First Steps – Ramsey was Wrong

Day 161: Taking <a href=Baby Steps” width=”180″ height=”240″ />
Image by bonnie-brown via Flickr

Fixing a lifetime of financial mistakes can be an intimidating process.  Scratch that. It’s always an intimidating process.  Where do you start?  You’ve got a pile of bills, a dozen messages from bill collectors and two bi-weekly paystubs.  What next?

Traditionally, and according to Dave Ramsey, the first step to fixing your finances is to make a budget, but he and tradition are wrong.   The first step is to get everybody involved in your finances on the same page.  If your spouse isn’t on board with paying off the debt and spending responsibly, nothing else will work.

Once you have that out of the way, you can move on to the traditional first step, making a budget. I’ve gone over my process to build a personal financial plan in quite a bit of detail, so I’ll just hit the highlights this time.

First, make a list of all of your expenses.   Include all of your utilities, debt payments, tax payments and absolutely everything else.  You need to know the amount of the payment and the frequency.  If a bill is due quarterly, divide it by three and you’ll know what you need to set aside each month.   Round up in all cases so you can build an automatic cushion.

Next, make a list of your income sources.  For most people, this is far easier than tracking their expenses.   Figure out your monthly income.  If you get paid weekly, that that amount times 52, then divide by 12 to get your monthly income.

Finally, subtract your expenses from your income.  If your total is a positive number then you are golden.   If you total is negative, you have been a bad monkey. You need to make some cuts, and they may be painful.  If your outgoing money is more than your incoming money, it is not possible to get ahead.

Once you have your income and expenses recorded, and you have made the cuts necessary to have a positive balance at the end of the month, you have a successful budget.  Congratulations!

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    1. That is so true. 🙂

      Get on board first, even just with yourself. And then you can move forward.

    2. You know what? You are totally right. If you and your spouse/signifcant other do not have the same goals, then you are set-up for failure. (Unless you want a budget that says ‘shoes-$2,000).

      I am lucky in that my husband and I have very similar spending beliefs and goals. We have been together since we were 20 though, so maybe ‘growing up’ together helps, and we weren’t already set in our ways.

      • We’ve been together since we were 19, but it’s only been the last couple of years that we’ve been trying to be financially responsible.

    3. Good points. It’s hard to be with someone (a spouse) and not be on the same page with them regarding financial goals. The budgeting has to be done together.

    4. Ha ha, yeah I agree without your spouse, friends, family and those around you on board it can be little swimming up a very rough river, possible but incredible hard and frustrating.

      • Yep. Sometimes, it’s easier just to ignore it when our budget gets ignored. It’s like a relief valve, as long as we don’t get back into the bad habits.

    5. Amen! I have developed so many budgets and debt payoff time lines that got runied by Hubby’s overwhelming desire to eat out. I am in my second go-round with digging us out of debt and he still pulls out the credit card too easily for my comfort. I think he’s on board but then I get surprised. He’s a grown man so I can’t “take away his credit cards” like a lot of people have suggested. He can (an has) go an open a new one. It’s an on-going battle. Thankfully he has a lot of wonderful qualities that make up for the lack of attention he pays to his day to day finances. I’ve got him corralled to a credit union account with a debit card and keep telling him to increase his direct deposit there so he has anough money to stay out of my hair. He is also careful abotu using his credit card for non-reimbursable expenses because I do read him the riot act. But he had the credit card for business travel.

      • Good luck! I have a weakness for eating out, too.

        Saturday, we had almost 20 inches of snow dumped on us. Sunday, everyone who got snowed in with us helped shovel out(5 hours of work!), so we treated them to Thai take-out. We should have thought that through better.


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