Dave Ramsey’s Financial Peace University – Week 4

Debt

Dumping debt. Not only is that the name of the lesson for week 4 of Financial Peace University, but I think it’s something many Americans wish they could do (or convince Congress to do). In order to do it though, many need to be convinced that living in debt doesn’t have to be a way of life. Dave starts with a bit of history about debt in our culture. Living with debt is actually a relatively new frame of mind that wouldn’t have been considered by many in the first half of the century. However, we’ve been so trained and marketed to that we now accept it as a way of life.

In order to change our way of thinking, Dave debunks several debt myths. I’ll cover some of my favorites here.

  • If I pay it off my credit card every month, what’s the harm? The truth is that people spend more when they use a credit card (and even a debit card) than they do with cash. Why do you think almost every fast food restaurant accepts them now.
  • Car payments are a way of life. I can speak from experience that this isn’t the truth. We haven’t had a car payment in probably 5 years. The wise thing to do is to purchase a reliable used car. You can find a reliable used car in just about every budget range. If you need help finding one, post in the comments and I’ll do my best to help you out. If you want to find out one way to have free cars for life, check out this page.
  • Cosigning is a great way to help out a friend of family member. The reason that the bank requires a cosigner is because they don’t think the person can pay the bill on their own. They want to have an extra person to go after when the friend or family member defaults on the loan.
  • You’ve got to build up your credit score. You only need a good credit score if you plan to borrow more money and go into debt.
  • Debt is a financial tool. To make your money work for you, you’ve got to have some, and you won’t have much if you’re paying it all to the bank. Sure, you may have stumbled across a circumstance where it worked out to your benefit to borrow money in the past, but increased debt means increased risk in your life. They can’t take your car if you don’t have a loan on it. They can’t take your house without a mortgage. They can’t garnish your paycheck if you don’t have any credit cards or student loans.

I’ve kind of summarized my own answers to the myths, but you get the point. There are a lot more covered in the lesson.

So how can you get out of debt? It’s a lot easier than you think for most people. First, stop getting into more debt, find ways to get more money, like work more or sell stuff, and of course use the debt snowball. The debt snowball simply means paying off your debts smallest to largest, and taking what you were paying on the ones you pay off and put it against the next debt. Sure, you may think going after the one with the biggest interest rate would be best, but as Dave would say “if you were good at math, you wouldn’t be in debt in the first place.” Check out Dave’s answer to paying off the higher interest rate debt myth here.

Featured Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Recovering From Unemployment Part 3: Cutting Corners

Planning

Skimping and cutting corners doesn’t usually have a positive ring to it…unless it’s on your budget.  These are helpful tips even if your budget is rock solid and your main concern is de-cluttering or breaking material accumulation habits!  But listen: read through these and pick out ONE thing to try first.  Completely re-vamping your lifestyle takes slow change, it’s not an overnight accomplishment and will end up feeling stressful and overwhelming if you try everything all at once!

  1. DIY Cleaners.  There’s plenty of ways to cut back on household needs simply by making them yourself if you have the time.  Laundry soap is one of the easiest things to replace, and once you start making it yourself you’ll never buy the commercial stuff again!  I’ve tried a few different “recipes” and this is the one I like the best.  (The recipe calls for Dawn, but I actually use Gain dish soap though to make it smell like apples.) For those of you who dally in skincare, I highly recommend switching to the oil-cleansing method.  It costs less than your fancy 5-step regime and is so easy to make!  Click here to learn about the method, then click here to fine-tune it.  If you want to experiment with more DIY cleaners, check out this website.
  2. Drink water.  Quit spending money on beverages!  Juice and pop are expensive initially, and expensive in the long run with dental work!  (*Sigh*   It cost me $1300 to learn this lesson.)  Buy a decent water pitcher with a filter instead and learn to enjoy the taste of water.  It takes a withdrawal period, but eventually you’ll prefer water to anything else and begin to treat sugary or carbonated drinks as, well, treats.
  3. Go Without.  When appliances break down, consider if they REALLY need to be replaced.  Obviously some appliances are pretty crucial to modern society, but others are actually dispensable, despite what the Joneses think!  When we moved into our house the dishwasher didn’t work at all.  We assumed we’d replace it as soon as we could afford to, but once I got used to washing dishes by hand I realized I preferred to do so.  I’d always hated emptying the dishwasher, and now I find that I stay on top of the dishes so much better without a dishwasher!  Other appliances that you could probably learn to live without and still feel happy: dryer, stand mixer, garbage disposal, bread machine, toaster oven, food processor, food sealer, and…the microwave.  (Although admittedly, not having that first and last one would add more work to my day!)  The point is, you don’t NEED these things.  They don’t need to come out of your budget, anyway.  Put them on your Christmas list!
  4. Buy Used.  Cars aren’t the only thing that lose a good chunk of value the minute you drive them off the lot!  Checking out craigslist.com for gently used appliances is a great way to replace the ones that you DO need.  (And some would even argue that buying older appliances is smarter anyway, since they seem to be making them pretty sloppily nowadays…)
  5. Re-purpose clothing.  If you are even remotely handy with a sewing machine, an entire world of thriftiness is opened up to you!  Pinterest will teach you how to re-purpose just about anything into anything!  Have a tear in your shirt?  Sew a fabric flower or a skull patch over the top and now you have a custom shirt!
  6. Move past the brand name.  Chances are good that you’re already doing this, but see if there are any items that you’ve been holding onto brand names with and give the store brand a chance.  (Obviously not toilet paper… some things are sacred, right?)
  7. Use coupons.  Extreme couponing is intense, I can tell you!  Read up on it to learn how to match up coupons with store deals to get the best savings.
  8. Start a garden!  You can save a lot of money by growing your own vegetables and preserving the harvest for the winter.  This one is closest to my heart, obviously.  You can follow my blog to learn more about canning, freezing and dehydrating!  (How’s that for a shameless plug?)
  9. Walk, bike, take a bus or carpool.  By reducing your dependence on your car, you also save money on gas, maintenance and insurance!
  10. Create your own art.  Obviously if you are unemployed or just on a tight budget, you aren’t going to be spending money on decorations for the home.  But there’s still ways for you to add to the color and mood of your home without spending much, if any, money.  If you have young children, let their artwork adorn your walls!  It’s cheaper AND morale-boosting.  Win!  Even if you aren’t artsy, there are clever and inexpensive ways to decorate your home.  Here’s some images for DIY fall decorations to get you started!  ****Keep in mind though that the trick with keeping homemade decorations truly inexpensive is ideally to use things you already have, rather than hitting up the craft store and buying ten shopping bags full of stuff.****

What do you think?  Anything else that you can add from experience?  I know I’m still always looking for ways to cut back on the clutter and expenses!

Featured Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Dave Ramsey’s Financial Peace University – Week 3

Budget

I can’t believe that I’m so late in posting about probably the most important week of Financial Peace University, the cash flow planning lesson, also known as the dreaded budget. Attendance to this lesson really determines if you’re willing and able to make a change in your life.

Without a budget, you won’t pay off debt, save for an emergency, save for retirement or your kid’s college, pay off the house early, or be able to be a generous giver. Honestly, all of these things depend on you stretching every dollar and knowing exactly where your money is going.

Dave covers a few topics before jumping into how to do a budget. He talks about the reasons we don’t do a budget and things that will cause a cash flow plan to not work. For example, if you spend time making a budget and then don’t follow it, you’re not going to see a whole lot of progress. Doing a budget also makes sure that you cover the necessities or “four walls” as he puts it – food, shelter, basic clothing, transportation and utilities. Speaking from experience, doing a budget makes you feel like you somehow have more money each month.

I wish I could go into all the details about how to do a budget, but really, the best way to learn it is through application. Dave covers the zero-based budget, using the envelope system, and how to budget if you have an irregular income. I’ll try to cover how to create a budget in a future post.

At this point, you might be thinking “a budget just doesn’t work for me because of this reason or that reason.” Really?!?!? The truth is you shouldn’t be working without a budget or you’re just wasting your time.

Featured Image courtesy of patpitchaya / FreeDigitalPhotos.net

Do you need an Ally?

Ally Bank Logo

We’ve been using an online bank for the majority of our banking for several years. We started with ING Direct until they were purchased by Capital One. We don’t really care for the large banks and figured they’d screw up a good thing, so we decided to switch to Ally Bank. We’ve been with them for a few years now and have no real complaints. Below are some of the reasons that we use Ally and online banks in general.

  • ATM Fee Refunds – With ING Direct, we had to use certain ATMs to not be charged a fee. With Ally, we can use whatever ATM we want, and they will issue us a refund for the fees we pay at the end of the month.
  • Paper Checks – We didn’t have a need for them that often, but they are handy to use occasionally. At the time ING Direct didn’t offer paper checks, but Ally did. Whenever you need more, you just let them know and they’ll send them to you at no charge.
  • Interest Rates – Face it, no one is paying great interest rates, but Ally is usually at or near the top. I’m not the type of person to go around and switch all my banking because someone else offers a .01% better rate. As long as we’re near the top, I’m okay with that.
  • Multiple Checking Accounts – At the time, we could only open one checking account with ING, but we wanted multiple. We like to put money from each paycheck into a “bills” account so that it can be pulled out automatically each month when it’s needed. In order to not go over the 6 withdrawal limit of a savings account, you have to use  a checking account. Plus, we got a debit card for the account and could use that with a lot of the places we pay each month. We also decided later to set up an account for myself and my wife. We keep our finances together for just about everything, but we also have our own little account that we use for our own personal spending. It’s our “no judgement” zone.
  • Tons of Savings Accounts – As far as I know, you can create as many as you want. You can create them for any savings goal you might have and then set up transfers so when you get paid, money is automatically transferred to your savings.
  • Instant Transfers – Did an emergency pop up that you need to take care of and need the money transferred fast? You can do it instantly from one account to another, even on the weekend.
  • Overdraft Protection Using Your Savings Account – You would never do this of course because you keep really good track of your checkbook. Let’s just say you were out and your car breaks down. You can’t transfer money from your savings to checking right then. If you tie a savings account to your checking account. When you pay the bill, Ally will transfer the necessary funds from the savings account to your checking account to cover the transfer. This saved us once when my wife lost her debit card for our shared account, and needed to purchase something. She simply used the one for her personal account and we took care of cleaning things up later.
  • Online Chat – If you’ve ever got a question, you can load up chat on Ally’s site and they can help you right away.
  • Online Bill Pay – Who doesn’t offer this? The nice thing about Ally’s is that they don’t take the money out of your account until the day the check is supposed to be delivered. That means you get a little extra time to earn some interest.

I will admit, they were little late to the mobile game. When their original mobile app came out, it wasn’t that impressive. It has improved over time and now allows for eDeposits where you can take a picture of a check and it deposits it into your account. This keeps us from having to run to a brick and mortar bank, deposit the check, and then transfer it up to the account we want it in.

I know there are some other online banks that have created fancy sites that show you a bunch of graphs and do automatic savings of one sort or another. Honestly though, I like to keep things simple and know exactly where our money is and where it’s headed. Ally has worked well for us and if you’re looking to dip your toes in the water of an online bank, give it a try. It might be a great place to put that emergency fund you’ve been working on.

(For what it’s worth, we have one account at a brick and mortar bank. We keep $5 in the account to keep it open. The only reason we have it is for those times we want to deposit cash or a check made out to one of our daughters. Once we make our deposit, we transfer the money almost immediately to Ally.)

Dave Ramsey’s Financial Peace University – Week 2

Couples and Money

This last Saturday marked week 2 of the 9 week journey for those going through FPU at our church. I’m at one of the locations that has a pretty small class with about 6 participants each week. Personally, I kind of like this because everyone gets more of a chance to talk and share their story.

Week 2 of Financial Peace University is all about relating to money.  The lesson covers everyone: married, singles, and kids.

For the married folk, it’s obvious that opposites attract. In most relationships there is a saver and spender, and there is a nerd and a free spirit. The nerd is the one who is all excited about doing the budget, and the free spirit is the one who plans on doing their own thing. In our house, I’m definitely the nerd/spender and my wife is more the free spirit/saver. It seems like an odd combination, but it can happen. I like to do all the budgeting stuff, and I think my wife just enjoys the security of knowing that we have a plan and that because of the budget, we’ll be saving money.

For those who are single, doing the stuff in FPU presents a new set of challenges. They don’t have anyone to keep them accountable. So the most important thing for them is to find an accountability partner. They need someone who they will listen to and who isn’t afraid to tell them, “you shouldn’t be buying that” when they need to.

Finally, there are the kids. For the first time in FPU, Dave had his daughter, Rachel Cruze, present this portion of the lesson. There were several takeaways from this section. First, put your kids on commission instead of allowance. You can create a chart with chores they can do and the dollar amount associated with them. Second, when they get a bit older, you can give them a portion of the money that you would otherwise be spending on them. With it, have them open a checking account and then they can buy clothes or pay to go to the movies out of that account. Finally, let them learn some lessons. If they go to the store and don’t have enough money for what they’re looking, tough luck.

If I remember correctly, next week will be all about cash flow planning (which is just a fancy term for budgeting). I hope these updates have been helpful and will hopefully encourage you to investigate taking the course near you.

Featured Image courtesy of Ambro / FreeDigitalPhotos.net

Tracking Your Finances, the Easy Way

Mint.com Logo

If you’re anything like me, you’ve probably got a variety of checking, savings, retirement, and investment accounts, all at different institutions. On top of that you may have credit cards, a mortgage, or a car loan. It can be overwhelming to get a complete financial picture. That’s where Mint.com comes in.

I love using this service, even if it’s only to give me a rough idea of our net worth from time to time. After you create your account, you will add in all of your different financial accounts. They’ve already got integrations with tons of different financial places. I was surprised to find my local credit union available. For each place that you want to add, you provide the necessary credentials to allow them to read the information. I know at this point, a lot of people would probably freak out. For some reason, I haven’t been that concerned about it. They are well established and have been around for quite some time. If you’re concerned, do some research and judge for yourself.

So, you’ve added your bank accounts, retirement accounts, credit cards, and your mortgage. You can even add your car and that collectible Elvis painting in the attic. It factors it all into your net worth. Here are some of the things that I really like about Mint.com and I’ve found useful.

  • On the lefthand side when you log in, you get the running total of your accounts in one place. It updates when you log in and you get warnings if they couldn’t connect for some reason. If you scroll down to the bottom, you’ll see your net worth. Hopefully it doesn’t scare  you to death.
  • Each week Mint sends out a nice summary showing all of your accounts and how much they’ve increased or decreased. It also gives you your net worth and tells you how much it has increased or decreased. I’ve set it up to also send the same email to my wife so she is able to stay up to date with all of our finances as well.
  • It’s incredibly easy to set up goals. You simply pick what you want to accomplish, when you want to accomplish it by, and which accounts are linked to the goal. For example, if you wanted to save $4000 for a vacation, you enter that in, choose the account you’ll be using to save the money in and it will tell you how much you need to put away each month to reach your goal. If you want, you can put in how much you plan to save each month and it will tell you when you’ll reach your goal. Each month, you’ll get another email showing you the progress of your goals.
  • The Investments tab does a nice job showing you comparisons as to how your doing against each of the major indexes in a nice graph. You can also check performance, value, and allocation in graphs as well.

Mint.com Investments

  • The Trends tab is kind of like the Investments tab. Instead of being for just your investments, it covers all of your accounts. You can analyze your debt, net worth, income, and spending, all in nice looking graphs.
  • If you open up the Accounts window, you’ll see a button for Emails & Alerts. You can create alerts for large deposits, large withdrawals, low balances, bank fees, interest rate changes, going over budget, and a ton of other things. These alerts don’t usually go out right away since they only update information about your accounts on an occasional basis.

There are a few features that are available that I don’t use. One of them is the Transactions tab. On this tab, you can see all of your transactions and categorize them. This helps with some of the other graphs that  tell you where you’re spending money. Honestly, I don’t have the time to go through and categorize them all. Another tab I don’t use much is the Budgets tab. Here you can say how much you want to allocate to different categories and it will tell you how close you’re getting to hitting that amount. Green is good, yellow is a warning, and red is overspending. Of course, this requires that all of your transactions are categorized correctly.

Finally, you’ve got the Ways to Save tab. I have to imagine this is how Mint.com makes their money. From here, they try to connect you up with different financial products like credit cards (stay away), checking, savings, investments, and more. Do some additional research before jumping into something because they suggest it.

I’m sure by now you may be skeptical, or you may not have gotten this far because you were so eager to check it out for yourself. If it’s not for you or after using it you’re concerned about security, you can always delete your entire account. Did I mention that they’ve got a mobile app for your smart phone too?

Dave Ramsey’s Financial Peace University – Week 1

Retirement

If you’ve never attended or even heard of Financial Peace University, then listen up. Financial Peace University is a 9 week course that covers pretty much every financial topic the typical American family needs to know about. It was developed by Dave Ramsey (the guy on the radio) and his team. Each session covers a specific topic and is comprised of watching a video and then some nonthreatening group discussion. The course is usually put on by local churches all over the country. I highly recommend it if you feel like you’re in need of help with your personal finances, or if you wonder if you could be doing a little better. (Hint, you probably could be doing better.)

Our church is putting on a session at each of their locations. It just so happens that the Saturday one fit best in my schedule this year, so I volunteered to help. So for the next 9 weeks, I’ll be talking about some of the highlights and hopefully entice you to sign up for it in your local area. I’ll admit that not everyone agrees with Dave Ramsey and his approach to each of the topics, and that’s fine. It’s okay to be wrong sometimes.

The first weeks session is Super Saving. It covers the basics of the saving components of the program. Dave breaks down his program into the 7 baby steps. Step 1 is to put $1000 in a baby emergency fund and step 3 is to save up 3 – 6 months of expenses as a fully funded emergency fund. He also covers the basic importance of saving in general. The truth of the matter is that you can’t rely on others to take care of you when you get older, and you’re only hope is save money for yourself.

Of the entire lesson, I think the part that has the biggest impact is the story of Ben and Arthur. In the story, Ben saves $2000 a year for 8 years (age 19 – 26) for a total of $16,000 and then stops. Arthur starts saving at age 27 and saves $2000 a year until the age of 65. The funny thing is that in the end, Arthur never catches up to Ben and Ben ends up having about $750,000 more than Arthur. This alone stresses the importance of saving money and starting early.

If you get nothing else out of reading this blog, understand that it’s important to SAVE MONEY and START NOW!!!! If you have kids, or know anyone in high school or junior high, show them the Ben and Arthur link here. If that doesn’t get them motivated to save money, then we’re all in some deep trouble.

Featured Image courtesy of cooldesign / FreeDigitalPhotos.net

What is a Roth IRA and why do I need one?

Beach

I’ve been pretty focused on finding products and services that will save you money in each post. However, this week, I wanted to take a break from the usual and discuss the Roth IRA. I’m sure everyone has heard of them by now, but perhaps you’ve still got some questions. Well hopefully I’ve come up with just about every question you might have and answered them below. If there is a question that I missed, please post it in the comments and I’ll get the answer for you as quickly as possible.

What is a Roth IRA?

A Roth IRA is a type of retirement account that usually contains one or more mutual funds.

What makes a Roth IRA special?

When you put money into a Roth IRA, you put add to it after tax money, which means the money that you take home in your paycheck. The special part about this is that it grows TAX FREE since you used after tax money to fund it.

Grows tax free? What does that mean?

It means that if you put in $1000 into your Roth IRA and it grows over several years to say $50,000, you can withdrawal money out at retirement and not pay taxes on any of it, including the growth. If you had $50,000 in a 401k and decided to pull it all out at once, it would turn into something like $35,000-40,000 after taxes are paid to the IRS. Plus, who knows what tax rates will be like in the future. If they go up a lot, then you would get even less from your 401k when you make withdrawals.

Can I contribute to a Roth IRA?

As long as you have a job and report your earning on your taxes, you should be able to contribute to a Roth IRA. There are income limits however. If you are married filing jointly and make $178k or more, or you’re single and make $112k or more, you should check with a professional to make sure that you can contribute to a Roth IRA.

When can I take money out of my Roth IRA if I start one?

When you turn 59 1/2 you can usually start withdrawing money from your Roth IRA as long as you’ve been putting money in for at least 5 years. You can take your contributions out at any time before 59 1/2, but if you touch the earnings or growth, you’ll be paying a penalty. It’s best to leave it alone if at all possible. For example, if you put in $5500 each year for five years and then one year you decide that you want $2000. You won’t be able to put in $7500 the next year to try to repay the amount you took out.

But I’m a stay at home mom, can I still open a Roth IRA?

As long as your spouse is working, you can open a spousal Roth IRA and contributions can be made on your behalf up to the limit.

How much can I contribute to a Roth IRA?

The limit is currently $5500 ($6500 if you’re 50 or older) for you and your spouse, for a total of $11000. However, you can’t contribute more than you made so if by some chance you made less than those amounts, that would be your cap. Chances are if you make less than that, you’ve got bigger concerns than contributing to a Roth IRA.

Can I start a Roth IRA for my child?

In most cases, the answer is no, unless they made money and you file a tax return for them. So if you’ve got a child actor on your hands, then you might as well start a Roth IRA early for them to maximize the savings.

What does it mean to put money into a Roth IRA?

When you invest in Roth IRA, what you’re really doing is putting money into an investment, such as a mutual fund under a Roth IRA umbrella. The Roth IRA umbrella is what determines how the IRS treats it.

I hope this has been helpful. Before opening a Roth IRA, I would suggest speaking with an investment professional to make sure that you invest in mutual funds that meet your desired goals.

Featured Image courtesy of Vichaya Kiatying-Angsulee / FreeDigitalPhotos.net

Recommended Reading Added

I’ve added a recommended reading page to the site. This page includes books about personal finance, career, and any other topics that should be helpful as you navigate life and money. Please check out the books that are there. I plan on adding more as I have a chance to read or review them.

Please check out the recommended books here.

Foot Family Project

Foot Family

In preschool, our youngest was assigned the project of creating a foot family. For those that don’t know what that is and can’t figure it out from the picture, it is essentially a picture made up of outlines of each family members foot, turned into something fun and supposedly represents our family.

My wife likes to take these types of projects on as a personal challenge. She doesn’t think that she’s very crafty, but I think she really underestimates what she can do. So last Sunday, we headed off to the local craft store to find everything that we would need to make a castle setting with a king, queen, and two princesses…out of feet. Unfortunately, our favorite store for these things, Hobby Lobby, was closed on Sunday, so we headed over to Michael’s.

Needless to say, they didn’t have many of the things we needed and definitely not in the size that would be in scale to our feet. This caused us to have to rethink what we were going to be. I took the kids so mom could reevaluate the situation. Eventually, we decided to head over to the Dollar Tree store to see if they had anything that we could use.

Surprisingly, they had just the right items to turn our feet into the barn animals you see in the picture. For $5, my wife bought construction paper and 4 kits that are normally used to turn paper bags into puppets. Needless to say, it turned out to be a success and I’m sure it’s the best foot family in the class. So while the craft stores may have a lot of options, they may not be the best or cheapest option.