Living the Dave Ramsey Lifestyle: Baby Step 1

I talked a bit about my (which is now our - James' and my) journey to a debt free lifestyle in my resolution post. Like I said, I knew I wanted this life for us, but didn't really know how to get there. Enter Dave Ramsey's baby steps.

Baby Step 1 - Save up $1000 Emergency Fund 

The premise of this first step is to save up up money so that while you are getting out of debt, you don't get into more because of emergencies. I cheated a bit on this. I used my tax refund to get me to $1000 and to jump start my debt snowball.

If this is not an option for you, create a budget to allow your money to work for you, and not you for your money. In this budget, there will be an amount that goes into saving each month.

So how do you start making a budget? There are a few things you need to have readily available. How much does your household bring home each month? What bills have to be paid out of that amount each month? If your paychecks vary from week to week, then budget for how much you would make if you worked 40 hours a week for four weeks. This way, overtime is a bonus and you are not banking on that to get the bills paid. For bills like water and electric, look at 6-12 months of bills. How much was the highest amount you paid during that time period? A lot of power companies and water/sewage companies will allow to you to pay a budget amount each month. Thats the way to go if your utility services offer that feature.

Once you have those numbers, you are ready to start your budget spreadsheet. I have included a sample one below. Your net monthly income will go at the top. Right off the bat, take 10% and put it into savings. With the remaining, list the bills that you have to pay each month and the budgeted amount for those bills. Next is gas, I budget more for gas because I travel a lot on the weekends. But budget an accurate assessment for a months worth of gas. What's leftover is yours to categorize like you want. I use the following categories:

- Eat Out / Fun Money
- Hair / Nails / Shoes / Clothes
- Gifts (Christmas, Birthday, Mother's Day)
- Medical Expenses (Drs visits, prescriptions, etc.)
- Groceries / Household Items

It works for me to split these out evenly, but that doesn't work for everyone. If you are not into getting your nails and hair done, but you have a large family to buy for - it doesn't make much sense to have as much in hair/nails as it does gifts. But that is totally up to you! (Note: i have also done our budget based on our pay schedules and bill schedules so it is a bi-weekly budget instead of a monthly).

Also, if you want to follow the Dave Ramsey plan exactly, here is a link to his budget forms. Again, this spreadsheet is just what worked for us! We have ours set up on the computer to manually calculate the remaining amount after we spend in each category. If you would like for me to send you the excel copy of what we use, leave your email in the comments and I would be glad to!

All the money left over each month that is not spent, goes into savings. With this method you will have $1000 saved in your emergency fund in no time!! After you get this money saved ONLY touch in case of emergency!

One thing that was hard for me to learn was that Christmas is not an emergency, vacation is not an emergency, your husbands birthday is not an emergency. These are things that come every year. That is why you will have to play with the budget each month. And you do not have to do all the categories that I did, change them around, do what works for you! This is not an overnight process. There will be mistakes and it wont be perfect at first!!

But if you stick with it, you will find that it getting easier and easier each month.

Next step, Step 2: Debt Snowball