Debt-Free is Fun…and Expensive

And other things I’ve learned in the last 4 1/2 years of following Ramsey, downsizing, and “living like no one else” PART TWO

Some apples are good, some apples are bad…

The first time we ever had the idea of getting financially educated was when we heard Dave Ramsey on the radio. We ended up listening in on a regular basis, attended his Financial Peace University twice, and consulted with one of his advisors (on real estate). Our big dream was to go to Tennessee with our podcast equipment and yell in his big office, “We’re debt free!”

We learned a lot from him, both good and bad.

First the good:

We learned to give every dollar a name. This is such an important tenant, both in using a budget so you know where your money goes, AND in telling your dollar where to go (rather than having it skip out or whoopsie on its own). Going back to the last blog post, that is part of using your money rather than simply spending it.

We really didn’t get realistic and practical help in Ramsey’s “envelope system” until we started using You Need a Budget (affectionally known as YNAB). It’s a beautiful system that works well with our smartphones, and we can easily see and move around money at will. It works perfectly with Ramsey-style financial thinking.

One thing I did differently with YNAB, and again this goes back to THINKING about money differently, is that I renamed all of our responsibilities. I did not put “rent” as a category. Instead I put “a warm, cozy house”. I did not put “Verizon”. I put “cells to keep in touch”. And so forth. I renamed everything. It made budgeting not only less distasteful, but actually more like a game and fun to do. Which meant it got done. Which meant our money grew (more on that later).

Now the bad:

Saving up for everything and then spending it down never gave us traction for our money to grow. Instead, we were living paycheck to paycheck, month to month. Go to work, pay the bills, go to work, pay the bills… If we needed or wanted more money, the answer was always “go back to work…work harder…do more work…” We didn’t owe anyone anything (other than our student loan…more on that later), and we had sold and downsized our house, so our credit score read a big fat zero (a win in Ramsey’s world). As fun and emotional as yelling “we’re debt free” was going to be (just look at the picture on his website…don’t YOU want to be that ecstatic?), living paycheck to paycheck felt like a gerbil wheel. There was always something needed: car repairs, a washing machine, music lessons. Money was being spent (but with no debt), but money was not growing. Because in our understanding, “growing” money meant either getting a raise or not spending it to begin with. Furthermore, being debt free was actually dinging us and costing us money!

How was it expensive?

Occasionally people who called into the radio show would have trouble or question one of the tenants, but Mr. Ramsey always seemed to have a good answer. However, those answers just didn’t play out in real life for us.

For example, my husband needed to rent a car for a business trip. To say we got the run around while trying to use a debit card would be putting it mildly. The rental company (the only one in town) decided to make an EXCEPTION for us, because in the end decided we were a “good risk”. Why? Because my husband has been a business owner in the next town for more than twenty years. It did not matter one bit what his bank statement said; what mattered was that he didn’t have a credit card.

More troubles: when reserving a hotel, for example, many establishments place a hold on more than what the fee is in case you cause damage or end up spending more at their location. That hold on your debit card could mean insufficient funds available for your other responsibilities, and when every dollar has a name, there’s not a lot in the “I’m the hotel’s insurance policy” envelope.

Also, we could not get on a billing cycle to get propane delivered to our rental to heat our house, even though in our previous home we had ongoing service for over a decade! Why? Because we have zero credit. So the only way we could get propane was to pay upfront an estimate of what we would need. Guess what happened to any money overspent? They held onto it until the next delivery. How would you like to pay your electric bill that way?

Also (there’s a lot of “also”), I could not take advantage of coupons and deep discounts for places that reward their card holders. This cost me money, and over time, a lot of it. When I finally had enough of that and applied for one, I was declined. Why? Because of my now non-existant credit rating. Again, it didn’t matter what was in my bank account. I could have had enough money to buy their entire company and it wouldn’t have mattered.

I get the idea that if you have enough money to make due without those discounts and such, that is a good thing (and it was, and is). However, just throwing away money on principle sounds foolish at best, and keeps you on the gerbil wheel at worst.

Annnnd, the snideness that comes out! When your credit score is zero, none of these places you desire to do business with or take advantage of their discounts look at you like, “Wow…you are amazing! You have money and you pay cash for everything!” No, they look at you (and treat you) like, “Obviously you’re a deadbeat who won’t pay her bills and shouldn’t even be here trying to take advantage of us.” It was a definite inside look at how people without means are treated (horribly!).

Lastly, our debit card was compromised so many times! And there was no recourse other than to close it down, and wait. That meant, no access to our own money, and in cases of fraud, a wait until funds were replaced. This was a significant problem.

Bottom Line: Being debt free in an of itself doesn’t necessarily translate into financial freedom, but using your money wisely does. It goes back to part one, in how we think of money. Although Ramsey’s principles are wise in some respects, it falls short in others. Rules of the game we learned along the way, and how we’re (finally) growing our money, in the next part.

Blessings,