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How much "Dave" is the right amount?

February 9th, 2011 at 01:36 am

DH and I are trying to follow Dave Ramsey's Total Money Makeover, but having some trouble figuring out how much of his advice we are truly comfortable with. First, we will be done with Baby Step 1 (EF=$1000) on Thursday. We have already begun Baby Step 2, the debt snowball, and have some great projections. However, we are combining it with the YNAB buffer method of having 1 months income in the bank at all times to help with our cash flow woes, so funding that is happening concurrently with the snowball. Our buffer should be fully funded by the end of June and then we can attack the snowball even harder from there. Both DH and I are comfortable with this.

The part that is giving us trouble is the part about using all of our savings to blast the snowball. Right now we have about $15,000 in an annuity that we have been funding for the last 12 years. If we cleaned out this fund (or left just enough to keep it open), we would be able to pay off 1/3 of our overall debt, but when we even THINK about doing that it feels like a punch in the gut. This account is the only thing we have been doing RIGHT with our money since we got married and we both hate to un-do it. What do you think? Is this a necessary thing to really get us "on the program" or can we just look at it as already having Baby Step 3 done before we are done with BS2? Are we drinking enough of the Kool-aid to make it work?

7 Responses to “How much "Dave" is the right amount?”

  1. ThriftoRama Says:

    No advice is one size fits all. If you aren't comfortable with it, don't do it.

  2. creditcardfree Says:

    I agree with thriftorama, however, I'm completely against annuities because they are very high in service charges and fees. Many financial advisors push annuities because they get a much higher cut. Ethical? Probaly not. Have you read the prospectus and compared it to a no load mutual fund at Fidelity, Vanguard or T Rowe Price. I would at least encourage you to discover more about the annuity you are investing in to determine if it really is the right place for your money.

    If you can make the snowball work without dipping into your savings and you feel good about...I say go for it!! Great job in making a plan.

  3. MonkeyMama Says:

    IT just depends on what works for you.

    In your case, psychologically, you might be better to use the cash. Because it's hitting you where it hurts. I am also presuming the debt is high interest. You could pay off Cap 1 or Visa, and snow ball the other one very quickly. Maybe just pay off the Cap One, and keep $5k cash in the bank. Though I am BIG in having an ample cash cushion, the smallest amount I have ever had was $5k cash. If I were deep in debt, I think that would be more than ample. But I like the idea of $5k mini emergency fund more than $1k - particularly when you already have some cash.

    Since it hurts so much to use that money, I think it's a good thing. Big Grin You will be very motivated to build that savings back up!

    But, all that said, you can reach the same end with 100 other methods.

  4. Aleta Says:

    I would assume that the one that you just paid off is an extra payment that you can now throw at another one. What is your interest rate on each of these loans and your minimum payments? That would help understand where you are. It looks like the bank of America will be paid off soon and then you'll have another payment to throw at your debt. Remember what Dave Ramsey says, you didn't get into debt overnight and you won't get out overnight. It takes time.

    I would also have you to find out if there are any surrender fees to take the money out of the annuity. Some companies have changed and you need to find out if you can do this.

  5. newlyfrugal Says:

    Thanks for all the advice! Some follow-up information: I mis-spoke; it isn't an annuity it is a Class A investment fund with double tax exempt status. My mom is the investment rep so I don't pay any commissions and I don't believe there are any fees associated with taking funds out except the transaction fee. Yes, the small balance we have on BOA will be paid off by March and then we need to attack the other 2 cards. Capital One is at 13.99 and the Visa is at 9.99 (fixed by our credit union so it won't ever go up or down). With our current plan and snowball we are aiming to be out of credit card debt in 24 months. I feel I should mention that my mom is REALLY against us taking money out of the fund because she thinks we will pay off the cards then just charge them back us again. I am prepared to stand up to her if my DH and I decide this is what we NEED to do for our family, but want to make sure it is the right thing first.

  6. frugaltexan75 Says:

    Neither of your interest rates are very high, and if you're able to pay them off in 24 months (maybe less by seeing what you can sell/making money online/cutting all expenses bare bone ... and throwing it at the cards); then I think you should leave that 15k alone. I would stop any contributions to it though until you're out of debt - just let it sit. The baby emergency fund of $1k is not a hard and fast figure - it's more of a benchmark. The amount of baby EF you and your family really needs depends on your unique situation.

    There is a great delphi forum dedicated to Ramsey ... No More Debt.

    YNAB + DR is a great mix! If you haven't already, you may also want to take a look at Mary Hunt. Back in early 2000/2001 when I was sinking under debt, it was DR and Mary Hunt, and eventually YNAB that got me back on track breathing fresh air again.

  7. Aleta Says:

    13.99 is still high interest in my opinion these days. I'm sure that you're not making very much on your investment fund or your emergency fund to justify paying interest rates. Everything is your decision and alot depends upon how secure your husbands and your job is. I would want to get rid of debt as soon as I could.

    frugaltexan75 gave you good advice. There's alot that you can do to make extra money including adjusting your budget and maybe cutting down on some expenses, selling some items, etc.

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