a necessity.

    * Now take that amount and multiply it by 12 months. How much is it? $48k! Wow!

    * How would that impact your family and your future? That would be huge. Emergency funds and charitable giving and a vacation now and again and a comfortable retirement.

    I signed your comment with your Debt Pledge and printed out a couple of copies of the steps.

    This month I have worked a quickie budget and tracked where my money goes. I have paid everything (and have little leftover!) to put in the BEF. But – I am determined and it will work! I will make it work! Thanks for running your challenge..

    Oh, and I see I won! Let me know how to claim my prize! πŸ™‚ Thanks.

    • Brad Chaffee says:

      Hi Kathleen C! All you need to do is email your shipping address and I will get the book sent to you as soon as possible. πŸ˜€ Congratulations!

      $48K is a lot of money! I am sure you could probably pay for some wants in there along the way and still be able to have a large chunk of change left over when it is all said and done.

      Being debt free would give you so many more options. Not to mention the question I forgot to add up top.

      How secure would you be in a bad or even the worst economy if everything was paid for even your house?

      Great job!

  3. Julie says:

    * Without debt, how much would you have extra each month? 5513
    * Now take that amount and multiply it by 12 months. How much is it? $66,156
    * How would that impact your family and your future? That would be wonderful. We would be taking more vacations and saving more up for college and personal investments!

    *BONUS CHALLENGE (worth 5 entries)

    Hi my name is Julie, and I am addicted to becoming/remaining DEBT FREE!!

    I printed out the 12 steps and have posted them in my cubicle. I am definitely motivated to pay off our mortgage and have more disposable income!

    • Brad Chaffee says:

      Wow Julie! $66,156! Did this exercise cause you to do some dreaming, because that is a lot of money.

      I am really excited that you posted the 12 Steps at your cubicle. I wonder if you’ll get any comments about it from your co-workers.

      Great effort Julie, keep it up!

  4. Donna says:

    I did the dream budget. OUCH. Our debt is from our son's student loan's. He has not been able to get a job that pays enough to pay them, so since we co-signed (DUMB) we are now paying it. How much is that per month?
    $665.32 Per year? $7983.84. Can we afford this? Barely. I am on half-pay from insurance disability due to surgery and I have no job to go back to. What are we going to do to get debt free? Well, my husband is planning to start selling some of his hobby items (bless his heart), we will pack our meals for our "dates", help our son with encouragement, life advice, career advice, etc, try and get my doctor to prescribe more generics, and, of course, beans and rice, rice and beans! I am also planning on some kind of work when I get on my feet.

    What would this mean to us? Everything. Our son would be on his own having learned his own lesson on debt even for an education, we are educated on co-signing, I would be able to take the summer to enjoy being with my spouse (he is a teacher) and I could take time to take care of myself and get my health back! In other words, we could BREATHE again.

    Hi, my name is Donna, and I am addicted to becoming/remaining DEBT FREE!

    • Brad Chaffee says:

      You hang in there Donna! You are taking the right steps now to turn this ship around. It sounds like you learned from your mistakes and that’s very important. At least you know you won’t be co-signing for anything anymore. That’s an expensive lesson to learn for sure.

      I have got mad at relatives of mine for not co-signing for me in the past. I later realized how selfish I was being. I know of others who are having trouble with family members for not co-signing too and it breaks my heart. To watch a family fall to pieces over a financial decision is hard to believe.

      I hope you and your son are still on good terms, and if you are, that is something to definitely be thankful for. πŸ™‚

  5. Without debt, how much would you have extra each month? $3010
    Now take that amount and multiply it by 12 months. How much is it? $36,120 — $19,740 of that is saved right now for multiple purposes (retirement, emergency fund, home and auto maintenance, vacation account, etc.)
    How would that impact your family and your future? We'd be able to put more away for early retirement.

    Hi my name is Crystal, and I am addicted to becoming/remaining DEBT FREE!!

    I just made an extra $1000 principal payment to our car loan. Thanks for the push.

  6. bibledebt says:

    Budget's will lead you out of debt. Or you can simply spend less than you earn for a long time and that will do it also. It is amazing being debt free, don't give up!

  7. Hey Brad –

    So I figured I'd drop in and do this since I've been out of the loop on how the contest is going πŸ™‚ (thanks to some days lost battling with website code…argh) Anyway, I think this is a great exercise for anyone to do and I'll share a little bit about what my figures look like, generally.

    Now in my case, I have some debt/monthly payments that I consider "good debt" that go towards my business; I have yet to incorporate so these expenses are still reflected in my own personal financial statements. Hosting is minimal as I committed to an upfront package last year but my programming expenses are starting to mount up a little bit further from where I want them to be. What I'm starting to do is spend a little bit more time cleaning up code myself and spending more time learning the site's CMS so I don't have to turn to outside programmers to help me out. I'm not a coder by trade but I've been working on websites in some fashion since 1997, so I've picked up on most HTML/PHP and some CSS. So I'm trying to save some $ there.

    Personally, I'm lucky enough that I'm not saddled with a whole heck of a lot of consumer debt. I DID splurge a bit and bought a nice car two months ago when I took on my new job; payment on that plus insurance is creeping up around $500 which is certainly not a good thing. However, I've been able to set aside roughly 800-900 a paycheck; some of which will undoubtedly be used to pay off what's left on the loan. I'm also sitting on an asset; a website I started in early 2006 that, while not nearly what it once was, still generates solid income for me, that I've started entertaining buyers for. A sale of that site would likely bring me what I need to cover the extent of that loan, although I'm not 100% positive; either way, I have it at my disposal.

    In any event, that's a little piece of where I'm at. I paid off about $2400 in credit card debt a few months ago that was nagging at me for several years (19-20 years old with a credit card and a new GF to impress = trouble!) so I'm glad that's out of my way. Have about $1200 to knock off on another card and another $800 or so on a Sallie Mae loan that I've been making payments on.

    It all boils down to the fact that I need to get all of the crap and waste out of the way so I have ample cash on hand to grow my business. And while I'm sure my situation is different than a lot of people's here, it really doesn't matter what you need that cash for, whether its a business, family expenses, whatever. The point is having it available and not simply being an asset on a bank's balance sheet.

    Anyway that's my 2 and a half cents. Good luck to everyone participating.
    -Blair
    CostRefuge.com

    • Brad Chaffee says:

      Thanks for the great comment Blair and thanks for sharing. We would certainly agree that there is any such thing as good debt but I get where you’re coming from. At least that debt is hopefully making you some money.

      You are right too, if you get all that “crap and waste” out of the way you will be able to better capitalize your business. Under-capitalization is one of the biggest reasons businesses fail and unfortunately for a lot of them debt was the reason they ended up going under.

      Good luck on selling your website too, that sounds exciting! I wonder what EOD would be worth to someone? LOL I could never sell my baby! πŸ™‚

      Great comment!

  8. Forest says:

    Thanks so much for the prize, I can't wait to give it a read!

    I am a bit in an out this week but will try and get round to getting ontop of this weeks challenge.

    Thanks a million.

  9. Bucksome says:

    I like the dream budget idea. I would have over $23K more a year without debt. That would go a long way in funding a comfortable retirement.

    • Brad Chaffee says:

      Yes it would Bucksome!

      I wish I could claim credit for the Dream Budget idea. I came up with the name but got the idea from someone in the FPU forums. they just suggested that the person they were answering do a budget to see what things would look like if they had no debt. the person asking the question needed motivation. πŸ™‚

  10. Kim says:

    Without debt, how much would you have extra each month?
    My family would have $2320 extra every month!

    Now take that amount and multiply it by 12 months. How much is it?
    Wow…$27,840!

    How would that impact your family and your future?
    It would have a tremendous impact. We would be able to save money for our emergency fund so quickly, save for retirement, save for our kids’ college education and probably still have some left over for a vacation or something. That would be really something. I’m actually having a difficult time imagining what it would be like…it’d just be so wonderful…a big relief.

    Bonus:
    Hi! My name is Kim, and I am addicted to becoming and remaining DEBT FREE!! I am prepared to work at budgeting and “spending self-restraint” every day until I am debt free and then I will remain debt free forever and ever! How exciting! I’ve got the 12 steps on my fridge to remind me of everything.

    • Brad Chaffee says:

      Yeah it doesn’t sound like a lot when you look at it monthly, but annually it really has an impact on the brain. I was hoping it would.

      I can’t wait until you make it a reality Kim! I hope you continue to follow EOD to stay motivated to see it happen. πŸ˜€

      Options are wonderful!

  11. Brad Chaffee says:

    Monthly we spend about $1,252 on our debt payment. (the house we are selling) $15,024 is what we would have extra each year.

    If we didn’t have this we would be sticking it in a savings account so we could purchase our next house 100% down. As soon as our house sells, and we are done, that is exactly what we will be doing.

    If you have been following my progress then you probably know that we plan to save for 4-5 years after getting our FFEF in place to buy our next house. We MUST have that in the bank by the end of the year!

    So here are some rough estimates:

    $15,024 X 5 years = $75,120
    $6,000 X 5 years = $30,000 (this number is from the $500 a month we have extra in our budget each month, BUT NOT counting any income I produce during that time.)
    ===========================
    TOTAL AFTER 5 YEARS $105,120

    If I bring home as little as $1000 a month (obviously this will probably be more…hopefully.) πŸ˜‰
    That’s an extra $60,000 in 5 years!!
    ===========================
    NEW TOTAL AFTER 5 YEARS $165,120

    These are just really quick estimates based on our more detailed financial plan. do you see why it is completely possible to pay 100% cash down on a home? We should be able to find a BIG SALE or a FORECLOSURE on a nice home in our area for that price!

  12. Laura says:

    * Without debt, how much would you have extra each month? (remember this includes no mortgage payments too.):
    Current monthly debts (mortgage, small mortgage, and student loan repayment to mom) total about are about $1940/mo

    * Now take that amount and multiply it by 12 months. How much is it?
    $23,280… woohoo!
    * How would that impact your family and your future?
    I could fully fund my Roth IRA quickly. I’d have extra money to invest. I could not work quite as much each month (I have a job plus run my own business) I could invest more into expanding my business. We could travel more. I could not have to think about money so much!!!

  13. Laura says:

    Bonus: Printed…small so I could keep it in my wallet. πŸ™‚

    To prove my slight debt free addiction I submit the following:
    I am in the processing of refinancing (and paying the closing costs in cash and hopefully an extra little bit to principal). That should lower monthly costs at least $100.

    I will have my small mortgage paid off this summer. That will lower monthly costs by $185.

    Those two alone should give me an extra $3420 a year! I’ll take it!

  14. Donna says:

    Brad,

    Wanted to update you on our progress. I have managed to get 2 of 5 prescriptions changed to generic, a savings of $60 per month. I was just up front and stated why I wanted to change. My son is still paying for his day to day living costs. My husband is looking into lowering the payments to Sallie Mae (my son can always pay extra later) and he is getting to list one of his “toys”. This said, one of my doctor’s told me he thinks I should go on permanent disability. I am seeing another doctor for a second opinion. All in all this project has been a blessing and hard at the same time. It is a journey I am very glad I signed up for. God bless Brad for your time and expertise. THANK YOU!

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