10 Money Mistakes to Avoid (from our own experience)
If you’ve never heard about Dave Ramsey, you are missing out! He is an author and radio personality who offers good advice to every day people about how to get out of debt (and often how to avoid it all together).
I first heard of Dave Ramsey about fifteen years ago when my church offered his seminar called “Financial Peace University.” Several of my friends attended, but my husband and I skipped it (probably because we didn’t have the money to pay the nominal course fee). Soon afterward, it seemed like everyone was talking about his envelope system, trying to explain it, and planning to live debt free, but we were stubborn and didn’t listen.
My husband and I were recently married at that time. Marriage combined all of our various credit card and small loan debts together, and they were weighing heavily upon us. Adding to our stress was the fact that my husband was unemployed for several months. We felt like we were being crushed under the weight of debt while only able to make minimum payments on everything. We had to take some sort of action.
We resolved to stop using our credit cards. That meant we needed a small amount of cash on hand to use in an emergency, rather than a credit card. Sad to say, in those days, we were counted among the number of Americans who had less than $1,000 in savings.
The conventional wisdom of the day was (and probably still is to this day) that you should pay down the highest interest items first, thereby saving yourself money in interest payments. But that method doesn’t take into account the demoralization you feel if it takes years to pay down that first debt. You feel like you’re no better off after a couple of years than when you started. We didn’t go that route.
We stopped going out to dinner for a while and marshalled our meager financial resources to pay off our lowest balance debt first, in about four month, which gave us a real sense of accomplishment. Then we were able to use the money we were no longer paying on that first debt toward the second lowest balance, which was too paid off in a matter of months.
In this way, we continued to eliminate our debts one at a time, each time applying the amount of the paid off debts toward tackling other debts. We paid off several credit cards, student loans, and part of a car loan (full disclosure: the car loan was to my husband’s parents, who knew we were struggling and they eventually decided to “forgive” the remainder of the loan, which was very generous of them).
Somewhere along the way, my husband did start a job, and that helped tremendously. It was tempting to go back to spending wildly once we had two incomes, but we resisted. Instead, we continued paying off all of these outside debts. Once we were down to just our rent and food, we started saving the down payment on a house. When we bought our first home, we did take a 30 year, fixed-rate mortgage, and we were careful to calculate the actual cost of homeowner’s insurance and taxes (which are considerable in Texas) into our monthly budget so that we would not end up house poor.
At some point, I don’t exactly recall when, Dave Ramsey’s name popped up again. They were offering “Financial Peace University” at a friend’s church, and she wanted us to sign up. Again, we refused, and the sad truth is that to this day, my husband and I have never taken a Dave Ramsey course, but we do occasionally listen to him on the radio.
In more recent days, Dave has been touting a new program called “The Total Money Makeover.” I’m not sure what it is. We are still likely not to buy it (stubborn much?). However, when I listen to his advice on the radio, I hear him talking about every financial mistake and pitfall we have ever made! Sometimes it is spooky – like he’s spying on us and using our mistakes to teach the whole world what “not” to do. Some of the mistakes we’ve made include:
- Taking out five year loans to purchase used cars we could not afford outright.
- Taking out a five year loan to purchase a new car we could not afford outright (this is a story worth telling soon- we have a new car with a payment less than $150/month).
- Continuing to use a monthly credit card for many purchases (although we have paid off the balance every single month, religiously, for the past ten years).
- Being too generous with our children at Christmas and birthdays.
- Going on “vacation” every single year. I put that word in quotes because for us, vacation has usually meant visiting family in Florida, where we stay with family.
- Splurging on excursions while on vacation because “we might never have this chance again!”
- Going out to eat, to the movies, and to family bowling nights more often than is wise for our budget.
- Risking financial ruin and tax penalties by having one member of our family uninsured (this is something I’ll explain in another post soon too. Maybe you’ll think I’m less crazy when you hear the whole story).
- Having dual mortgages on our second home purchase so that we could avoid PMI, rather than actually saving up the twenty percent down payment.
- Spending the bulk of a windfall payment on an extravagant vacation.