Baby Step 1

Hi, and welcome to the 2nd installment of my Dave Ramsey Baby Steps series for the UK.

You can find the first in the series (Baby Step 0) HERE, and today I’ll be explaining Baby Step 1.

Before we start Baby Step 1, I personally think it’s very important to have written a budget. If you need help on how to do that, I’ve written a post about that HERE.

 

What is Baby Step 1?

Baby Step 1 is the starting point to our financial plan. It is to save £1000 CASH in the bank. Or if your household income is less than £20k a year, that amount is reduced to £500.

This is our Baby EF (Emergency Fund). Now, don’t panic. Later on in the Baby Steps, we will come back to this ‘Baby EF’ and add more money to it, but right now, we just need to focus on saving that £1000/£500.

The aim is to save this money as quickly as possible, so that we can move onto the next step. So, we can sell any unwanted or unnecessary items that we have in our home (clothes, furniture, shoes, music equipment, ANYTHING goes) or cut out anything we can from the budget (this is why I feel it’s crucial to have written a budget before you start this step). Be lethal. As Dave Ramsey himself says, “sell so much stuff that the kids think they’re next!”.

Why have an Emergency Fund?

According to The Money Charity, around 9.45m (35%) of UK households have no savings whatsoever. That is a scary thought, that 35% of households in the UK don’t have any savings for emergencies.

As you can probably tell from its name, the EF is ONLY for emergencies. Things that we cannot see coming and unexpected life events. It is not for things like Christmas, Birthdays, Days out etc.

The fact is, that unless we have an emergency fund to cover emergencies, we WILL end up getting into more debt than we currently have. Life happens, and we need to be prepared for it.

Imagine that you lost your job, or that your car was in an accident, or you had an urgent plumbing problem in your house. Without that EF, how are you going to pay for the expenses that will occur? Well, if we don’t have the cash to pay for it, we’ll end up using credit cards, loans or other forms of debt. When we have an EF, we have that small safety net.

Many people find Baby Steps frustrating and pointless. Once they have decided that they want to pay off debt, they want to get straight into that Baby Step. But for the reasons I outlined above, Baby Step 1 is absolutely crucial.

I hope that has explained what an emergency fund is, and why you need one. I’ll be back later in the week with a post about Baby Step 2.

Claire.

 

 

Dave Ramsey- UK Baby Step 0

 

I’ve mentioned quite a few times that I loosely follow the Dave Ramsey 7 Baby Steps. I say ‘loosely’ because living in the UK means I do things slightly differently.

I’ve had quite a few requests to explain what the 7 baby Steps are, so I’ve decided to do a series of posts over the next few weeks, explaining each Baby Step, and how I ‘translate ‘them for the UK market.
This is the 1st post, which is all about Baby Step 0.

What is Baby Step 0?

Baby Step 0 is essentially, getting current on all of our bills. We don’t need to think about any of the other Baby Steps until we are current on our bills and are out of our overdraft.

So, in this step we need to think about our 4 walls.

These are:

1. Food-above all else, before we do anything else, we need to feed ourselves and our families.

2. Shelter (rent or mortgage)- We also need somewhere to live.

3. Utilities- we need to have lights, heating and electricity.

4. Transport- if we need to get to work then we need to think about this as it is crucial to making a living.

Then, we get current with things like credit cards, loans and other debt, before we actually start the Baby Steps. So, we are covering our 4 walls, and paying the minimums on all of our debts.
The aim is for us to get (and stay) current all the way through paying off the Baby Steps.

Stay tuned for the next post, all about Baby Step 1.

Claire.

Sinking Funds- How to save for large expenses

When sticking to a budget (If you need help writing a budget, you can find that here ) my biggest priority after paying for my fixed expenses, is to contribute to my Sinking Funds (SFs). This is because SFs stop me from acquiring more debt.

In this blog post, I’m going to talk all abut SFs, what they are and how I use them.

What are Sinking Funds?

Essentially, all of the things that you expect will happen at some point, are covered with small amounts of money that you put away into an account every month.

I like to think of Sinking Funds as lifeboats on a sinking ship. All is going well, you are sailing along quite happily on your debt free journey, your budget is running smoothly, you are paying off your debts using your Debt Snowball (or Avalanche), when BAM! All of a sudden, you hit an Iceberg. That Iceberg may be a broken down car, or School Uniform costs, or whatever the case may be.

What Sinking Funds do is take away that panic of hitting the iceberg. So you aren’t left panicking about how you are going to cover that expense. In reality we know these things WILL happen at some point. Its unheard of for you to buy a car and NEVER spend a single penny on it and then sell it 10 years later. All cars need money spent on them, whether its expected or unexpected. The same goes for lots different categories.

Some examples are:

Christmas- It’s on the 25th December every year, plan for it!

Birthdays-Similar to Christmas, birthdays are

School Uniform Costs

Car Maintenance/M.O.T

Pet Expenses

Home Repairs

Clothing.

 

How to start Sinking Funds

The general rule of thumb is to work out what Sinking Funds you need, then work out how much you’ll need for each fund, divide by 12 and save that amount every month.

So, if you’ll need £250 a year for car repairs, you’ll divide that by 12 (approx.£20.80) and save that amount every month throughout the year.

Where that may not work is when you’ve only just started SFs and you have a shorter time to save for expenses. For example, it’s September and you haven’t any SF for Christmas, or is August and you haven’t any SF for School Uniform costs.

In that scenario, I would work out the BARE MINIMUM you can get away with spending for that item, and save for that first. It may mean having to scale back significantly on Christmas for example. In 2017, I only spent £250 on Christmas in total. I never thought that was possible, but I managed it. And I’m sure you could manage on an equally low budget, if push came to shove.

 

At What stage to I set up Sinking Funds?

If you are following Dave Ramsey’s Baby Steps (as I do) then you will start SFs once you are in Baby Step 2 (paying off your debt).

This is not something that you ever stop doing either, it will continue to serve you for the rest of your life.

Where do you keep your Sinking Funds?

 

It’s really up to you. I keep mine in a separate bank account, and transfer the money to them every month. I don’t have them in a high interest account, I just have them in a cash ISA that I can withdraw from quickly when I need to.

I know of some people who keep their Sinking Funds in cash in their house. If you are going to do this, I highly recommend checking with your house/contents insurance to see how much would be covered by them in the event of an emergency (fire, robbery etc).

 

I hope that helps!

Claire.

 

 

 

 

 

 

Feeding my Family on a Budget.

During Frugal February, I’ve been trying to eat out less, spend less on food, and eat what I already have in the kitchen.
I have a reasonably well stocked pantry, a safety net that prevents me from panicking, a reminder from when times were not so good for me financially.

During the last few months of my debt journey, I did something called ‘Scorched Earth’. I got the term from Dave Ramsey. What this meant for me, was reducing my food budget as much as possible.

As you may already know if you’ve read my first blog entry My Journey towards becoming Friends with my Finances , I am a single mum with 2 teenagers. As all parents of teenagers know, they have hollow legs and will eat like they’ve not been fed in weeks! So to keep them full and keep the budget in tact can be a lot of work.

I try and focus on a protein and fat rich diet. Fat and protein keeps them fuller for longer, and they also enjoy these types of meals.

For example, a whole large chicken can do us 3 meals each, plus a lunch for me and daily meals for the dog.

On day 1  roast the chicken and we have a roast dinner with all the trimmings (frozen veg keeps this cost low)

On day 2 I strip the chicken of all the meat I can find. This is how much I got from it during February. A whole pasta bowl full of it.

Then I will make a curry with some of it.

On day 3, I normally make a huge chicken and vegetable pie with some of it, plus i have stuffing and chicken sandwiches for lunch.

As you can tell, this gets boring after a while, and its at this point that i start getting fed up with chicken!

Days 4 and 5 are usually eating any leftovers of the meals I’ve mentioned above, or maybe chicken noodle soup if there is enough chicken left.

This is just 1 example of how i feed my family on a budget. I’ll be sharing many more tips such as this in future blogs.

It All Begins With Baby Steps.

Hi, welcome back to the blog.

So, in my last post I mentioned that in 2015 I got to the point where I was in a very bad place financially and decided that I’d had it. Enough was enough, and I was ready to change.

If anyone is reading this, hoping I’m going to describe how i found a magical way to pay off debt and learn to manage money better without any hardship or sacrifice, then I’m sorry but that isn’t what you are going to hear.

It was (and still is) difficult. It takes time and sacrifice, as well as hard work and perseverance. But i promise you that it’s also going to be worth it.

So, I sat there at my kitchen table, despairing about my financial state and turned to Google, naturally.
I Googled ‘how to pay off debt’, ‘paying off debt quickly’, ‘how to save money’ and nothing I came across really struck a chord with me. I didn’t need to go bankrupt and I wasn’t interested in making minimum payments of £1 a month forever, or not paying my debt off (I was, and still am, under the impression that if you borrow then you also repay), I just wanted someone to tell me how I needed to start!
So, I then went onto YouTube and typed in ‘how to pay off debt’. Instantly, the first video called ‘How To Start Paying Off Debt’ popped up and i watched.

https://www.youtube.com/watch?v=BOrcOJSoNFU

I listened to a caller on this live phone in show describe how he wanted to start paying off his debt but just didn’t know how. That was exactly how i felt. I continued to listen when the host of the show, Dave Ramsey, told him that in order to sort it out, it was going to be uncomfortable and radical.
He talked about making a budget and then selling everything in sight to put towards your debt.

I was scared! I’d never heard someone say that before! But it made sense to me. How could i sort out my finances if i didn’t even know how much money came in, how much went out, and what i was spending on?

So I wrote my first ever budget. Although it wasn’t perfect, and was constantly added to and changed over the next few months (i forgot to add a lot of things), it was a start.

Over the next 2 years i sold everything that wasn’t nailed down, didn’t participate in almost anything that cost my money, didn’t buy new clothes (except school/work uniforms and shoes for me and the kids) and dedicated my whole life to paying off £12k of debt.
I’m a single mum on a low income, working full time in retail, so it did take me longer than some people. But I really don’t care. I still did it!

Now I am following the rest of the BabySteps as set out by Dave Ramsey, in order to build wealth. I’m currently on Baby Step 3, which is to save 3-6 months worth of expenses.
I still live frugally, so this blog is all about cheap but healthy recipes, how to save money around the house, and all sorts of other money saving content.

If you are interested in reading a review of The Total Money Makeover, the bestselling book by Dave Ramsey, Emma over at My Debt Diary has a great post here

Thanks for reading.
C.