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Welcome back to the Debt Free Challenge. Before we get to the nitty gritty of actually writing your full budget, there are a few other things we need to cover. I’m relying heavily on what Dave Ramsey refers to as “Four Walls” in this part of the Challenge. Four Walls are the absolute necessities you MUST include in your budget in the order listed. The Four Walls are:


  • Food
  • Utilities
  • Shelter
  • Transportation


It seems pretty obvious, but if you have collectors calling because you’re behind on your credit cards, it’s tempting to promise them something so the phone stops ringing. Unsecured creditors should be pretty low on the priority list, so make sure your needs are met before making any promises to a debt collector. You don’t want to be current on the credit card and then not have enough money left over for groceries. You’ll get to them eventually but for now you need to focus on the necessities. As an aside, your rights as a creditor are covered under the Fair Debt Collection Practices Act. If you’re not familiar, click on the link and learn more.


The Rainy Day Fund


Once your necessities are covered, you need to put aside your Rainy Day Fund. As sure as the sun rises in the east, emergencies are going to pop up when you least expect them. The roof is leaking (and there’s no landlord to call if you’re a homeowner!), the car breaks down and you can’t get to work, or someone in the family ends up in the emergency room.

If you don’t have a rainy day fund set aside to cover an emergency, you’ll end up putting it on a credit card and the balances just get higher. It’s tempting to take all your extra money and immediately apply it to your debt, but I don’t recommend doing that. If you want to start paying on debt while you’re accumulating your rainy day fund you can, but make sure you have at least $1000 in reserve before you start seriously tackling your debt. I covered some strategies for starting your rainy day fund in an earlier blog post. Click here to read more.


Book Recommendation


If you’re still struggling trying to find a way to start your Rainy Day Fund on a limited income, I know of a book that might help. Profit First by Mike Michalowicz was written primarily for businesses but some of the principles in the book can be applied to personal finance, as well. The gist is to pay yourself first, even if it’s just a little bit, and leave that money alone. Do not use it to pay anything unless it’s a DIRE emergency. As I said in the Debt Free Challenge  introduction, you can purchase the book if you choose (the link is an affiliate link and I will receive a small commission if you do-thank you!) but I would rather you borrow a copy from a library if you can.


In the next installment of the Debt Free Challenge we’ll cover how to set your debt paying strategy.  See you in a few days!


Be well and God Bless-until we meet again…

Note-Any and all items contained in the Older Wiser Money Miser Debt Free Challenge are intended as a resource for informational purposes only and should not be construed as professional tax or investing advice.

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