Baby Steps 4, 5, 6: My Financial Journey as a Single Parent

Previous posts: 

Irresponsibility and Baby Step 0: Commit to No New Debt
Baby Step 1: Starter Emergency Fund
Baby Step 2: Debt Snowball
Baby Step 3: Fully Funded Emergency Fund



Baby Steps 4/5/6 are where we are right now.

These steps are done in order, but at the same time. That sounds convoluted!

• Start Baby Step 4; get it going consistently. 
• Start Baby Step 5; get it going consistently. 
• Finances stable doing those things? Keeping Murphy at bay? 
• Baby Step 6: get it going consistently and nail it! 

Easy-peasy! Debt is gone, committed to no new debt, definition of emergency is now narrowed down drastically, car and furniture replacement funds are in place along with 3-6 months of standard expenses, so we can really hammer these steps down hard! 

My journey: 

I wasn't sure if we were going to buy a house or not, so I had a goal set up for it but I didn't start actually funding it until I made the decision that yes home ownership would be the most appropriate experience for us. Before that decision was made in finality, I had already started saving for retirement. 

Baby Step 4: Start contributing 15% of your paycheck to retirement. 

• Participate in any match that your company provides. Max that out. 
• I am self-employed, so a SEP IRA is what I use. No match for me, but I have a set, relatively low amount that is contributed every year from the get-go. 
• Fund the ROTH IRA. 
• Max it out. 
• If that's not adding up to 15%, go back and add to your company's options or another plan. 
• For now, stop at 15%!!!

Baby Step 5: Save for your kids' college fund. 

• Use whatever options you have available to you do set aside some funds for your child's college. 
• In our home, we believe that college and other such higher education experiences should be the responsibility of the one benefiting from them. My son is expected to save some of this monthly allowance towards long-term saving which can include college. He is expected to bring in some sort of part-time income while in high school to save minimum half for college. He is also expected to prepare as well as possible for the SAT and ACT as well as actively seek scholarships and grants wherever possible. 
• He will work through college as needed. If he is making good grades, I will then fill in the rest of the gaps. 
• We worked these requirements out together. He's been raised on Dave Ramsey. He saw me paying down some ugly student loans. He's got it. 
• Thus, I am not really setting a significant amount of money aside just now. I am focusing on growing our family business, keeping my own retirement building and saving for a home down-payment. We have seen that these things will have the longest term positive impact on our finances. I will help cash-flow him through college as needed when the time comes. He has a good head on his shoulders and is currently applying for jobs, learning all about scholarships and has started investing some of his money. 

Baby Step 6: Finish paying off the house. 

• Well, I didn't buy one, so this is where I shifted "save for a downpayment."
• Right now, I have adjusted numbers to 18% for retirement since it produces a nice round number and the rest of our flexible money for the home down-payment. 
• I adjusted our budget to act as if we are living on 25% housing expenses (including utilities). Anything not spent in that category is automatically moved to the down-payment savings account. 
• I am blessed with a decent business and a low-cost-of-living area that allows us to do this. If I lived elsewhere, I would raise that percentage to a 5 or 10 number above our actual expenses in order to have some padding to send to savings. 
• This gets me used to living at that number already. 

Back to the statement that started this series of posts: 

I think it’s irresponsible as a primary parent to follow his plan to a T. You’re one person in charge of keeping yourself (and however many kids) afloat. You have to do things a little different than nuclear families because no one has your back when the ish hits the fan. Dave hasn’t lived that life.

What, in any of these steps, is irresponsible for a single parent to do????  


I'm not at Baby Step 7 yet, maybe that's where the irresponsibility of following the plan to a T comes in?

Baby Step 3: My Financial Journey as a Single Parent

As the analysis of the financial and moral responsibility of following Dave Ramsey's baby steps as a single parent continues, I find myself questioning why anyone would even bring up the question. 

But let's continue. 

Previous posts: 

Irresponsibility and Baby Step 0: Commit to No New Debt
Baby Step 1: Starter Emergency Fund

Baby Step 2: Debt Snowball

Now the debts are gone, using the infamous Snowball method. For me that was a bit modified to keep my motivation going. I got rid of the small stuff, then tackled the stuff that made me the angriest. Motivation and anger are the key factors here.

For baby step 3, there are some choices. Take that momentum and keep it rolling - or pause, celebrate, then pick it back up again. Unfortunately, some people pause too long and end up stopping here. It's good enough. Until they slip back into debt.... Oops!

Baby Step 3: Save 3-6 months of EXPENSES in a Fully Funded Emergency Fund

I paused a bit, saved a bit but not the full amount, I had recently moved into a house instead of our apartment, so rent was higher, but utilities were barely more. We had space to expand business operations (wood cutting, stamp making, soap making, sewing) and eventually we chose to do foster parenting for a year. Financially we were good, stable. But I wasn't focusing on building the emergency fund though some was slowly trickling in and not funding retirement at all!

I needed a van after the first couple of months and I paid cash for it. So there was clearly enough money I could pool together when needed, but it wasn't as organized as it should have been. I took a break, but I wasn't being irresponsible with money. It could have gone; it didn't. I should have been doing the steps all along. In the meantime, I introduced teenagers to Dave Ramsey middle school financial peace and provided monthly allowances for their personal needs. It was a great experience!

After our foster parenting days closed up, I pulled out the chart above and dove back in.

• 3-6 months of living expenses: this is a tricky definition. Each family has to decide for themselves what this means. For our family, we looked at our spending and decided on what could be cut back if possible and what was absolutely necessary spending. If we knew we had no income coming in, where would we cut back to make that money last as long as possible? We set our number at that and multiplied by 6. As a self-employed person who spent several years struggling financially, I didn't want to take chances not having enough. 
• In truth, our 6 months could last at least 9 months if I know beforehand that it will be needed, so preparations could be made (cut expenses down beforehand). 
• Some people need to start with 3 months, do the rest of the stuff in this step, then come back and fill in. Do what works for your family. 
• Start the car replacement fund: this does make sense to at this stage for most families. 
• In our case, I had just bought a van in cash and still had my car. The insurance cost difference was/is minimal, with the biggest difference in cost being registration costs and gas use. These were do-able. They are both Toyotas, so if we keep them maintained we'll drive them both to 300,000 miles. The van had 72K when purchased and doesn't have 100K yet! The car is at 120K (bought with 10K) and going strong! There just isn't a need for another vehicle for decades! So I am rolling car replacement into "car repairs" sinking fund. 
• Save 20% for home purchase: I am aiming for minimum 25% and I set this one aside for last. 
• Goal: 25% downpayment and 5% of the house value in cash for any immediate or find out right after repairs, etc. We then have the emergency fund of 6 months which will have been bumped upward to reflect the mortgage payment, taxes and any utilities changes. 
• Start furniture or other non-essential replacement funds. Again, makes sense at this stage. 
• But in our case: nah. If furniture goes bad, I can get by. Two years after making this decision, our couch cushion covers are shredding. It's a 30 year old couch and SO COMFY. I cover the whole thing with a nice blanket for now, but will sew up some fold-over cushion covers in the next few weeks here. If the cushions themselves go bad? Big flat pillows are cheaper than a whole new couch. The frame and springs are still sound. 
• Whole thing does go bad? I have a love-seat and can pile stuff on the floor to resemble a couch. It's fine! 
• Seriously. I am not buying new furniture until we've been in our purchased home for at least a year AND finances are stable AND furniture would bring more benefits than not having it. 
• Move up in the car if you really need to. 
• Yeah, we didn't and still don't need to. 

Yes, I made choices based on our situation. I don't yet see anything a single parent shouldn't do here. Or should do so significantly different that following this stuff would be detrimental.

Baby Step 2: My Financial Journey as a Single Parent

I am continuing to analyze the Baby Steps organized and promoted by Dave Ramsey in order to ascertain their efficacy for single parents. Is it truly irresponsible to follow these baby steps to a T?

As I move the next step, a new question is emerging: do the baby steps have enough wiggle room built in to comfortably accommodate all financial situations? Or are they really so stringent that only a nuclear family with 1.8 children making over $85,000 a year can find them useful without "breaking" the rules?

Let's take a look at Baby Step 2:

Debt Snowball: Pay off all your debts from lowest balance to highest.

• This is snowball. The avalanche method starts with the highest interest rate and works down; there is also a variation of starting with the highest balance and working down. Both of these mathematically work out to less interest paid over time. But.... 
• Here is what TIME Magazine has to say about the snowball versus the mathematically "better" options.
• List your live debts, those that are not in collections, from smallest to largest. Note which ones have minimum payments, subtract that amount from how much money you have available each month or that pay period to pay debts. Hopefully, this leaves you in the positive! That amount leftover is what you will send to the debt with the lowest balance. Repeat that payment amount each month until that lowest debt is paid off. Congratulations! Now, the minimum payment on that one is GONE! You can take that quantity, add it to the total amount you have been paying, so now you have MORE to go the next lowest balance. Rinse and repeat! 
• Don't have enough to cover the minimums? Can you sell something more? Get a side job? Increase income at work? Worst thing, call the companies you owe and ask them for some options; let them know how much you can pay and when. Work with them before it gets sent to collections. 
• Repeat all of the above with your debts in collections. This is especially important if you will be needing a mortgage down the road! 
• If you have a mortgage at this point, the snowball does NOT include your mortgage. Save that for another step!

You can also take a vacation during this time period, if you can pay in cash (cash flow it). 

• If you're adding to debt while paying it off, is that really helping anything? 
• Besides, this is a great way to find out about all the low-cost vacation options available! 

"But, but, but, but. My circumstances are different!" Are they?

Ok, maybe they are.

Dave is very much known for adjusting for particular circumstances. See this particular call where he says that he normally says to tackle the live debts (not yet sent to collections) in snowball fashion, then tackle those in collection also from smallest to largest. Yet he adjusts the plan for this caller whose only live debt is a student loan that she can easily pay the minimum on and clear up all the collections first.
                 https://www.daveramsey.com/askdave/debt/attack-live-debt-or-dead-debt


My journey:

• Our vacations at this time involved going back to our home state to visit with family. Gas money only was needed. And I usually earned that doing some housecleaning for an old friend who still lived in the area. 
• I did the debt snowball and knocked out everything everything under $1000. 
• Student loans were broken down into the individuals, but with the deferred subsidized ones set aside so I could pay off more items elsewhere first. Items around the same balance, I prioritized some over others: the car (it could be taken away!) and the educational loan co-signed by my mother (co-signed loans are a bad idea!). I got a lot paid down this way, including all but one credit card (the remaining was in a monthly repayment mode where it wasn't adding interest). I was so stoked! From there, I took new stock, looking forward to see my new *lower* total balance. It was slightly higher than when I started!
• By this time I was MOTIVATED. I had the fire burning, I had a good system in place; my new home business was bringing in steady, if low, income, so after much conversation with those closest to me, I chose to move two student loans into immediate payment, because these were HUGE balances and the highest interest. They were essentially undoing all of my debt repayment work with what they were adding in interest in the same time frame. They had to die!
• And die they did. I got to the point where every time a customer placed an order, half the income from that payment was being sent to debt, within an hour of the order placed. I was that motivated! And burning it up that hot! Making almost daily payments was powerful. 
• Once those two loans were gone (it took some time), the rest were knocked out in what felt like no time. Because I kept that intense behavior going. We had some financial dips during these last few months where I had to slow down, but I was so far ahead on all payments, that if ever I had to miss one or a partial one, it wouldn't have counted against me. 
• One set of loans sold out to another company during this time. Despite trying to stay on top of everything, I was marked as delinquent for 2 months on those ones. THANKS NAVIENT! I was calling the old company and the new company daily to find out how to pay my loans. It was two months before I got answers and I paid IMMEDIATELY upon payment being available. 
• This is one part of debt that SUCKS. You do everything right and STILL get dinged because they haven't set up payment options yet. 
• Guess who is slave to who? Not them to me, that's for sure! 
• Would it have been irresponsible to keep doing the snowball straight? Not at all! If that's what I needed to ensure the 80% behavior, then it would have been the smartest thing. But I had the 20% head knowledge, I was committed to the 80% behavior and I had the motivation, I had the fire. And THAT is the key principle here. 
• The RESPONSIBLE choice was to get the debts gone, in whatever method would actually get us there, with the greatest motivation. 

Even TIME Magazine finally analyzed and said what millions of people have already proven. 80% behavior, only 20% knowledge. 

And I'll tell you what - when you have a starter emergency fund (after never having had one at all!) but not credit cards, you really have to change your mindset about what constitutes emergencies versus what can be left aside and what could be cash-flowed. I didn't want to touch that emergency fund, so I did whatever I could to cash-flow. No new debt and no touching that emergency money was top priority for me!

It really led to a serious prioritizing soul search. I also learned that I could anticipate things coming up. I knew when Murphy was heading around the corner down the street and I had time to prepare! Spidey-sense! Admittedly, it was a wee bit freaky when I first realized it was happening. Whoa! And the "emergency" was totally averted.

Part of my budget was that anything I didn't spend in a category (gas was cheaper, or I got a discount on insurance), went into a separate savings for when those things went up in cost or to pay towards a bigger something. I ended up being able to use that money to avert several a potential crisis. Only later did I learn the term "sinking fund." Sinking funds are money set aside for a future planned spending, maybe you know the date and maybe you don't, but it WILL happen: car repairs, visiting the doctor, car insurance, clothing replacement. None of those things are emergencies! They WILL happen! So in a sense you could say that this added to my emergency fund, padded it a bit. That may be a bit of a misnomer. Again, these aren't emergencies - these are expenses you know will happen. But I understand that many people have a looser of emergency, out of necessity in their own life situation at the time and historically.


I made minor adjustments. Were those entirely outside the plan? Perhaps on the edge a bit since I switched out the loans that made me the angriest. Watching the second segment of Financial Peace University reminds me though that the anger is the whole point. You won't do something until you are ANGRY about it. And angry I was. Hence, the knowledge versus the behavior. I think I fell within the parameters on this baby step: anger, intensity, motivation, get the job done!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Now, here's where the rubber meets the road: You NEED to be gazelle intense about all of this debt repayment. You need to get these lions off your back as quickly as possible so that you can get back to building the rest of your emergency fund and stocking retirement. Right now you've stopped all retirement contributions, even matched ones!

If you’re looking at two years or less to get out of debt in Baby Step 2, yeah, I’d stop the 401(k). I’ve been doing this a long time, and I still get a lump in my throat when I say to do that. But it’s really what Sharon and I did, and it’s really worked for a lot of people. It’s that power of focus thing. You’re permanently searing into the relationship in your household and into the two of you a whole new way of looking at things.

By being gazelle intense, focusing on the debt then building the emergency fund before saving for retirement (still gazelle intense!), you are ensuring there is NO REASON TO DIP INTO RETIREMENT WHEN EMERGENCIES HIT.

If you start retirement now, guess what you will touch when an emergency happens.

Guess how I know.

Now guess if I think these baby steps are truly irresponsible for a single parent to follow.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Previous posts: 

Irresponsibility and Baby Step 0: Commit to No New Debt
Baby Step 1: Starter Emergency Fund

Baby Step 1: My Financial Journey as a Single Parent

Two days ago, I shared a chart of the Baby Steps with the sub-listings. Along with a statement that is irresponsible to follow these baby steps to a T. And I am analyzing that, piece by piece.

Baby Step 0 is knocked out. Other than the spousal piece, there is nothing a single parent can't do.

So let's take a look at Baby Step 1: Save $1,000 in a starter emergency fund. 

• Chop up the credit cards. This was easy for me as I didn't have to cut them up. The credit card companies cut ME out! I made a plan for one of them to pay in installments over the next 5 years. Ouch. It froze the balance though, with no interest added, and it was a low enough amount, I just kept that going until all else was cleared, then I finished that one up. 
• Credit cards as a single parent feel like a lifesaver in the moment, but I ended up paying for GROCERIES up to SEVEN years after I'd eaten them! Gone! Out the other end and all! I didn't need credit cards! I needed a change in my already-highly frugal lifestyle that didn't allow for budget deficits! I won't tell anyone not to have credit cards, but nobody gets rich off of them! And they are so much more headache than they are worth. 
• I did get credit cards again later. Paid them off within 24 hours of them posting to my account, never paid a lick of interest. Got some cashback rewards. Discounts on Amazon. Great. Except the ongoing game being played to get those rewards, apply them, make all those payments on time. I had the money in the bank, just use a debit card and be done with the whole deal! 
• Get health insurance. We use CHM (Christian Healthcare Ministry) - I researched and selected it independently of knowing that it is the only one that Dave Ramsey advertises. Ha! That was an interesting coincidence! 
• I suggest looking at your other healthcare needs as well. We recently switched to a new doctor. We pay a monthly fee for our family and we get unlimited phone/text/e-mail access, 50 in-person visits a year, several labs and prescriptions are done right in the office by the doctor herself, you get appointments for as long as you need them (something you think is simple?  you can schedule 15 minutes; more involved or you're just not sure? 45 minutes, 60, 90 minutes). Our initial visit was 90 minutes each and THOROUGH. She gets to know us. And she refers us for other services based on what we need. No preauthorizations needed. I LOVE IT. This is the best thing for our family! 
• So take a look at YOUR needs. And see what options are available. You could save so much money and headache and nuisance having your health care aligned with your family needs and values. This is perhaps even more important as a single parent, since you are indeed the only one take all the kids to the doctor, to the specialists, and caring for them when they're sick. You need piece of mind. 
• Life insurance. Single parents need this. If something happens to you, you want your kids taken care of in your absence. And you don't want anyone responsible for your burial costs. Dave Ramsey has pretty strong statements on the types of insurance. I didn't do this step right away. If something happened to me while my son was smaller, the people who would have taken him in were able to do so without any additional money. But the burial costs got to me.... I did get it later in the game. 
• Amputate cars you can't pay off in 24 months. I had 3 years left on the car and I did try to sell it. But I wasn't being offered near what I needed to make the sale useful (able to buy something cheaper and pay down the loan), so I didn't let it go. In the end, I had the car paid off in 12 months from the date I started the Baby Steps, so two years early. And I still drive it today. It's a Toyota. I have had it for 10 years now and I've got at least 10 MORE years on it! 
• Raise deductibles if it makes sense. Health, auto, etc. Do what makes sense for YOUR family. Look at your typical and likely costs and do what makes sense! Lower deductibles mean the insurance company kicks in sooner, but you pay more in the meantime; higher deductibles mean lower premiums but you need a chunk of cash upfront. I did a mixed balance, some lower, some higher. With a lower emergency fund and not having the sinking funds yet, I didn't want to take the deductibles TOO high, but I also needed to free up some cash-flow from those premiums. 
• Do what fits YOUR family. 
• Draw up a will. If things are pretty basic, you can use LegalZoom or another similar service. If you need more details, you may need to contact a lawyer. I used LegalZoom and when it came to needing some of those documents (I did POA for medical care, my finances, my son's finances; care documents for my son; a few other items; and the all-important will), the ones needed worked out perfectly! No expense for me! Just needed a notary, but my bank offers that to their own customers for free. 
• Get Long-Term Disability Insurance. I opted out of this step, because my then upcoming line of work should provide for residual income. It does! It works! I had a 14 month furlough that this disability insurance would have helped with, but as it turns out, my income stream decreased but was steady enough to provide for my son and NO NEW DEBT. 

But what about the main goal? SAVE $1,000 FOR YOUR STARTER EMERGENCY FUND. 

My journey: I had to call everyone I knew personally that I owed money to or that I otherwise relied on (since I didn't have a spouse!) to get their insight on this ("had to" = my choice, I didn't feel right doing it without their permission). EVERY LAST ONE OF THEM agreed: do it. That way I have a lot more wiggle room before calling on them, using a credit card, or making any other poor decisions. But 2 requested to be notified when I touched the emergency fund so they would know there may be a need upcoming. 

Up to that point, as a single parent, I did not have an emergency fund. Everything went to debt or the next "emergency" - and it was all emergency because I didn't have an emergency FUND. 

Guess what? Most American's don't have even $500! Google it!

• https://www.cnbc.com/2019/01/23/most-americans-dont-have-the-savings-to-cover-a-1000-emergency.html
• https://abcnews.go.com/US/10-americans-struggle-cover-400-emergency-expense-federal/story?id=63253846
• If those links go outdated, it's easy to find more. 
• AND these numbers have NOT CHANGED in over a decade! 

So Dave Ramsey's advice of $1,000 is outdated, but the studies show the SAME INFORMATION year after year. 

What if you have more than $1,000???? 

• At this baby step, Dave says, "Check it off that you've done it and move on to the next step."

That's it.

So far, so good. 

As a single parent, I can still follow this to a T and be financially responsible. I was part of the population that didn't have the $1,000 and I was facing eviction, repossessed car, and living on food stamps. All while working my tail off to find a job or some source of income (I ultimately set up my own online business but that's another story!).