This piece was inspired by SUPREME OVERLORD trshmnstr’s excellent Gilbfin pieces. Read them first. This is an addendum in which I synthesized a bunch of things that ran around in my head while reading them that has been important on my family’s journey to financial stability. [AUTHOR’S NOTE: Trashy published a similar article along these lines earlier in the week, I wasn’t aware of the article when I wrote this, and highly suggest reading his article along with this.]

I want to say first of all that I am a fan of the Dave Ramsey method. I have used the EveryDollar app for three years now, and love it. What I ran into, and maybe others can relate, is that my budget is not the median $46000/year budget. Let me say first that I have been ridiculously fortunate, and also prodigal. But for context, let me also add that I bought a house in 2017 and in 2017, 2018, and 2019 I had unexpected house expenses on the order of $6000/incident in each year. An unexpected $6k in the middle of a budget cycle sucks for all of us. The $1000 emergency fund got blown up every time, and we’d spend most of the next year digging out. Additionally, we were, and through 2019, continued to be casual Ramsey-ists. I don’t think we’re ever going to be “gazelle focused” in our current lifestyle. A chance conversation in January or February of 2020 changed my outlook on budgeting, and has guided (thus far effectively) my approach to Ramsey-like budgeting that makes our budget more stable without changing the fundamental approach.

I was riding with my, sadly now former, boss in January or February of 2020 when we were both in Detroit for something. My boss grew up on a working ranch in West Texas. Literally two stoplights in the town. He has fun stories like, “that time my dad dropped the tractor on my arm when we were changing the tire and busted it” and “that time I got kicked by a cow and lay in a field as I listened to the police sirens go back and forth past me while I lay there with busted ribs.” He also happens to be one of the sharpest minds I’ve ever known. I miss working for him. A true West Texas sage. Anyhow, the story he told me was something like this:

When my son was just driving, maybe 17 or 18, he must have called me 5 times in 18 months because he’d run out of gas. So after the last time, I came out with the gas can, put a gallon in his car and told him, ‘follow me to the gas station.’ When we got to the gas station, I told him, ‘the difference between always having a full tank of gas and always having an empty tank of gas is one tank of gas.’  I said, ‘you put $10 of gas into your car every week. Sometimes you use $9, sometimes all $10, but when you use $12 worth of gas you call me because you’re broke down on the side of the road. I’m gonna buy you that one tank of gas. If you put $10 of gas in at the beginning of the week and use $9 that week, it will only cost you $9 to fill up the next week. If you use $12, you’ll still have gas and if it ain’t hard to find an extra $2 to pump it full.’

And then like every dad worth a shit I’ve known he added, “and then I told him don’t ever call me again if you run out of gas on the side of the road, I’m not comin’. He never ran out of gas again, as far as I know.”

For some reason that conversation crystalized a connection with one of the Iron Laws we have here: “foreseeable consequences are not unexpected”. One of the things we had struggled with for 3 years of trying to do the zero dollar budget was when we’d have decent-sized but not exactly regular expenses. Mrs. L would tell me on the tenth of the month, after we’d done the budget, “I’m out of contacts” and we’d have to either find $90 for this month or $650 for a years’ subscription. We’d usually settle on six-months for $340, or three months for $175 depending on what we could scrounge. Or the car would need tires, etc. We’d burn the entire emergency fund, and spend a couple months refilling it before we got back to paying more than the minimum on our debt. Or, we’d be making a budget and it would be, “oh yeah, we’re going to go to a nice dinner and buy each other some stuff for our anniversary. What do we cut for that?”

Now maybe the rest of you aren’t literalists and had this built into your budgets, but my budgeting philosophy prior to this conversation was always to basically maximize our debt retirement, and then cut that back when foreseeable, but unexpected expenses came to pass. But our debt was always yoyoing around a set point rather than truly declining. (There were other issues that got addressed as well as far as getting everyone on board with the budgeting process, in which my experiences are much like trashy’s. Having to tell my wife “we can’t do that $300 thing” was difficult. Once I took on the role of sole provider, it was hard to get my ego to say no. I want my family to have nice things. I may cover that in a later post.)

After that conversation with my boss, I went home and redid our next budget. I revamped our budget to try to give us that “one tank of gas” by the end of 2020 so we always have it going forward. I revisited our past three years worth of data to determine how much we spent on these Iron Law expenses and then started filling tanks. Car repair, house repair*, contacts, running shoes, Valentines Day, anniversaries, etc. Anything that had thrown our monthly budget into minimum debt repayment or tapped our emergency fund. Or worse, gone on credit. When we found out we were going to have a baby, I started building up a foreseeable fund for both baby stuff and doctor stuff. Luckily, our home expense this year was a new pool pump where I managed to buy the pump and get the electrical work done for about $800 which was half the price the pool shop wanted to charge us for installing a new one. Plus its a variable speed pump which saves me about $15/month on the power bill. Sometimes it takes a little luck to get ahead.

There was one other benefit. Money saved is fungible. When I changed jobs and went out on my own, I realized that I wouldn’t get a full paycheck for about 2 months, and had startup expenses to be self-employed (COBRA is about your only choice when your wife is pregnant and you leave a job). I borrowed $15k. There were still several points where we were down to our last $500 in real money before a check came in. However, when my little sparkplug changing mishap cost us $700, the money was sitting there waiting for us. Between the end of May, the last time I got a regular paycheck, and September when I really got the cashflow (hopefully) stabilized, we paid more than the minimum in debt reduction every month, and never dipped into using additional credit. When the emergency fund got tapped it was against invoiced but unrealized income. We always knew it was going to refill without changing the next budget . When the money finally started coming in regular, our savings account reflected all of those tanks we’d filled and didn’t need to tap this month.

So we may sit on significantly more than our Ramsey emergency fund of $1000, but the interesting thing is, once the tank is full, the carrying cost is built in. For significantly less than we put back in 2020, we’ll always have money for foreseeable but not exactly predictable consequences for a much smaller monthly cost, and a little extra fungibility for when priorities change. Thing is, if a tank gets full and we don’t incur the expense, we just zero that out until we draw on the full tank.

For example, I budgeted for 4 pair of running shoes a year. Mrs. L will buy 2-3 and I will buy 1-2. If Mrs. L and I come up with needing a new pair the same month, we’re looking at $250-$300 in unforeseen expenses. Once you have a newish pair each (we’re both going long on our most recent pair because of the pregnancy), you can drop $50/month in a tank and never worry about finding shoe money again. And if she doesn’t need a new pair for a while and mine are good, when we get to $300 in savings, we’ll just reroute the $50/month to the next tank to fill or debt reduction. Contacts, car repairs, whatever. Same thing. Figure your annual cost as the amonut required to fill the tank, fill that as fast as you can, then reduce to 1/12 of your annual cost. If an expense comes early, you might have to find some $200 or $500, but you never have to find $1200 in a month when you already planned to have a birthday party, your car needs tires, and you’ve only got your $1000 emergency fund. Plus fungibility. If you have to raid one of your other accounts this month, you might have several months to make it right. You are much less likely to end up cash poor.

I can’t even say it put off our debt-free date. (Borrowing the startup money did, but that’s a business expense to get to a better final ending. Maybe Dave would beat us up, but working for myself has been worth every dollar in interest if we pay the minimum each month [we won’t].) What it did was solidify our finances, and give it us a better ability to “manage with certainty” to steal another solid principle of a former employer that I admire. By the time we have our one tank of gas at the end of this year, it would take a truly unforeseeable expense to break our budget**.

*I should point out that given some of my descriptions of housing expenses, I am not expecting to put back the full $6000 in unforeseen annual expenses during that 3 years in a single year, or really ever while we have non-mortgage debt. I am hoping to get to having 1% of what we paid for the home put back for annual repairs and maintenance. That seems like a reasonable “full tank” foreseeable expense to me. Ideally, when we get to the 4-6 months expenses stage, that covers things like new roof or replacing worn out floors. We could just arbitrarily raise our emergency fund, but I prefer the month-to-month stability of this method.

**We made one other slight modification to debt reduction. I ran the numbers on this, and it saves us about 4 months over 30, given we pay the same amount to debt every month. After we finish the smaller credit card, we have another credit card and a car payment that have similar principals but different minimum payments. Let’s say the car payment is $500 minimum and the credit card is $200 minimum, but the card has $1000 less in principal. Throwing the extra money at the car payment (which is maybe $450 in principal now, where the credit card is $120 in principal) is going to save us four months to pay both debts off. On the one hand, I get Dave’s method. On the other hand, ceterus paribus, maximizing your PRINCIPAL payment is the way to getting out of debt fastest. Excel can be your friend. Once you have a stable budget, (stable debt payment amount) paying extra on the larger of two principal payments of similar (+/- 20%) sized debt can have large effect on total cost and therefore time to debt-free. If you can’t reliably predict how much you are able to allocate month-to-month to your debt retirement, I suggest Dave Ramsey’s debt snowball method. Fewer creditors are better.