Living simply: previews of things to come

This last weekend was really spectacular! After leaving family in North  Carolina, we drove north through Virginia to stay with some friends outside of Washington, DC. The plan had been to go to the National Zoo in the morning, but parking costs something like $20 and we didn't have that kind of money in the budget. Instead Ana and our friends' little boy played on the park while Zoë tried to nap, then it was off to DC to see family and meet new friends. We did get to stop in at the Air and Space Museum for a brief visit on Sunday afternoon, but not a whole lot of other sight seeing. Monday was spent entirely in the car taking the fastest roads north. We finally caught our breath Monday night, and work began for Caleb Wednesday morning. Summer is over already?

Starting in September, we're going to be taking part in the 2011 Locavore Challenge sponsored by NOFA-NY. We chose to take on the Meal Sized Challenge and are already gearing up for the month! We feel this is important to our goals and to this blog, because a lot of our life since taking Financial Peace University has been about taking control and being better stewards of what God has given to us. We already do many of these things and have found them cost-effective and our well-being has been positively affected by these choices. As we've said before: it's not about how much you make, it's about how you choose to use it.

Here are some things to be looking for here on Debt Free American Road Trip:

• Book reviews on titles including Simply in Season, The World at Your Table (written by a family friend), and In Defense of Food among other articles and books.
• Recipes we've tried using foods sourced within 250 miles from home.
• Menus and financial plans for paying for more local and organic foods.
• Ways that this project has helped us with our financial and personal goals

Happy reading!

Our Story part 3: Derailed

We'll return to our experience at Financial Peace University during another series of posts. To sum up that experience here, let me just say that it completely changed our lives. We no longer felt afraid and confused, and we had plans to pay off our debt in less than three years. And then our future got derailed.

In November, 2009 Emily and I went to the National Youth Workers Convention in Cincinnati. I came back having been challenged, encouraged, excited, impassioned. This was going to be the year of real change, real excitement in the youth group. I had a beautiful family, a new baby on the way, and a clear vision that took me    ten years into the future. By the time February had come, we were staring down the barrel of unemployment.

The hows and whys of our decision to move on from Michigan don't play into this posting. There were a lot factors that led to our packing up, moving out, and heading to my parents' house in North Carolina. The church gave us two wonderful gifts: health insurance to the end of the year and three months of severance pay.  The plan we devised from there was straightforward: stop the Total Money Makeover until we got back on our feet. We stockpiled our tax refund in our emergency fund, paid the penalty for breaking our lease early, and hired the least expensive moving company we could find. From there, move into the house my parents had been unable to sell and look for work. I paid for my teacher's certification and started sending out resumes and applications from February to June of that year.

Stopping our Total Money Makeover may have been the most frustrating thing we have had to do since graduating from FPU. We were used to sending in huge payments to our debts every few months, cutting our food spending, and finding new and creative ways to give and bless others with our resources. To have all of this cut off in the midst of our flow was incredibly discouraging. We managed to make our way through that summer making $150/wk at Barnes and Noble, and we managed to keep paying off the car and making our other minimum payments. It's incredible to think that we survived and came out strong on the other side. Next time I'll write about finding a job, moving again, and learning how to live on a very tight budget.

Our Story part 2: Deciding to change the future

When I wrote about how we got into the financial mess in which we currently find ourselves, I left it intentionally brief. There's time to discuss the results of our coming to our senses in later posts. I want to talk today about the events that led to our making the decision to start Financial Peace University.

There are few things more demoralizing than overdrawing on your checking account. Really, there's no reason to ever do it; but people do it every day. It felt like no matter how we careful we tried to be, the numbers at the end of the month were always red on the Bank of Evil (aka Bank of America) website. Part of that is because they have this horrible policy of never denying your card no matter what your account looks like, and there's that insidious (possibly illegal) practice of listing your debit card transactions from largest to smallest. As much as I would like to keep verbally abusing them, this is about personal responsibility.

Emily and I tried budgeting for several months. Usually, this was Emily sitting down with Excel or Word and listing expenses and then we would  spend the money as though the "budget" didn't actually exist. This vicious cycle repeated itself between November of 2008 and March of 2009 (estimated). It was during this time that our church decided to host Financial Peace University. The promotional material talked about people who saved so many thousand dollars and paid off up to $5000 in debt. We figured we needed to do something to change the status quo. We may not have paid off that much debt in those 13weeks, but we all agree: the best $100 we've ever spent.

Our Story part 1: How we got into this mess

When we started working on this blog, we wanted to create a place where we could keep ourselves accountable; and hopefully provide encouragement for those of you who read our stories that the future is not as grim as it may appear at times. Coming to the realization that we had to start taking responsibility for our finances took some time, and we have had to constantly reaffirm our commitment to our goals and our future. As we move closer to our being received into the Orthodox Church, I thought it would be appropriate for some financial confession.

If I'm being honest with myself, I financed my way through college and graduate school by reasoning that ten years (the estimated time to repay student loans from the time you graduate) really isn't that long, and I'd have a job that paid well enough to cut that time in half. When I received my bill for $28,000 from Gordon College, I was just thankful that it wasn't six figures like others of my graduating class. Of course, I didn't take into account that my first job out of college would pay me $7.50/hr, nor that I would jump right into graduate school-- taking on another $25,000 in student loan debt. I also had to fix my car ($3000) and buy a new one. (Yes, I bought a new car.) $14,000 later and I was $67,000 in the hole. Then we got married (bringing another $15,000 into the mix), got a well-paying job, and proceeded to blow our money like children! By the time we realized that we were in trouble, the damage had been done: we were in deep debt and struggling to pay our monthly bills.

Looking back on it now, a lot of this could have been avoided if we had been a little more discerning in our choices. For one thing, I definitely wouldn't have hit "accept" on the loan with a 10% interest rate.  I probably also would have bought a nice used car with the money I got from selling the old one. Now we're stuck paying for our mistakes, and missing out on a lot of the fun things in life now because we've made a decision to change our family tree and give our family a brighter future.

How to Budget : Step 2

These are the steps we take to do our budget, here we'll deal with Step 2. 

1. Determine income and pay periods for the month
2. Name your Income
3. Make it balance
4. Allocate your expenses for each week
5. Prioritize Irregular Income

Step 2: Name Your Income

Now that you have your total income in front of you, you'll need to determine where to send it.  We recommend prioritizing your naming so that you have the basics covered.  On a calculator, or a piece of scrap paper if you're arithmetic savvy, subtract each item from your total as you go.  This will help you see how far your paycheck can go.

If you run out of money before getting to the end of the list, don't worry, go ahead and finish.  We'll deal with the overage in Step 3 and Step 5.

1. Charitable giving - we do 10% of total income - whether to a church or a non-profit, giving a portion of your money away not only gives you a warm fuzzy feeling and makes you a better person, but it also will help you relax if money is a point of stress
2. Savings: If your savings account/emergency fund is below $1000, try to raise it.  (If you can't fill it completely and cover #3, do as much as you can.)
3. Four Walls: House, Food, Transportation, Clothing - this includes mortgage/rent, utilities, diapers, fresh veggies, car payment, gas, oil changes, new underwear, all insurance premiums and anything else that you need to function.  This does not include: brie, beer, spinners, another purse or that cute baby dress.
4. Incidental expenses - includes such things as date night, trip to see grandparents, birthday gifts, a hair cut, and other things which help keep you sane, but are not truly necessary for survival.  Remember, getting out of debt is about cutting life style.  This is where your lifestyle will be cut.
5. Outstanding debt - Make sure to pay the minimum on everything first, then add any remaining income to the debt with the smallest total balance.  Try to pay it off completely.  When you do, you can add that minimum payment to the minimum of the next smallest debt which will help you pay that one off faster.  This is the principal behind the Debt Snowball.  Don't worry about which debt has the highest interest rate, just pay things off as fast as possible so you can tell your money where to go instead of wondering where it went.

When we got to the end of this step the first few times we did our budget, it felt like we got a raise.  It's amazing how much even a little bit of money can do, when you know what it's doing and why.

We'll cover Step 3 in our next post, in which we'll determine who does get paid and who does not.

Guest Post on Relishments.com

We recently had the opportunity to write about eating on a tight budget for Emily's dear friend Emily.  (It's weirder than you think, our last names were really similar and we were college roommates.)  But anyway, check out our guest post on relishments.com.  
Please note, she's been at this blogging thing for a lot longer than we have, so her page is really nice.

How to Budget : Step 1

We began posting the last time about the process of writing our monthly budget. One of the principles we work with  through our Total Money Makeover is a written budget at the beginning of every month. Like Dave says, "Every dollar has a name": which means that every penny for the month gets spent on paper before the month begins. It's not always easy, but it's incredibly rewarding; and we usually discover we have more money than we thought. When budget night comes, Caleb uses the Gazelle Budget Software on the Total Money Makeover website and Emily uses Dave's budget forms (found here).
Below are the steps we take to do our budget:  (We'll deal with the first step in this post)

1. Determine income and pay periods for the month
2. Name your Income
3. Make it balance
4. Allocate your expenses for each week
5. Prioritize Irregular Income

Supplies:

• previous month's paychecks and/or projected income statement
• previous month's budget form (if it exists)
• calculator
• Budget forms or legal pad
• pencil with a good eraser
• Computer (if using online software)

Step 1: Determine Income and Pay Periods for the Whole Month

Before you can spend your hard earned cash on paper before the month begins, you have to know how much money is available to you. (For those of you with an irregular income, there's a form for that that we will discuss later.) You also need to know when you will be paid so that you can decide what bills and expenses are covered during which week in the month. Emily does the allocated spending sheet at the end of our time crunching the numbers.

We find it easiest to add up the various sources of income and write down the source at the bottom of page 3 of the Dave Ramsey form, but if you're starting from scratch, write it on the first line.

This month, our income looked like this:

School Pay Check 1 + Summer Job Pay Check 1 + School Pay Check 2 + Summer Job Pay Check 2 = Total Income


Our paychecks are currently bimonthly, but they don't come at the same time (i.e. the school pays on every other Friday, the summer job on every other Monday) -- we'll deal with that conundrum in Step 4.

Don't include any income that you aren't actually sure you will be getting.  If you work on commission, tips or hourly, budget what you can reasonably expect to receive, not what you hope you'll earn.  For example if you always work at least 20 hours a week, but can work as many as 40, budget the 20 in this step.  Following this method will help you prioritize your income and especially important if you don't have very much of it.
We'll deal with irregular income in Step 5.

Tips: Make sure you know when you can expect your pay check to be available to you, this may be different from the day you actually get paid if you have direct deposit.
Also, determine whether or not you get paid on specific days of the month, or days of the week.  Is it every other Friday or the first and third Fridays?  The first Wednesday of the month or the 1st of the month?

Next, we'll go through Step 2, in which ever dollar gets a name and life gets prioritized.