Recently, on ChristianPF.com, I wrote how we’re at a crossroads on Dave Ramsey’s Baby Steps. You can read that article here. Because of the sheer volume of responses, I decided to take some time to respond to each of the commenters directly. However, I believe that the comment was too long for the site, so I decided to post my responses here on The Christian Dollar. Please read the article on ChristianPF, then come back to learn what we’ve decided regarding Dave’s plan!
Responses to Suggestions
TC: Thanks for your suggestion to refinance the house. Yes, the ARM we currently have is scary, and I wish we had a 15-year fixed, but the value of our home is not high, and we are so intense on the Dave Ramsey plan that we think the cost to refinance would outweigh the benefits of a fixed. We’ve talked with several professionals about this, but it is something that we are revisiting every few months to see if it makes sense. Thanks for the reminder! Appreciate it!
Kathyrn: I’m thinking you’re right about the matches. Courtney and I have begun the process to contribute 6% to our 401(k)s. I like your advice about putting the goals that put us in a better financial position first. You’re right, more income helps us with the long term stuff.
Tim: We’re currently giving 10% of our income to the local church. We believe at this time this is all the Lord has for us to give until we have more of a grounding. But VERY important point! Our goal is to give like no one else! Great job on the order of priorities, some ARE just as important as others!
Sheila: I pretty much “know” Courtney will get a job. She has the drive, talent, and I’d be shocked if she didn’t. She actually already has a job in the same field, but just isn’t being paid as much as she would. The dental work would most likely never become an emergency. Great point on asking about whether we really need a bigger home. I’m thinking we wouldn’t, unless children are in the future. Read my response to TC about the ARM.
Mike D: Courtney is working nearly 40 hours a week. She is the sole provider of our health insurance and dental insurance. Plus, she’s going to school part time now. She’ll get a job when she’s out of school. We are tithing 10% of our net income. I like your order of priorities, and the point that we can do a bunch of this stuff at once! I LOVE the idea about the FSA for the dental work. I’ll keep that in mind when the dental work becomes more pressing. Thanks!
Amy: So glad you could relate! I mean, I know it’s a difficult situation to be in, and I wish you weren’t in it, but I’m glad we can relate. Please read my response to TC about the ARM. As for working on paying off the mortgage before reaching 15% into retirement, we’re not so sure we’re going to do that. Still thinking it through. My wife and I are going to sit down in a few minutes and discuss this . . . you can read what we come up with at the end of this majorly long response!
20 and Engaged: Awesome list. I love it. We’re not cramped where we are living, but when we have kids (probably 5 years down the road), we’ll need a bigger house. Thanks for your help!
Claire: We don’t have any children. Within 15 years, we will want children. Kids are probably 5 years away.
Kacie: Dave’s radio show speaks to renters a lot, if you didn’t know already, it might be something to check out! Thanks for your list. I see that you put college at the end of the list. That’s an interesting perspective! I’d love to hear more. Thanks!
Pat S: Your comments were very helpful. It’s interesting that you didn’t suggest a refinance as so many others did. But, I noticed, you also didn’t suggest contributing more than 6% into retirement (perhaps the purpose was to pay off the ARM mortgage as quickly as possible)? Please follow up so if I can see this is what you were suggesting.
Matthew: To answer your question, either way it would be years before we are able to pay off our mortgage. I think the key to paying off the mortgage is more traffic to TheChristianDollar.com and Courtney’s new job after her education. Thanks for the list!
Nate Hall: I like that giving is at the top of your list. We’re giving 10% of our net income to the local church. I’m glad you agree that college can potentially have a great ROI. Keep me in your prayers!
Derrik Hubbard, CFP: I like your approach. The thing that was most striking to me was your suggestion to find out how much each goal actually costs and work backwards. That makes so much sense! In many ways, we are doing just that. But there comes a point where you realize that you must not only depend on your savings to get you through a situation, but your income as well. For example, we have allocated a certain amount of money for college, and when our income exceeds that amount (even though the amount is not all we need for college), we proceed to the next step in a given month. I’ll remember to be more detailed in my planning though. Thank you!
LifeAndMyFinances: Key words: “My wife and I.” Keep it up, communication is key! Congrats on almost being out of debt! I suggest working on an emergency fund if you haven’t already . . . .
Randy: Not sure about the refinance. We’re looking into it, but our mortgage is so small the cost associated with refinancing may not be worth the potential savings. Most people in ARMs should refinance though, so I believe you are right in that regard. I love that you put giving as first priority. Our plan will be very close to what you suggested. Thanks Randy! PS: I’m under 30.
Anne Marie: Love your advice. We’re looking into new income stream options. Possibly an eBook at thechristiandollar.com? What do you think?
Roddy: Thanks for your advice! (a) I’ll probably be staying home with the kids while I blog (www.thechristiandollar.com). (b) We’ll need a bigger home when we have kids, our space is extremely small. Let’s put it this way: the living room is completely open to the bedroom. The ARM is in question. I’ll have to write more about whether to refinance. (c) Dental work is mostly structural. I believe it can wait for many years however. Thanks so much for your help Roddy!
Dan @ BlueSkiesFinancialCoaching.com: I think Dave would agree with you 100%! But I’ll have to pull out The Total Money Makeover and see about that refinance.
Debbie Thompson: I understand what you’re saying about dental work! I’ve had quite a bit of dental work myself, and it wouldn’t been bad if I didn’t! However, Courtney’s situation is not very severe, and we believe our income will go up substantially in the next few years. Thanks so much for your solid advice! Hey, come and say hi at TheChristianDollar.com anytime!
Devin: Not asking for Dave’s permission, just advice. Dave’s name is a brand which he must promote – along with the countless other non-affiliated names he promotes on his website, online store, radio show, and in live events. Not asking for permission, just advice. Thanks for your concern Devin!
Roberta CFP: I have a feeling Courtney and I are going to closely follow a plan similar to yours. Stay tuned, and thanks for your advice!
Marie Groves: Thanks for pointing out that dental work is crucial because work left undone might turn into something worse in the future. We’ll consider this in our plan.
Trent Wheeler: Begin and end with prayer, right? I totally agree. Thanks for your advice sir. Awesome!
Claxton: I don’t know if we’ll be traveling to Slovakia anytime soon, but what an insight into expenses in other countries! Thanks so much for writing Claxton. I really enjoyed hearing from you sir!
Our New Plan
After much time and effort, while struggling with Dave’s advice both on radio and in print, and with help from your comments, Courtney and I have come to agree on the following prioritized plan*:
1. Tithe 10% net income. Giving is crucial. It teaches us that we are not managing our own money, but God’s money.
2. Maintain 6-months worth of expenses emergency fund.
3. Ensure college savings are at least $4,000. This is the maximum cost for a term that Courtney would incur.
4. Contribute 6% of gross income into 401k matches. Free money! Amazing!
5. Ensure college savings are at least $10,000. This ensures wiggle room if income dips, and ensures fluid college funding.
6. Pay off mortgage. This step is being prioritized above further retirement funding because of several reasons: (a) the mortgage is an ARM and due to increase our interest rate soon, (b) the mortgage principal is much lower than the average household in our area, (c) a refinance according to several professionals is not worth the costs incurred, and (d) it helps Courtney and I sleep at night!
7. Contribute 15% of our gross income into 401k and Roth IRA retirement accounts. We’ll be better able to accomplish this with a paid-off mortgage and higher income by the time this happens.
8. Build wealth and give!
* There are a few exceptions to this plan. If we were to have children, we would have to reevaluate everything and will need a bigger home. Otherwise, we’d probably live here if children were not in the picture for a good long while. If a major emergency were to occur, we’d have to reevaluate everything. If the dental work were to become more pressing, we would get Courtney’s dental work done after she graduates and my dental work done after 5 years (we consulted our dentists on these timeframes). We are going to reevaluate ARM soon to see if it would actually be a good idea to refinance, so that might change this plan, but I doubt a refinance would make sense in our situation. This plan needs to be reevaluated after Courtney graduates from college.
Thanks to all of you who submitted responses. I’m sorry if I missed one of you. I’m sure I’ll be getting more responses on this topic. Please leave a comment below to tell us what you think about our new plan! But please read the ChristianPF post before you do so. Thanks!
Photo by sean dreilinger