Houston, We Have a Problem

Greg is writing today. It's good to hear his perspective. So Greg, take it away!

Do you remember Apollo 13? NASA had a huge problem bringing three astronauts home after a freak accident to their spacecraft. It appeared to be insurmountable and impossible. 

With underemployment starting at the beginning of 2014 WE HAD A SERIOUS PROBLEM! What were we going to do to fix this huge problem? There was underemployment, student loans coming out of deferment and the other debt we already had. Talk about a big weight that seems to be crushing you all at once.

The group on the ground at Houston and on the spacecraft, Apollo 13 worked together to solve their problem and get the astronauts back home. They had plans and procedures that helped them to resolve their issue which resulted in the best outcome possible. We also needed a plan to get out of the mess we were in, especially one that made sense to our family. 

It is really difficult to come up with something quickly that makes sense and gives you direction. I am not the smartest person in the world so we needed some help coming up with our plan. Luckily we had taken a class through Dave Ramsey several years ago called Financial Peace University. This class taught us the principles we used to keep our heads (barely) above water. The things we learned in that class became our plan. 

So what is this plan and who is this Dave Ramsey guy? If you want more information on Dave go here but I'll give you the five line version: he went bankrupt at age 28 and since then he has been on a crusade to help others be more financially solid. The plan he teaches contains 7 steps. These are not the gigantic "I am trying to walk in my dads steps". These are baby steps, think wobbly new baby. Here they are in order: 


Baby Step 1- $1,000 to start an Emergency Fund 

An emergency fund is for those unexpected events in life that you can't plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, the list goes on and on. It’s not a matter of if these events will happen it's more like when. This should be completed very quickly. 

Baby Step 2-  Pay off all debt using the Debt Snowball 

List your debts, except the house, in order smallest to largest. The smallest balance should be your starting point, pay minimum payments for the rest. Don't worry about interest rates unless two debts have similar payoffs. You're going for quick wins here. But if 2 debts are similar, then list the higher interest rate debt first. Once the smallest is payed off, take all of the money you were paying on that one and add it to the payment of the next one on the list. Then repeat until all the debts are taken care of. 

Baby Step 3 A fully funded emergency fund

Once you complete the first two baby steps, you will have built serious momentum. But don't start throwing all your “extra” money into investments or going back to spending everything quite yet. It’s time to build your full emergency fund. This should be 3 to 6 months of expenses. Make sure you have this so that when unemployment or another emergency happens you will be prepared. 

Baby Step 4 Invest 15% of household income into Roth IRAs and pre-tax retirement 
When you reach this step, you'll have no payments—except the house—and a fully funded emergency fund (can you imagine that)! Now it’s time to get serious about building wealth for your retirement. Don't think you can count on Social Security because if there's one thing the government is known for it's improper money management!  

Baby Step 5 College funding for children 

If you or your kids are looking at college you need to start saving. Helping your children graduate from college debt- free would be an incredible way to start their adult lives. 

Baby Step 6 Pay off home early 

Now it’s time to begin throwing all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments. 

Baby Step 7 Build wealth and give! 

It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. That's a pretty great way to live!

Download Baby Steps 

Those are the steps to our plan. We have a written budget that we religiously follow and right now we are on Baby Step 2. I am the first to tell you that it is not easy to complete (just read our other posts). But just like that wobbly baby learning how to walk, it gets easier with time and practice. 

The geniuses at NASA had a plan for getting Apollo 13 back home. They followed the steps, they got creative when necessary and above all they never gave up. Kristen and I have a plan for getting out of debt. We're following the steps and working towards our goal. There are lots of long days and a long payback period ahead of us but we are optimistic. It was much worse when we didn't have a plan and just expected to be in debt forever. Now we know there's hope.