I’m warning you: this is the nerdy post.

And it’s absolutely essential. In fact, it’s the key to how we paid off our house in 2.5 years.
For all you free-spirits out there, READ THIS POST. Don’t tune it out. Let it motivate you and inspire you! You can do this. Trust me, if I can do it – you can too.

In summary, there were 4 keys to our success:

1. Live on less than you make.
2. Follow Dave’s baby steps.
3. Stick to your monthly budget.
4. Use the Envelope system.

 I’ll happily walk you through why each of these was vitally important on our journey.

As I mentioned yesterday, when we first got married, I was still a student in college. Which meant we were a single-income household. Even still, we were committed to living on less than we made. No matter what, we would save at least a few hundred dollars a month. The budget was tight, and we were living in a very old, very small apartment for $490/month. No air conditioner, no dishwasher, and no washer/dryer units. (Only a ghetto little coin laundry next door. Complete with scary camel crickets.) We could have chosen a nice apartment and maxed out our budget with no wiggle room, but we chose not to. And that is what made all the difference.

This was where I started my business: in the glamorous guest bedroom of a tiny old apartment on the side of the mountain. And I wouldn’t trade it for anything.

The key was this: as my business grew, as Will got a raise, as our income increased…. our budget didn’t. When our income increased from $37,000 to $100,000 over 4 years, we still lived as if I was still a student and we were a single-income family! (You do the math – you CAN pay off your house in 2.5 years that way!) We saved like crazy, and never increased our lifestyle. (Well, except for Winston. He was a lifestyle increase. A large, 135 pound lifestyle increase.)

We always lived well below our means.

The best advice I’ve received in personal finance is to take one thing at a time. Multitasking in your finances can be quite overwhelming, which is why Dave’s baby steps are so helpful. They are practical steps to follow in order, and they are best conquered if you tackle each one with intensity. Not sure what these steps are? Glad you asked! (For a more detailed description, click here.)

Will and I were extremely blessed to enter into marriage with no debt. What a crazy blessing! I’m learning more and more that is so incredibly rare. (Shout out to Grandpa Gene, Grandma Neva, Dad and Mom for paying for our education! We love you!) So when we got to Step #2, we skipped it and moved along to Step #3. But in the meantime, something happened –

We grew an intense hatred for debt.

We saw it trap our friends, put family members in bondage, hold others back from their dreams, and literally put fear into the hearts of many. Debt is debilitating. We got so fired up, so passionate about this, that we decided to be gazelle intense about our finances in general. Instead of intensley tackling debt, we were tackling our future house! We wanted to have a mortgage for as little a time as possible.

(And yes we skipped Baby Step 5. No need for that one yet!)

Ohhhh, the budget. My mind immediately goes to me and Will, sitting at our kitchen table, my head in my hands whining, “are we through yet?” like a responsible twenty-something year old. Oh the patience that man has! If it weren’t for his love for numbers and budgets and nerdiness, those meetings would have been a mess.

In all seriousness though, the budget is the key. The numbers have to work. You must “spend every dollar on paper” before the month begins. Every single dollar gets a name. Yes, even a haircut, even dogfood, even your car’s property tax, even birthday gifts. And guess what?  When there’s no credit card to catch your blunders, you make it work. You have to! And that’s exactly what we did.

Please, please, take this seriously. This is where we get sloppy, people. This is where it’s easier to “fudge” or change the numbers to make it work for you that month. “It’s not a big deal if I spend a little more on clothes this month.” YES IT IS! It’s a big deal every time you change the budget, especially if your spouse doesn’t know about it! We pinky-promised and spit-shaked that we would not change the budget at all unless we had a conversation about it first. So take it seriously, people. If you don’t, you’ll be right back at square one, and you won’t reach your goals.

I love the envelope system.
I hate the envelope system.

Basically it works like this: the items in your budget that are best paid for in cash (IE: Clothing, Groceries, Gifts), you put in your envelope system. Each category gets it’s own envelope. You fill it with cash when the month begins, and when you run out, you run out.

No exceptions.

I love the envelope system because it keeps everything organized. When I use cash, I don’t need to keep track of receipts. It simplifies my life! And I love glancing down into my envelopes and knowing exactly how much I have to spend for the rest of the month. It paces me. It keeps me on track. And it’s also much harder to spend cash than it is to swipe a magical card.

I hate the envelope system because sometimes the envelopes would run out of money. (Not that I had anything to do with that.) And sometimes those envelopes would be empty, but we would still have a week or two left in the month! Those were the hard months. We would have the most hodge-podge meals you’ve ever seen. (Hello frozen broccoli and peanut butter sandwiches!)

And get this: we didn’t have a “Restaurants” envelope. I told you we were gazelle intense! We had a “Food” envelope primarily for groceries, and if we had anything leftover at the end of the month, we would use that for eating out. I made budgeting into a game, and I was always so excited when I there was leftover cash!

All in all, I truly do believe that your personal finances are 80% behavior and 20% head knowledge.  I realized that I had to stop blaming my “free spirit” or immaturity or hate of the budget meetings. The bottom line is, I am responsible for my own choices. I am responsible for my attitude. I am responsible for my behavior. And when you can own up to that and still make hard, right choices, the reward far outweighs the sacrifice.

The question is, are you ready to sacrifice for a short amount of time in order to reap the rewards for the rest of your life?
“Live like no one else, so later you can live like no one else.” -Dave Ramsey

And that’s exactly what we did.

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[…] recovered from the downturn. What baby steps would you recommend to them?  I would recommend these baby steps, no matter what economy you are in! This will help you become “economy-proof.” No matter what […]

[…] first heard about envelope budgeting from Nancy Ray’s blog posts on financial freedom. Her story was nothing sort of inspirational… she and her husband paid off their house in 2.5 […]

Thanks everyone for your comments!

I’m gonna try to help Nancy out on some of these replies. So many comments on these posts that she hasn’t been able to get to them all!

– @Kati – Thanks for sharing! No, no typo. Dave says both things, but the original quote was “…so you can live like no one else.” He interchanges live and give a lot, and we are gonna do both.
– @Jennifer – Thanks for the comment. Bigger expenses like maid of honor stuff we/you know waaayyy ahead of time. Plenty of time to save for it month by month in the budget. I referenced unexpected expenses being one of the hardest things to work around. We’d take $$ from anywhere we could shave it: clothing (buy less), gifts (buy cheap or create), gas (drive less); and if it was a big expense that couldn’t be handled with that, we’d use the Emergency Fund.
– @Jamie – Thanks for reading! From both of us! Markets like Vancouver, and all of California, NYC, etc. are a challenge for sure. My bet is you’ll be surprised how these principles will work for you in the long-run, and you’ll end up better than you expected.
– @Hannah – Thanks Hannah! Each month we would talk about upcoming expenses for that month, and designate how much we would put in an envelope, based on our estimates. It really was pretty ugly at first, then each month after that, we got better at it. It takes a good 90 days to get a monthly budget working well for you.

I love, love, love this post!

Nancy! I’ve followed you for a while but recently have become so inspired by your financial story! I am a huge fan of Dave Ramsey too and loved hearing you on his show and how crazy happy & excited he was for you. I’m loving this series as well and am excited to hear more from you on this!

I am learning so much from these posts (yours and will’s), thank you sharing! I enjoy hearing it from your perspective (the free spirit) that definitely sounds like me. I am in college right now and I am trying to apply these principles with where I am now. Seems difficult, but still possible I think. I have just seen finances create so much evil in my family’s life so reading these posts and reading Dave’s website really encourages me that I can be the change to financial freedom in my family. My question is how did you know how much $ to have in each envelope?

love all these posts nancy. i’ve been following and clicking over to will’s blog too. so inspiring! dave seems to have a great program. i have to admit though, i get a little disheartened and/or cynical when i think about EVER paying off a home where i live… to buy a detached single family home (on a tiny lot… with literally 20 square feet of grass) you are looking at $500,000. most starter homes even an hour outside of vancouver where i live are $700,000…. feels less exciting to live with an intense, rigid budget for 5 years to own a… $150,000 one bedroom apartment in a crappy area here. 😉 BUT still principles i can learn from, for sure.

Jennifer Abercrombie

What an encouragement you have been! Thank you so much for sharing. I have a few questions though…
How would you pay for friends gifts I.e. you are the maid of honor in a wedding…
When expenses like this come up, where would you take the money from when living on such a tight budget?

Thanks again!

I’m enjoying reading these posts Nancy! I actually started his book this morning. We do live below our means and have chosen a small apartment (switched to a 15-year last year!) in the city and still drive our 15 year old jeep. Apart from my husband’s credit card (paid off each month) our only debt is our mortgage. I don’t use my credit card except in emergencies. We eat out once a week. Our adopted dog was also an expense at the end of last year (but totally worth it! :)). But I am always challenged to make small changes that will make a difference down the road. Because of our backgrounds and families, the rest of our lives are going to require international travel and that has become a huge part of budget too. I think my problem is my debit card – I have an idea and don’t spend frivolously, but it’s easy to pick something extra up at the supermarket instead of going with a list! Plus the bank takes the difference rounded up to the nearest dollar and puts it in my savings account, I am kind of nervous about the envelope system, mainly because I hate having large amounts of cash lying around (even hidden ones), but I am going to give it a whirl next month. Thanks for reminding us to think bigger!

Hey Nancy!

I’m so glad you are sharing your journey with us! I started listening to Dave Ramsey last year because I was finishing up high school and was so nervous about failing when it came to my finances. Dave has really given me a confidence boost! I can go to college without a student loan and not have to deal with all the debt at the end like my sisters are dealing with!

Congrats on being debt free! Loved hearing you chat with Dave!! I had the biggest smile on my face when you screamed!

P.S. The top image you have thank instead of than. Oh gosh, I’m turning into my mother correcting peoples spelling and grammar even though mine is far from perfect!

I am you. For as tightly wound as I am, I wouldn’t ever believe that I could fall into the “free spirit” category, but when it comes to money, I do! My biggest things are eating out and beauty products. I hate how we live. I hate that nervous feeling at the end of the month if the money doesn’t work. We have debt (student loans, leftover credit cards), but we are not still accruing debt, which is huge. We no longer use our CCs, we only pay them down. I think we can make the change. I’m excited to see how following these steps can really change our lives! Thanks so much for sharing so intimately about this subject. It’s greatly appreciated, and I look forward to reading more!

Nancy – thanks for sharing this. My hubby and I just signed up for the class thanks to you!! He is in law school, so I’m the only one making money too – AND trying to start a photography business! Haha :)

I am like you. I think I’m going to love/hate this. But I agree that it makes sense to sacrifice now and benefit later.

P.S. I think you made a small spelling error on the last sentence – should it say “live like no one else, so later you can GIVE like no one else?” :) Just figured you missed it and I’d point it out.

Love your work ~ I’m a huge fan. Thanks for being an inspiration!

-Kati Mallory

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