I became a follower of Dave Ramsey's financial advice after I read his book, Total Money Makeover, during the Christmas season of 2011. His recommendation to start an emergency savings account saved our family dog. You can read about that by clicking here. But for this blog, I'm going to share with you the tips I learned from taking Dave's nine-week Financial Peace University (FPU). If you wanna skip the reason I highly recommend the course, and go straight to enrolling, then click here to find FPU near you.
Day 1: Learning to Budget
Dave likes to use the "Baby Steps" to get us in finacial shape. Baby Step #1 is save $1,000 for a starter emergency fund. Why? Because just like grandma used to say, one day it's gonna rain.
I learned to change my view of budgets. Instead of seeing it as a tool that limits my spending, I now look at it as a tool that gives my money and me freedom.
The #1 cause for divorce is over money issues. That's why this course allows your spouse to join you for free.
* Money will not make you happy. It just magnifies what you are. If you're a generous person, you'll be more generous. If you're a stingy person, you'll be stingy with more money.
* DEBT is a THIEF! It steals your income. There is no such thing as good debt!
Day 2: The Debt Snowfall
Pay off all your debt (except the house) using the snowball method. The snowball method is to list all your debts from smallest to largest. Make minimum payments on all of them and attack the smallest one with a vengeance.
"The rich rule over the poor, and the borrower is slave to the lender." Proverbs 22:7 (NIV)
Some common myths we discussed:
- MYTH: I need to take out a credit card to build my credit score.
- TRUTH: The FICO score is an "I love debt" score. It's about your relationship with debt, not about your relationship with wealth.
- MYTH: My teenager needs a credit card to learn how to be responsible with money.
- TRUTH: More students drop out of school because of financial trouble than from academic failure.
- MYTH: I can get a good deal on a new car.
- TRUTH: A new car loses most of its value in the first five years.
- MYTH: You can't go to college without taking out student loans.
- TRUTH: 68% of millionaires with a college degree never took out student loans.
Debt is the most aggressively marketed product in America. Once he said that, it seemed like my eyes were opened to seeing credit card offers everywhere. I get them in the mail, stores are trying to convince me to apply for theirs, and I see ads for credit cards on almost every website.
* The greatest wealth generator tool we have is our income.
* Debt in America is a rather new thing. Dave says that our great grandparents thought it was a sin.
Day 3: Save 3-6 months of expenses for an emergency fund
"The wise man saves for the future, but the foolish man spends whataever he gets." Proverbs 21:20 (TLB)
Nearly 80% of Americans live paycheck to paycheck. They use debt to cover emergencies. The emergency fund will allow you to cover emergencies without going into debt.
An emergency fund is insurance. It is not an investment. Keep it in a money market account.
* The cure for comparisons is contentment. Gratitude leads to contentment.
Day 4: Invest For the Future and Build Wealth
Invest 15% of your gross household income in retirement
Investing $150.00 every month from age 25 to 65 (at 11% rate of return) gets you $1.3 million.
Dave said that as a father, his job is to be a blessing, not a burden. Proverbs 13: 22 says: "A good person leaves an inheritance for their children's children." (Sidenote: I was listening to a podcast where Steve Harvey was being interviewed. He said he accompanied a friend to the hospital to say goodbye to his ailing grandmother. She asked her grandson, "Do you know the name of your great grandfather." When he answered, "No," she replied, "That's because he didn't leave you nothing."
* "Someday" is not on the calendar. A dream without a plan is a wish.
* Leave a legacy for your children's children.
* Be proud of being wealthy. You didn't steal any of it; you didn't hate anyone; you didn't do anything crooked; you lived on less than you made.
Day 5: Buyer Beware / Save for your Children's College Fund
This video lesson was taught by Dave's daughter, Rachel Cruze, who is awesome. She said there are three ways to go to college debt-free:
- Select an affordable school
- Apply for scholarships, grants, and work study
- Get a job
* College is a blessing, not an entitlement. Why go to an out-of-state private college to get a degree in English, and then decide to become a missionary, if you have to take out loans?
Day 6: The Role of Insurance
Insurance is not to make us wealthy, but to protect the things that make us wealthy. Insurance is to transfer risk.
#1 cause for bankruptcy in the USA is medical bills.
The last 6 months of your life is the most expensive. It could be more expensive than an entire decade.
Life insurance is really death insurance, but that is bad for marketing.
Dave said prepaid burial expenses insurance is ridiculous. If you are 40 years old and it costs $3,000. That will be over $300,000 by the time you're 80 years old. Who are you? King Tut!
Day 7: Retirement Planning
Dave talked about the various investment options. I won't delve into that because of how the stock market fluctuates, but I'll repeat something funny he said. "Money is like manure. Left in one pile, it stinks. Spread out it grows." That was his way of encouraging diversity in a 401K.
Day 8: Real Estate & Mortgages
The idea of "home" is rooted into our spirit. For example: "There's no place like home." When people die, the reverend may say at the funeral, "She has gone home."
If you ask someone what the American dream is, you'll probably get 1 of 2 answers: (1) to own your own business, (2) to own your own home.
Dave said 100% of foreclosures occur on a home with a mortgage. Our FPU facilitor was a real estate agent, who said that's not entirely true. He said some homes get foreclosed if you don't pay your property tax or if you end up with HOA issues. Just food for thought...
If you can't pay cash for your house, Dave only recommends getting a monthly payment of no more than 25% of your take-home pay on a 15 year fixed-rate loan, with at least 10% down. More info on Dave's website here.
* A home is a forced savings account.
* I can't wait to pay off my mortgage and host a barefoot lawn party. Dave says the grass under your feet feels different when it's yours.
Day 9: Becoming Outrageously Generous
We are asset managers for the Lord. A steward is a manager, not an owner. Jesus talked more about money than he did about love or grace in the New Testament.
If you sow, you will reap. Unfortunately, some people gain from their money only the fear they'll lose it.
* When God asks us to be generous, it's not because he needs our money. His goal is not to reshape economics; it is to reshape our hearts. Because we are designed in God's image we are happiest and most fulfilled when serving and giving.
This course was a real blessing to my family. The sins of the father do not have to be passed down. You have the power to change your family tree. Come on in; the water's fine. FPU's website.