How the Baby Steps WORK

Wipe our Debt

Wipe our Debt (Photo credit: Images_of_Money)

I’m taking a brief break from the FPU recap to share with you about something I realized this past week that sort of excited me.  You know what that “a-ha!” moment is like, when you finally get something you’ve been struggling to understand.  Well, this one reminded me of how I felt when I finally, after six weeks of working and struggling, grasped how to do geometric proofs in ninth grade.

Back story…  My husband and I were talking about the rest of our refund, still sitting and meditating in the bank.  We had this huge chunk of change and we were debating about what to do with it.  I wanted to set some aside for vacation, then dump the rest into our debt snowball.  He felt that the debt would be forgiven and that we should continue to make minimum payments on our debt and dump that lump sum towards the principle on our mortgage.  (Debt snowball is BS2; paying down the mortgage is BS6.  That’s a LOT of steps to skip!)  I said, “We’re going to stick with Dave’s plan.”

I was mindlessly getting through my shower one day this week, just letting my mind go where it wanted, when it really HIT me!  And when this epiphany struck, then I realized (1) why the baby steps are ordered as they are, and (2) how our income really IS our biggest wealth building tool.

It’s rather embarrassing using our numbers, because they’re low, but myeh…  I have ’em and know ’em, so I may as well use ’em.

We were putting $20 aside every week to rebuild our emergency fund ($80 per month).  A month ago, we were paying Creditor 1 $30/month, Creditor 2 $50/month and Creditor 3 $50/month.

  • Savings             $80
  • Creditor 1        $30
  • Creditor 2        $50
  • Creditor 3        $50
  •        Total         $210.00

We have our emergency fund in place, in addition to our storm cloud fund, so we no longer have to save towards those things, so strike $80 from that list.  We paid off Creditors 1 and 2 completely, so strike another $80/month from that.  So now we’re left with $50 towards Creditor 3, but we have this $160 freed up in the budget.  That means we could start putting that $160 towards Creditor 3, taking that to $210/month and paying off that debt sooner.

Then, between huge lumps and monthly payments, we’d soon knock out that third debt.  That means we could then divert that $210.00 per month and huge lump amounts towards our fully funded emergency fund (BS3).  After that account is built up, then we could funnel that money into a retirement account (BS4) and go on from there.  Whew!  Exciting, isn’t it?  And all that because we have savings and get out of debt.  

So, that was the epiphany.  After more thought and discussion, we decided to continue to build savings.  So we’re going to put that $80/month into a vacation fund for a weekend trip we’d like to take in the fall and a trip we’re planning for next Spring.  We could also use this in case we absolutely must have a little extra money for Christmas or whatever.  The rest will roll into the debt snowball.  The light at the end of the tunnel will be making that debt-free yell!

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