This is How We Do It – Part Seven

Today I have the honor of wrapping up our week-long series, This is How We Do It.  We’ve answered questions about where we shop, how we paid off $20,000 in 8 months, how we do our budget, and even shared our thoughts on how to beat your addiction when you hold on to too much stuff.  If you’ve missed any of the series, click any of the links to go back and check them out. Part One, Part Two, Part Three, Part Four, Part Five and Part Six.  As I wrap up today, I want to thank you for sending us your questions and making this series a great success!

Okay, one last announcement that I’m really excited to share: after months and months of hard work and research, my full-length eBook is finished!  Beginning tomorrow, you will be able to purchase From Debtor to Better: the Details of Debt and How to Get Out!  I’ve packed tons of easy-to-follow information about how to put your debt where it belongs (in your past) and at only 98 pages, it won’t take you forever to get started on your journey to financial freedom.  Stacy will share all the details tomorrow.

Now, onto the last question in This is How We Do It:

• A little over a year ago the only debt we had was our wheelchair accessible van for our son and our home.  We had $1,000 in our emergency fund.  2011 happened ~ major medical, vehicle, everything expense happened.  No more emergency fund and we are $32 away from exhausting our $15,000 credit line ~ all in one year!  To say the least 2011 was the year that if something could go wrong, it did!  Well we are back to the envelopes and budget is set.  Problem is, we are back in the hole ~ majorly with no emergency fund.  I picked up a new bookkeeping client that adds about $400 to our income.  We have tried selling our horse ~ nobody wants to buy horses right now.  Anyway, I guess we know what to do from here on out, but what should we have done? Tires blew out on the van, Husbands pickup died, major medical expenses (dental after years of not going to dentist and two surgeries)two washers dying, dryer dying, a $1,600 pest problem that had to be dealt with, I could go on and on.  After the emergency fund was exhausted, all we had was our credit line.  I really don’t know what else we could have done.  We love Dave Ramsey and believe his ideas are great.  I do have to say, once we changed churches and started tithing a full 10% + on our gross income this fall(after reading what you thought about gross vs. net) God has really provided in amazing ways.  Oh also, what about tax refunds and tithing?  This year, since most of last year we didn’t tithe on our gross, definitely 10% will be going to the church, but in the future?  We will probably give 10% anyway, but how do you look at it?  Thank you for your time.

Whew, it sounds like you’ve been put through the ringer!  I surely hope this year is much better and you can regain some lost ground with your money.  Since you are where you are and can’t go back, don’t beat yourself up on whatever past decisions you made.  They’re done and can’t be changed – like it or not.  So what now?  First, be sure to get back a small emergency fund.  As long as you’re current on all your bills, this is priority 1.  You need a small buffer against the stuff that can happen (as you know).  Once you’ve gotten a small emergency fund in place (at least one paycheck ahead), then get about tackling your debts.  Sounds like you have about $15,000 in debt and while that is serious, it is not fatal. You didn’t mention what kind of income you’re working with, so I can’t give specifics there, but I’d approach it just like any other debt.  Pay the smallest one off first by putting every extra penny you can scrape together on it while paying minimum payments on the rest.  As you kill one off, move to the next smallest one and repeat until they’re all gone.  This is the Dave Ramsey Debt Snowball plan.

To more directly address your real question of what you should have done – the only answer that makes any sense is to have been a little better prepared.  The small emergency fund is only a starter of where you should really aim.  Ideally, you should have a full emergency fund that would cover 3-6 months of expenses (we’re talking $10,000+ here).  If you’d had $10,000 saved, would you have been in a different place in 2011 with these unexpected expenses?  I’m sure the answer is yes.  I know that goal is tough, though.  Get out of debt first with your small emergency fund to help keep you away from credit, and then build a bigger emergency fund to handle those future issues that may arise.  If something comes up that kicks you back into some debt during the process since you’ve only got the small emergency fund while focused on getting out of the debt, get through that issue with as little debt as possible, then get up and get in the fight again.  You will eventually come out on top.  Once you’re out of debt, build up that bigger emergency fund and then you can breathe a sigh of relief when a $1,000 unexpected bill comes your way because it will no longer be a crisis.

To answer your question about tithing on tax refunds, I don’t tithe on ours and never have.  Why not?  We tithed from our gross paycheck before the government got ANY tax money anyway.  Thus, we’ve already tithed on the firstfruits of our labor; any tax refund is a portion of our wages we get back and so we’ve already tithed on it.  We may (and often do) give some of that money to our church or a charitable cause but by definition, if you’re tithing off of gross, you’ve been obedient to God already and any tax refund is unrelated.

**The winner of the Dave Ramsey prize pack is Pam Shipley. Congratulations Pam! 🙂 Please check your email.

For all the posts in this series, see links below:

Part One

Part Two

Part Three

Part Four

Part Five

Part Six

Part Seven