The past week or so, I’ve been off on Spud Break. Yes, some crazy small towns in Idaho sill have the tradition of taking time off even though it isn’t needed…but am I going to complain? NO WAY!
I’ve used this time to work on a denim quilt (which still isn’t done), spend time with my husband (which is always a favorite), and feel sick the other 1/3 of the time (which is always my least favorite). And this time lounging in bed has allowed me to catch up on some reading.
My latest and greatest book was recommended to me by some good friends. I had noticed some odd habits of theirs and had to ask some questions that were bugging me. How had they already paid off ALL of their student loans? How could they afford their home and for mom and baby to stay home? and Why did they pay for most everything in cash?
I have to say that I was being very forward with them. Money is a Taboo subject with most people. But it was a complement really. I wanted what they have. Who wouldn’t want a nice home, no debt, and 6 months savings in the bank?
So they quite happily told me everything they knew about ‘The Total-Money Makeover’. It’s a program created by Dave Ramsey.
I had heard this guy’s name used before, and even some of his steps…but no one had ever talked to me one-on-one about it before. And it just sounded great! So I read the book and now I’m hooked.
I have to say that reading this book has opened my eyes a lot to finance and budgets. And I hate to say this, but yes, I was and still am naïve to the world of finance. It sure wasn’t taught to me in school and my parents (bless them) didn’t really teach me very well either. I knew that debt was bad, at some point you should start saving money, and that money doesn’t grow on trees. But when no one really shows you HOW to do some great idea…it just simply isn’t going to happen.
I’ll admit that we have a little bit of debt. Things like a car payment, school loans, and a best buy card because we needed to get a replacement computer for Landon while he was in school. I felt like these things were needed, justifiable items, that weren’t “Bad Debt”.
Ha, like there is a difference between “Good Debt” and “Bad Debt”. I’m sorry, but Debt is Debt. $20,000 for cars and school is just as painful as $20,000 for clothes and toys. My paycheck can’t tell the difference!
And the funny things is, I felt like I was the only one who had become trapped by this justification. That none of my friends could have fallen for such a ploy…but the thing is, I think it is way more common then I gave debt credit for. It’s just so Taboo! And that is a huge problem. And yes, I feel like some of the blame has to be pointed at us as church going folks. We don’t want to talk about problems with money because we aren’t supposed to have problems with money! It’s not what our dear prophet has advised us to do, so why not just try and cover it up! Sure, we can still go to dinner every weekend with you, and a movie after? Even better! Oh, and a road-trip to Lagoon and Utah…not a problem!
I felt like each month I was fighting my paycheck and the chances of life. Some months were good and fun with just playing. And other months something would break, get sick, or stop working…and I would panic. But did I ever talk about it with anyone before now? Nope. Landon and I thought that everyone lived this way. And that’s because most families do. I just didn’t know a different way until I met an amazing but different couple.
And that brings us back 360 degrees to when I started reading this book 2 weeks ago.
so…CONGRATULATIONS if you are still reading. Trust me, I probably would have quit about four paragraphs ago. Lol.
The book is about 200 pages of his Ideas explained and other people’s testimonials. It’s not new knowledge. It’s things that our grandparents and other rich people have practiced for forever and a day ago. It’s just so simply broken down into steps that make it easy to understand and follow. ((I’ll admit…there were some pages that I skimmed over because I ‘m not quite ready to start investing for my kids’ educations…I’ll read the book again in 5 years!))
Here are the steps-
1. Set up a $1000 emergency cash fund
(When it rains, it pours…make sure you have your cash umbrella!)
Sacrifice, work extra hours, and sell stuff to get the money.
Keep as paper bills or in a savings account.
Don't put it in checking or any other account or investment.
2. Pay off your debt snowball
List your debts, smallest to largest.
Pay them off. (There’s more to it then this, but you can read it or ask me for more details if you want)
3. Finish the emergency fund
Must cover 3 - 6 months of living expenses. 3 months if you have a truly steady job, otherwise 6 months.
$5,000 - $25,000
4. Invest 15% of gross income in retirement
Don't count any company-matched funds.
Don't count on Social Security.
Use these accounts, in this order:
1. 401K if company matches.
2. Roth IRA.
3. growth-stock mutual funds:
25% large cap
25% mid cap
25% international
25% small/emerging
5. Save for college for your kids
Use these accounts, in this order:
1. Educational Savings Account (ESA) in a growth-stock mutual fund
2. If you want to save more, use a flexible 529 that allows you to choose your funds
3. Scholarships
6. Pay off the house mortgage
Spend every extra dollar you have left after setting aside for living, retirement, college, and mortgage
Don't keep a low-rate mortgage just so you can invest at a higher rate. After you pay taxes on your investment returns, and factor in the additional risk that the mortgage debt brings, it's not worth it. In the long term, you'll come out ahead by being debt-free.
7. Build wealth
At this point, you're completely debt-free.
The next step is the Pinnacle Point: when your money makes more than you do.
There are 3 good uses for money:
1. Fun
Guilt-free enjoyment, if you can afford it.
2. Investing
Think long-term.
Don't try to time the market.
Choose simple mutual funds and debt-free real estate.
3. Giving
Giving it away can be the most fun you have with your money.
Additional advice
"If you will live like no one else now, later you can live like no one else."
Credit card rewards aren't worth it. You end up spending more in unnecessary purchases and interest payments than you make back in rewards. No one ever became rich from credit card rewards.
Buy a house for 100% down, or if that's absolutely not possible, get a 15-year fixed-rate mortgage.
You don't have to wait until retirement to do what you love. Get a job that you enjoy.
If you have cash or a scholarship, go to college. But pay cash; avoid student loans.
Don't get a 30-year mortgage with the intention of paying it off in 15 years. You'll find other things to spend your money on. Having a 15-year mortgage forces you to pay off your home in 15 years.
Your house payment should be less than 25% of your take-home pay.
Don't lend to friends. If you must give your friends money, give it as a gift. Loans ruin friendships.
"The love of money, not money, is the root of all evil." You have a duty to possess wealth to ensure that it's used properly.
Recommended percentages for allocating your money
Charitable Giving 10-15
Saving 5-10
Housing 25-35
Utilities 5-10
Food 5-15
Transportation 10-15
Clothing 2-7
Medical/Health 5-10
Personal 5-10
Recreation 5-10
Debts 5-10(less)
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If you’ve made it this far…then wow! You are a true friend and/or a curious person who likes to learn! Can you tell that I’m excited about this? Already in two weeks we have switched to a cash budget, locked up any cards we own, have written down a very detailed budget down to the last penny, and have already put $300 in a saving account! It’s weird, but all of a sudden I can see how far my salary can stretch while Landon is in school. We already have wonderful realistic dreams of getting our own home in about 4 years. AND be 100% debt free. That means no car payments and no student loans. And THAT makes me smile.
AWESOME! I love it, but is it true that he says you don't need to build credit because if you live like he says you should then you won't need it? I was looking as some of the reviews on Goodreads and that was the only thing I saw that gave me pause.
ReplyDeleteI've wondered a little about that, but he says that your credit score is just a piece of a larger pie that banks look at when providing loans. They will also look at if you've paid your landlord on time for 2 years, if you have been in the same career field for two years, if you have a good down payment, if you have no other credit good or bad, and if you are not trying to take too bid a loan.
ReplyDeleteI like a lot of his ideas, but we are still keeping our main credit card for real emergencies. Because even if we have over $10,000 in the back for our emergency funds, you can't always get to a bank when out of town on a weekend when the car breaks down. That's our thoughts on the matter anyways.
I've heard of Dave Ramsey's book. We mostly live by his recommendations already but I really need to read the book for myself. Thanks for sharing.
ReplyDeleteMakes sense!
ReplyDeleteAmanda - I just barely figured out whose blog this is, haha. I was wondering! We've done the Dave Ramsey thing since about 6 months into our marriage and I have to say we LOVE it. We are completely debt free and have always been able to stay within a budget and have never had a credit card. I'm not sure about the good credit thing, either - we've never needed it and to be honest the whole credit score thing completely confuses me. Someday (if Landon EVER finishes school, ha!), we will see what happens when we want to buy a house. I'm not super worried though, with a big enough down payment and no late payments on rent, Dr. bills, etc. - I think we'll be just fine. Good luck figuring out a budget! It can be hard the first couple of months but once you get the hang of it it's just awesome.
ReplyDelete