Debt is dumb; cash is king

...and the paid off home mortgage has taken the place of the BMW as the status symbol of choice.

So says Dave Ramsey, whose books, radio show podcast, and financial course have honestly and truly changed our life over the past few months, in spite of the fact that I am probably an unlikely candidate for his particular brand of teaching. (He's very southern, conservative, and proudly unsophisticated.)

It started in late April, when I got a free copy of his latest book at a conference the Artisan staff attended in Florida. As I read it on the plane ride home, I could feel my perspective changing. You know how that happens sometimes, right? You encounter a new idea or concept, and you know almost immediately that something in your life will never quite be the same, because there's no un-learning this lesson.

Debt is Dumb

The lesson I can't unlearn is basically that debt is bad for you. Those colossal student loans? Bad. Credit cards with 0% interest that allow me to buy stuff I can't really afford without very much risk? Bad. Car loans (which, thankfully, we do not have anymore)? Really bad. All kinds of money going into our bank account already marked with someone else's name on it? Unacceptable.

So Dave Ramsey recommends that people get seriously intense about paying off their debts in order to free up their best wealth-building tool: their incomes. And the first step to that is making and following a budget. Now, we've made budgets in the Austin household before. But never, and I mean never ever, have we followed one. I'd set up the spending categories based on our actual spending over the previous several months, trying to reduce the bloated ones so as to have more money available. But with a few dozen quick swipes of the debit card, that budget would be obliterated within the first month.

Cash is King

And here's where it gets pretty wacky. For the past four months, we have had unprecedented success following our budget as a result of making one simple change in our financial lives: we now pay cash. For almost everything that isn't automatically paid via a bank draft. Whereas we used to use our debit cards for everything from the grocery store to the post office, we now set aside a certain amount of cash for every category at the beginning of every month, and we put the bills into an envelope. When the cash is gone, the category is done. Period.

This simple change has reduced our discretionary spending by nearly a thousand dollars per month. Guess where that money goes? Well, since we've already cleared all our credit card debt, it goes straight onto the principal of Tracey's student loan, which is almost gone. Then it will be on to my gigantic student loan debt. And after that, the rental property mortgage. And then our mortgage. Our plan is to be completely debt free before Abel hits double digits.

In the meantime, absolutely no borrowing more money, for any reason. When our car was totaled, we paid cash on top of our insurance check to replace it. When we can't afford something, we save toward it. We cut up our credit cards, and we'll never see the inside of a mortgage broker's office again—and if you know my ambitions with respect to real estate, you know that last one hurts me the most. But really, it doesn't hurt. When we get around to buying our next property, we'll pay—you guessed it—cash.