Financial Fitness
Freedom From Debt
by Mike Peek
We began the year, 2006, deeply in consumer debt. We were a household of four, husband, wife, and two children: a boy, and a girl. We had good jobs and were driving new automobiles. From the outside, we were living the American dream; however, we were in a budgetary crisis. We were living paycheck to paycheck. It was as if our checking account was a money laundering service, moving money from our employer to the debt industry.
I was a master juggler; therefore, we never missed a payment and had FICO scores above 800. I knew what we would have available, after making credit card payments, automobile payments, mortgage payments, and utility bills to spend on groceries, clothing, and lifestyle. We would use the amount, between what we owed, and the credit limit to pay for things. I was even able to predict interest, thereby, avoiding going over the credit limits. It would be a strain for awhile, then we would get a credit card in the mail with a 0% transfer offer, and, or a credit increase. This made me feel like we had breathing room, but it only served to increase what we owed. I thought that the burden was all on me because I did the bills, but Darlene was feeling the strain as much as, or more than me.
Searching
I am an avid reader; I will occasionally read a novel, but I prefer non-fiction. I enjoyed going to Barnes & Noble Book Store, getting a cup of coffee, and perusing the shelves for something to read. The first financial book that I bought was Personal Finance for Dummies; I felt like a dummy, working hard, but having no money. The book is a kind of textbook, personal finance 101. The book talked about many topics in personal finance, but I wanted quick results, so I became interested in the topic of investing. I read a lot about investing, books, and newspaper articles, but there was only one problem, I had nothing to invest.
It had become my practice to peruse the financial bookshelves at Barnes & Noble. I had noticed a book cover, several times, with a bald guy, wearing glasses. The author, Dave Ramsey. The book title: The Total Money Makeover. The subtitle: A proven Plan for Financial Fitness. Initially, drawn to read the book by the idea of fitness because I was feeling flabby and overweight about our finances. Darlene and I both read the book, Darlene does not normally read stuff like this, so I knew that she was serious. We decided to take the Total Money Makeover Challenge and confront the people in the mirror. We would later learn that the author of the book had a daily radio show: The Dave Ramsey Show, in which he answered caller’s questions, some also called to scream on-air: We’re debt Free! However, we did not begin by listening to the Ramsey Show but began our Total Money Makeover as laid out in the book by intentionally following seven baby steps.
Seven Baby Steps to Financial Fitness
Baby Step One
Save $1000 Fast: Walk Before You Run
We began walking through the baby steps in the fall of 2006. The first thing we had to do was stop digging the whole. We cut up all the credit cards, called the credit card companies, and closed the accounts to any more usage. This is the most difficult to do when addicted to credit, to go cold turkey, destroy the credit cards, and close the accounts.
We then had to get on a budget that we both agreed too. When we started walking the baby steps, the Ramsey Every Dollar app did not exist, in fact, the first iPhone would not launch until the following year. Dave Ramsey said to get on a budget, a written game plan. Jesus said: “For which one of you, when he wants to build a tower, does not first sit down and calculate the cost to see if he has enough to complete it?” (Luke 14:28 (NASB)) Dave Ramsey also wrote and talked about the envelope system for home budgeting. We developed a plan to save up $1000 fast. The plan amounted to working overtime, paying the minimums on everything, and using the cash envelope system.
Baby Step Two
Pay Off All Debt (Except the House) Using the Debt Snowball
Darlene was working in an outpatient day surgery center as a surgical technologist, and I was working in a cardiovascular intensive care unit as a registered nurse. When we began walking through the debt snowball, I moved from the ICU to the cardiac cath lab; this increased my income by being on call, weekends, and nights, with overtime on every paycheck. This also allowed Darlene to continue working in a mommy job, getting home when the kids got out of school and off work on the weekends.
The debt snowball is not mathematically the best way to payoff debt because it ignores interest rates, however, it is the best method psychologically. I had done terrible on my own; therefore, I was going to do exactly what Dave Ramsey wrote in this book. List all debts from smallest to largest, attacking the smallest debt with intensity, and paying minimums on the rest. After paying off the smallest debt, move your intensity to the next debt on the list, until you have worked all the way through the debt snowball, and are debt free (except the house).
While in baby step two, we used the same budgeting method that we used in baby step one. Payday was on Friday, every two weeks. We agreed on how much money we needed for all our expenses. Every other Friday, I would go to the bank teller window, withdraw the needed funds for our household, we would then divide up the cash into envelopes for food, clothes, personal, gas, misc, etc. I would pay all bills and debt payments that were due before the next payday. I would then put everything else in the bank account on our smallest debt, leaving $1000 in the bank account for emergencies.
Smart phones, and apps, are what present day young adults grew up using, but I do not believe that we would have had as much success, using a budgeting app, as we did, using the cash envelope system; therefore, I am a proponent of the cash envelope system for baby steps one through three. We even bought a cash envelope system wallet for Darlene to carry in her purse. She did most of the marketing, and I only had a couple budget categories in my wallet.
Dave Ramsey uses a term he calls gazelle intensity, which he got from reading Proverbs 6:1-5. During a three-year period, 2006 to 2009, we paid off a total of $84,621 in consumer debt: $49,322 in credit card debt, and $35,298 in automobile loans. We did this during one of the worst financial crises this country has ever seen; later named: The Great Recession. So, yes, we were gazelle intense. Our gross income went from $97k to $121k while in baby step two.
September 11, 2009
Darlene called into the Dave Ramsey Show to do a debt free scream. At that time, Dave Ramsey held what he called debt free Fridays on his show. People who paid off all consumer debt called into the Dave Ramsey Show, briefly told their story, and screamed, We’re debt free! It was a celebration for them and inspiration for those attacking their own debt snowballs. I got home from work just in time to scream with her.
Baby Step Three
Save Three to Six Months of Expenses in a Fully Funded Emergency Fund
I knew that we needed $15,000 for a fully funded emergency fund, so I continued to go to the bank teller window, every other Friday, withdraw the needed funds for our household, we would then divide up the cash into envelopes for food, clothes, personal, gas, misc, etc. I would then pay our bills, which were now utilities, insurance, and home mortgage, with no consumer debt to payoff, we had money leftover. Now, instead of paying debt, I transferred, everything that we had in checking to a savings account, leaving $1,000 in checking. I no longer considered the $1,000 in checking, our emergency fund because we were quickly building an emergency fund in a savings account.
While walking through baby steps one and two, we did not use the debit card, but we now used our debit cards to pay for gas at the pump, and any medical expenses. We continued to use the cash envelope system for all other spending.
Dave Ramsey explains that the emergency fund is not an investment but is insurance. The average savings account interest rate in 2010 was 0.17%. We were not going to get rich from this savings, and the savings would depreciate against inflation.
During this time, we also took out a term life insurance policy. Dave Ramsey recommends term life insurance of 10-12 times income. We took out a policy on myself but did not take out a policy on Darlene because she would soon leave the workforce for a time. I still have this policy in place because I took it out at the age of 41 through Zander Insurance. The policy ends when I reach the age of 61. We predicted, following the Dave Ramsey Baby Steps, saving 15% in retirement, that I would have enough in retirement savings, at 61, to replace my income if I died after the policy period ended.
Baby Steps Four
Invest 15 Percent of Your Income in Retirement
I signed up for the 403b retirement savings plan offered through my employer. They would match, contributions at 66% of 6%, this comes out to about 4% of my salary. We decided to save the full 15%, not including the 4% my employer matched, in the 403b. The account was with a reputable investment firm, Fidelity, and the fund options had good track records. I chose this path because it was easier to set it and forget it. I am glad that I chose this path because, this choice has set us up for retirement in our sixties.
Baby Step Five
Save for Your Children’s College
There really was no saving for our children’s college. When we completed baby step three and started baby step four, our son had already gone to college for a semester and flunked. He was trying to get a degree in beer pong. We were trying to cash flow his college towards the end of baby step two, so when we found out that he was not going to class, we turned off the faucet and withdrew him from the school. The months and years following were difficult in our relationship with him. He was angry that we forced the withdraw and did not speak to us for awhile.
Our daughter was going into her senior year of high school, and we wanted to cash flow her education. I was a veteran, having served in the U.S. Army, 1987 to 1992. I enlisted from the state of Texas. Texas had a program called the Hazelwood act. This meant that our daughters' tuition would be 100% covered, up to 150 hours, at state schools. She wanted to go to Texas Women’s, so all we needed to pay for was books, room, and food. We eventually brought her home, providing the room, and food in our home, while she went to the University of Texas at Tyler. She would eventually graduate with a Bachelor of Arts, get a teaching certification, and teach art.
We brought Bethany back home because Darlene decided that she wanted to get a college degree. Darlene and I met in the U.S. Army, where she was an operating room technician. Darlene longed to have a college degree. She considered pursuing an education degree, her best friend and her sister were both teachers, but she decided to pursue a Bachelor of Science in Nursing degree. She went back to school in 2011, began the nursing program at the University of Texas at Tyler in 2012 and graduated in the spring of 2014. She went into Neurological ICU nursing for a while but decided to return to the operating room, but this time as a Registered Nurse. It was not long before she heard the call of becoming an educator again, went to work at Whitehouse High School, and became certified as a health science teacher.
I became a Registered Nurse, having received an Associate degree in Nursing, 1997. I had become involved with a street evangelism ministry that preached the gospel and talked with people before large sporting events, events like the super bowl. We passed out gospel tracts and did open-air preaching. I decided that I wanted to pursue a formal education in ministry, but I needed a bachelor's degree first. I enrolled at the University of Texas at Arlington, RN to Bachelor of Science in nursing program, and graduated, December 2015. I then applied at Midwestern Baptist Theological Seminary and began graduate courses, Spring 2016. I graduated with a Master of Theological studies degree, spring 2019.
From 2010, when we completed baby steps one through three, and started funding retirement in baby step four, to the spring of 2019, we had cash flowed three bachelor's degrees, two teaching certifications, and a master’s degree. Daniel had also completed, through another source, a culinary arts program.
Ramseyish
We Lost Intentionality
It was not immediate, but there was a forgetfulness. We no longer listened to the Dave Ramsey Show or read any books on the subject. I do not remember when we stopped, but we stopped using the cash envelope system for our household budgeting. We withdrew cash for miscellaneous and eating out, but for everything else we were using the debit card.
Between 2013 and 2014 we needed to buy two automobiles. First, Bethany needed a car to go to Texas Women’s University, so I gave her the Saturn that I was driving, one of the automobiles that we paid off in Baby Step two, and we bought, with cash, a very used Ford Pickup Truck. Second, Darlene’s beloved Bessie, the name that she affectionately called her Ford Explorer, the other automobile we paid off needed replacing. She really kept the automobile as long as possible. We ended up paying cash for a slightly used Volkswagen Tiguan, which Darlene gave the name Jaunita. Darlene likes to name every automobile that we have ever owned, including our present automobiles; Thelma-blue and the Red-Rooster.
Within a fleeting period, Jaunita was a problem. The fuel pump went out, exceptionally large, found under the driver's seat, cost us about $2,000 to have the pump replaced. Then there was the screaming. Yes, screaming! We went on a road trip to visit my brother and his wife. While on the way, a very loud screaming sound came from the engine when taking one's foot off the accelerator. The cost to have this repaired was another $2,000.
Prior to this, my father passed away in February 2014. One of the books that I read, during my period of searching, prior to reading Dave Ramsey’s Total Money Makeover, was the Millionaire Next Door, by Thomas J. Stanley, and William D. Danko; a remarkably interesting study of millionaires, written in 1996.
My mother needed help figuring out her financial situation after my father passed away. He had accumulated over 1.5 million dollars in assets. I had no idea because he did not live like one would think that someone with his net worth would live. One of the things that I noticed that he did, that caught my attention. He used a Chase credit card, setup to automatically pay the balance every month out of his Checking account. Another book that I had read before reading the Total Money Makeover, was the Automatic Millionaire by David Bach.
Somehow in my conflated mind, I took the idea of automation and my father being a millionaire next door to his credit card usage. Prior to this, someone fraudulently used our debit card, which I took as a threat. The bank returned the money and sent us new debit cards, but my fear factor was up. With my fear factor up, and with my thinking conflated, I applied for and received a Chase Visa Card, setting it up just as my father had done, automatically paying the balance in full every month. All the while I convinced myself that I was not really using debt, I would even get 1% cash back on purchases.
Wading in the Water of Financing
This one little dip into credit, led to wading in the water of financing. September 2015, Darlene’s birthday was coming. She had graduated and was working again. We took out an automobile loan on a new, 2016 Subaru Outback, which she gave the name Thelma-blue. We traded the Ford Pickup truck, and I started driving the Volkswagen. We kept it because it was newer than the truck, and the kinks appeared worked out. Not long after, the power steering went out on the Volkswagen and the cost to repair it was more than $5,000. Frustrated, and refusing to repair the Volkswagen again, I traded the Volkswagen for a new 2017 Toyota Yaris iA and took on another automobile loan.
Throughout all of this, I had in the back of my mind, the Baby Steps, and convinced myself that we were still following them. We were saving 15% in retirement, and we did not really have credit card debt, “We paid the balance in full every month.” And automobiles were good debt because we needed reliable cars to get to work. This is what I had been telling myself.
The spring of 2019 rolled around. I had just graduated with a Master of Theological studies degree. Darlene and I celebrated, by going on a Caribbean cruise. Our daughter was engaged to marry a young man who had just graduated as an engineer. We really liked the young man and were incredibly happy for them. They decided on a venue and were making plans, but we did not have the cash to pay for the wedding, so I decided to take a loan from my retirement account. I thought, it is our money, so what could it hurt. I took out enough to pay off the automobile loans. Our daughter and the young man broke-up, and the wedding did not happen, but the money that we paid for the wedding venue and the cater was non-refundable.
We began 2020 owing $50k on a 403b loan and we were using a credit card to pay all our expenses, yet I still believed we were following the Ramsey plan. The COVID shutdown happened, and everything locked down. The school had released for spring break but would not go back into session until the fall, so Darlene was off work from March 2020 until August 2020. I was working in the ICU, so I had plenty of work to do. I worked and came home. Darlene would drive me to work, drop me off, pick me up in the evening, just to have something to do. Even when she did go back to work in August, the restrictions made the work difficult, so when Spring break rolled around the next year, 2021, we decided to do something crazy. We went to the island of Maui in Hawaii for a week and did it again in November 2021.
Return to Baby Steps Two and Three
Suddenly Awoken from Slumber
In 2020 we had stacked up some cash in our bank account because we could not go anywhere, even restaurants were not open. We had the cash to pay for these two vacations, but I was ignoring the 403b loan. The following March 2022, I looked at the balance owed on the 403b and the cash that we had in the bank account. I decided that we had enough cash in the bank to payoff the loan and cover our living expenses for the month. I sent the money to Fidelity and paid off the 403b loan, but I forgot about the credit card.
We were not budgeting but I did track our finances with the Mint app. I would look at the balance in checking, compare it to the money owed on the visa, and if the checking balance exceeded the amount owed to visa, we had money to spend. After paying the 403b loan, there was enough money in the account to pay all our expenses for the month, but the balance was less than the amount that we owed Visa. It was as if I suddenly awoke from slumber. I suddenly realized that we were in debt. We cut up the credit card. It took about two months to payoff the credit card, and another six months of gazelle intensity to rebuild the emergency fund.
After I had awoken, I tuned into the Dave Ramsey Show. I had not listened to the show for twelve years and discovered that much had changed in the way, and persons delivering the message, but the message, “Debt is dumb,” and the baby steps were unchanged. There were cohosts that they referred to as Ramsey personalities, and the show, no longer called the Dave Ramsey Show, but the Ramsey Show. I also found out that Dave Ramsey had authored a new book, Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth—and How You Can Too. I read the book and resumed listening to the Ramsey Show during my commute to, and from work.
Baby Step Six
Pay Off the Home Mortgage
It was September 2022; our remaining mortgage balance was $56k. I had had enough! I did not want to do this debt thing anymore. Thirteen years had gone by since Darlene called into the Dave Ramsey Show to scream, “We’re debt free!” Yet we got bogged down in baby step 5, and ended up going back into debt, all because we lost focus. According to Dave Ramsey, and the Ramsey personalities, baby steps 4, 5, and 6 are simultaneous. We were already saving 15% in retirement, so we need only get the mortgage paid off. Over the next year, we poured everything that we could squeeze out of the budget on the mortgage. On September 9, 2023, we walked into Chase bank, walked up to the teller window, told the teller what we were their to do, and wrote a check for the final payoff balance. We were excited but the payoff itself was anticlimactic, nonetheless, we were relieved. September 9th was a Saturday, so the official mortgage payoff date was September 11, 2023, fourteen years to the day, the day that Darlene called into the Dave Ramsey Show. Now we really were debt free!
Baby Step Seven
Build Wealth and Give
On April 9, 2024, seven months, to the day, after we walked into Chase Bank to payoff our home mortgage, I received a hilarious email from Experian. Experian is one of the three credit bureaus; the other two are Transunion and Equifax. The email was a warning, saying that I no longer had a credit score. The email said that this can happen for several reasons, but they wanted to reassure me that there are measures that I can take to re-establish a credit score. I confess that I laughed hilariously to the point that I had to hold my abdomen. We did not owe anyone in the world and had not made a single debt payment for seven months. Both times we were in debt, we had credit scores greater than 800. Wow! This really awakened me further to what is really going on with the debt machine. We had escaped financial bondage, and the debt machine wanted us back.
Never again! Never again will I be in bondage to a bank. Proverbs 22:7 (NASB) says, “The rich rules over the poor, And the borrower becomes the lender’s slave.” I had heard Dave Ramsey quote this passage many times, and it rang true in our lives. The debt machine in America is at the top of the heap of the richest industries in the country. I have spent much of my life enslaved to a bank and have been free from debt for over a year now. I can tell you that I sleep much better at night. Being in debt put a weight on my shoulders. Often, unaware, nevertheless burdened by the weight.
We are giving, saving, and investing like never before. After necessities, Dave Ramsey wrote in the twelfth chapter of the Total Money Makeover, “I can find only three good uses for money. Money is good for FUN. Money is good to INVEST. And money is good to GIVE…You cannot claim Total Money Makeover status until you do all three.” This is what Darlene, and I intend to do with the wealth that God has put into our hands throughout all the remaining days that God gives us on the earth.
