In November of 2008, I heard an advertisement about a guy named Dave Ramsey, with a radio show called the Dave Ramsey Show. He is the “Financial Peace” guy, grabbing people and pulling them back from the precipice of “complex investment plans involving whole life insurance policies and the strategic use of debt.” He specializes in making the accumulation of wealth seem simple. I flipped him on instead of Gloomy-Cloud-Ky-Ryssdal and had a listen.
Dave’s theory first and foremost is - NO MORE DEBT! He explained the same thing that we had slowly been learning and coming to terms with: debt represents risk. Debt is spending what you want today with the assumption that your future self won’t mind working for whatever you spent last year. Debt is the golden handcuff.
I liked the guy. He’s a little “churchy” for my taste, but if that is what inspires people, I get it. Then, he started talking about an “emergency fund”. An emergency fund? What is this magical thing? As it turns out, an emergency fund was my ticket to sanity.
As Dave explained, I should hold six full months of my typical monthly expense amount in cash, in a good old-fashioned FDIC insured bank account. Then, if the Godfreys did lose both jobs, we would have six full months until desperation really set in. We could pay our mortgage, utilities, buy food, pay for internet to send out resumes, pay for gas to put in our car to drive to interviews, etc. And hopefully, we would find new jobs and recover before our six months ran out. Best of all, we would be able to focus on putting our nose down to the grind stone in our current jobs rather than spending energy on the high intensity fretting I had been doing.
We decided to focus immediately on building up a 6 month Emergency Fund. Now, I should say this isn't strictly Mr. Ramsey's plan. Dave would prefer that you get a tiny $1,000 emergency fund first, then pay off all your student loan and consumer debt, then build your six month emergency fund. And he is not wrong. His plan is more wise because every day that you pay debt interest with the left hand while saving an emergency fund with the right, you are slowing all processes down. But, I couldn't wait that long. We could save up our six months of expenses within 6 months if we focused, whereas paying off our student loans and consumer debt would take about 2.5 years! My sanity demanded that I give myself a relief from this fear sooner than later.
So, in November of 2008, we got started on the (modified) Dave Ramsey Approach. (Step 1) Reduce monthly expenses to the bare minimum. I.e. stop paying $200 to have my hair cut and colored every six weeks, just for fun. (Step 2) Establish an emergency fund of 6 months of full expenses in a regular old, tried and true FDIC Insured Bank Account. (Step 3) Once the emergency fund is in place, remove risk by paying off all unsecured debt. This means all debt except for the now minuscule balance of the mortgage that could be paid off if we sold the house. (Step 4) Once the debt was gone, save the money to sail. We committed to continue funding our 401k first through all of this, because we can’t eat Alpo when we are 85, whether we sail or not. We decided to leave our now half-priced savings we previously stuck in the Vanguard fund where it was (unless we got desperate) in the hopes that the value would return if the stock market recovered it’s footing.
Round one of layoffs hit in February of 2009. About half of my friends and colleagues were sent along the way to find something else to do with their careers. I escaped that fate, kept my head down and worked as hard as I could. We finished setting aside our 6 month emergency fund in May of 2009. A weight was immediately lifted from my chest. I could breath. I knew we had a chance at keeping all these balls in the air.
The second round of layoffs happened two weeks later.