Monday, October 13, 2008

Thanks, again, Dave!

All the financial instability in the past few weeks has been insane. There have been all these shows on about how it's a good reality check for Americans and how so many are living above their means. What's scary is that if we hadn't started on the Dave Ramsey program a year ago, we could have very easily been one of those people. I had fallen victim to the "free financing" on more than one occasion. I was known to open a store credit card just to save 20% on that day's purchase. I'm sure I borrowed more than I could afford on my first hour. And, on our second house we have an interest only loan just to be able to afford a place in an inflated market. In addition to store discounts, it was hard for us to pass up a change to make payments over a year with no interest. We always paid them off in time, but it would be easy to mess some thing like that up.

Now, I'll admit, we got lucky in a lot of ways. Both of our house sales had a little bit of luck in them. We sold both within the first month on the market. We got lucky that Tim's company paid the realtor fees on our first house so we were still able to come out ahead. And the timing of the sale of our second house was even more amazing. Not more than 6 months after we left, the market took a down swing with more than a dozen houses for sale in our neighborhood alone.

It's not all luck though. We bought in to a lot of the principles that Dave talks about. Some of them we fought. It was REALLY hard for Tim to let our savings go down to the $1000 emergency fund that Dave suggests. It was even harder to put the 401(k) investments on hold until we paid off our debt. I'm so glad we did, though. I just keep thinking about how every one's retirements have plummeted. While I know they will recover over time, it's clear now how much better it was to pay off debt.

Take the following scenario - Say we had invested $10K in the past year in the 401(k). It's likely that would have taken a serious hit in the past couple weeks. Lets say it fell 25% (conservative compared to what our 401(k) actually fell). That $10k is now $7500. Even when the market recovers, it's going to take some time and there is still some actual loss. Here's where I am so pleased. Instead of investing in a loss (even short term), we put that money to debt. That $10K is still as strong as the day we paid it, probably even stronger when you consider some of that debt was on credit cards that would have likely had soaring interest rates.

So, I'm proud to say we're one of those Americans that managed to minimize our exposure to the down-turn in the market. We have no credit cards. Our second mortgage is almost paid off. We own our car. And, most importantly, we know where all our money is so we've been able to control our monthly expenses enough to 'find' the extra money we've needed for raising mortgage payments or unexpected repairs. Suddenly all those people who were skeptical of our crazy ways, our obsessive budgeting, and these crazy Financial Peace cd's are starting to see there is some value in what we've been doing.

We're not free from any of this insanity either. The money we did have in the 401(k) took a hit. We've also had to put off paying on some of our debts to cover rising costs. I'm just glad we found Dave when we did. Things could have been really messy.

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