THESINGLEFRUGALTON

Yesterday I explained about the first step in setting up a budget, the thirty-day spending analysis . Today I am going to talk about two budget programs that may be useful to a person who is getting out of debt. Both programs are financially sound and can help you on your way to freeing yourself from debt. Which one is best for you really depends on your viewpoint. Or you can do what I’ve done, and take what works best for you from each plan.

Dave Ramsey –

Dave Ramsey’s Financial Peace University is a debt-free program which is offered in numerous churches. His book Total Money Makeover , is a good place to start.

His plan consists of several main philosophies:

1. No more credit  - The only kind of credit he is okay with is a mortgage, and even that is within limitations.

2. Babysteps - Instead of looking at the huge numbers that may be involved in your debt load, Ramsey has you take it one step at a time. These steps include:

• Baby Emergency Fund: Usually it is suggested for this to be $1,000.00, but depending on your circumstances (i.e. family size) it may need to be smaller or larger.
• Pay off ALL debt (other than mortgage) using the Snowball method (start with smallest debt, pay minimum payments on rest till first debt is paid off, then add that payment to your next debt.)
•  Save an Emergency Fund of 3 - 6 months expenses
• Invest 15% in retirement funds
• Fund children’s college funds
• Pay off home
• Build wealth, invest and give.

While I could point you towards the official Dave Ramsey forum, I am going to instead point you towards a different forum which follows his philosophy, but is free.

The No More Debt forum on delphi.com is a very active and helpful community of people who are very strong followers of Dave Ramsey. If you have any inclinations to holding on to a credit card, I would strongly suggest NOT mentioning that fact there.

Mary Hunt - At one time in her life, Mary Hunt was in over $100,000 of unsecured debt.  One  day  she  realized  that  her  lifestyle was not helping her family at all. Soon The Cheapskate Monthly was born and her family was able to erase their debt.

I would highly recommend Debt Proof Living for anyone, and the book/workbook Debt Proof Your Marriage for engaged couples or married people.

Hunt’s plan uses the following:

10-10-80 Formula:  What this stands for is the idea of giving 10% (charity or tithe); saving 10%; and living off of the remaining 80%. When you first start out, your formula may be more like: 1-1-98, but the goal is to get it to a 10-10-80.
Spending Plan: Create a monthly plan for where every dollar is going to be used. This plan is based off of the initial 30-day Spending Analysis.

Freedom Account: This account is for those expenses that don’t show up every month, such as fees for the car registration/inspection, or for annual fees such as property taxes or car insurance.  For this account you add up all those infrequent expenses and divide them by 12, which then gives you the amount you need to put in the Freedom Account each month. Then, when it’s time to pay your car insurance, you have the money right there - Freedom!

Contingency (Emergency) Fund: Similar to Dave, she suggests 3- 6 months expenses

Giving: Mary Hunt believes that this is the most important part of her plan.

Rapid Debt Repayment Plan (RDRP): Make a list of all your debts from least to greatest. Add up all of your minimum payments. From this point until your last debt is repaid, you will *always* pay at least that amount each month to your debts. In other words, if you minimum payments in February total $432, but by April they are $401 — you will still pay at least $432.

I’ve not found a free forum which discusses Mary Hunt’s plan, but on her website Cheapskate Monthly you can access the most current issue of her monthly newsletter for free, as well as her numerous newspaper columns. In order to join in on the forums or see previous issues, you do have to subscribe.

Tomorrow I will be sharing my thoughts on several computer-based budget systems.

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