Dave Ramsey’s Financial Peace University – Week 9

Helping Hand

The final week of Dave Ramsey’s Financial Peace University  is all about baby step 7 – build wealth and give a lot of it away.

If you go through Financial Peace University and miss this lesson, you may set yourself up to win financially, but you won’t feel complete until you give. We have a tendency to want to hold onto our money as we accumulate it, but we have to remember that none of it is ours. Without the abilities and gifts we’ve been given by God, we wouldn’t have any of it. It is our responsibility to manage the resources that we’ve been given since they’re not ours to begin with.

By giving, it makes us more like Christ-like since he gave his life for us. Besides that, giving to others teaches us to be less selfish and people who are less selfish are generally more successful in different areas of their life. We also feel our best when we serve and give to others. I can attest to this personally in my life. Some of the best times of my life were when I’ve been on a mission trip or serving others.

After covering the reasons why we should give, Dave covers the difference between tithes and offerings in the church. According to the Bible, a tithe is a tenth of our income and it is supposed to be given to the local church. It’s the job of the local church to take care of those in need. Offerings are different because they are supposed to be given out of what we have extra.

I think a lot of people get confused when it comes to giving at their church. When the church starts asking for money to do a major project or something like that, they feel an obligation to be a part of it and give. However, if they are giving at the expense of being able to take care of their household then they really should reconsider.

There aren’t a lot of details to go over this week. The main lesson is that part of your financial plan should include giving, despite what your religious beliefs might be. Give it a try this holiday season and see what kind of a difference it makes in your life.

If you’re interested in attending Financial Peace University, you can find a class near you by going here. There are new classes starting all the time. If you don’t think you can make it to a class, you can always take the course online. I think it’s best when you can attend it in person and hear other people’s stories, but the online option is great for families who are geographically separated for one reason or another (truck drivers, military, that kind of thing).

If you have any questions about Financial Peace University, please post them in the comments section. If you have a giving story that you’d like to share, you can post that in the comments as well.

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Dave Ramsey’s Financial Peace University – Week 8

House

This week’s lesson covered real estate and mortgages. There is only one more lesson and then I’ll be back to “regular scheduled blogging”. I think the first topic I’ll cover might be about car buying, or deal web sites, or another mobile phone carrier. Who knows?!?!? The possibilities are endless! Anyhow, let’s dig in.

Renting is not a dirty word. Despite what your friends, family, and the guy behind you at the grocery store tells you, it is perfectly okay to rent. This is especially true while you’re paying off debt, building your emergency fund, and saving up a down payment. It may appear that renting is more expensive, but it removes a lot of the risk that home ownership has. When there is a roof leak, the water heater breaks, or the stove stops working, you don’t have to worry about coming up with the cash to fix it.

Owning a home has some advantages that Dave covers. First, you are building equity as you make payments which technically forces you to save money. It also helps protect you against inflation (assuming your home value goes up over time). Finally, any money you make when you sell your house is usually tax free.

What kind of homes should you be looking at when you’re ready to buy? Buy a house that is in the middle to bottom price range of the neighborhood. It’s easier for it to go up in value that way than to try to sell the most expensive house in the neighborhood. Always consider the location that you’re buying in. You can’t move your house to a better location. If you want to find a deal, you need to be able to look over some of the ugly things you might find in the houses you’re looking at. It’s relatively easy and cheap to paint walls and replace carpet and other flooring. It’s not quite so easy to rearrange the floor plan or make it look better on the outside if it’s just plain ugly.

Some of the more important tips that I think many people may overlook when buying a home: You need to get an inspection, even if you’re buying from someone you know really well. The same is true when getting an appraisal, even though it is only an opinion. Finally, get title insurance. We always did, but I never realized how much it can potentially save you if you run into a situation where the title isn’t clean.

Dave had Chris Hogan, one of the people on his speaker team, come out to talk about mortgages. It’s important when considering your mortgage to remember that the goal is to be debt free, so you don’t want to buy the most expensive house you can afford. If possible, save up 100% and pay cash for the house. If you’re going to get a mortgage, Dave’s rule has always been to not get a payment that is more than 25% of your take home pay, on a 15 year mortgage, and put at least 10% down. Twenty percent will make sure that you don’t have to pay PMI, or private mortgage insurance.

I can sum up the next section by saying “only get conventional mortgages”. Stay away from adjustable rate, interest only, reverse mortgages, and other gimmicks out there. If you don’t have a credit score when shopping for a mortgage, you will need to look for someone who does manual underwriting and doesn’t rely on FICO. A local credit union or small bank might be your best bet.

The final thing that Dave covers is selling your home. You need to think about what other people will be looking at when they come through your house. You know how when you are in an environment for so long that you don’t notice certain things like smells? It might be a good idea to invite some friends over who can be honest with you so you can get a clear picture as to how other people will see (or smell) your house when they come through it for a viewing. You need to get your house listed on the internet, with good pictures, and in the multiple listing service or MLS. That will get you the most exposure. Dave highly recommends using a realtor because they can usually take care of these things and reach more people. We had a great experience with the realtor we had when buying our home, but when we had tried to sell it once, I really wish we didn’t use one. I guess everyone has a different experience.

That’s a rough summary of the real estate and mortgage lesson. Next week will be the final lesson!

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Dave Ramsey’s Financial Peace University – Week 7

Investing

Week 7, only two more weeks left in class! Everything that has been taught in the classes so far leads up to this one. Some students may not be ready for it, while others may have been waiting for it a while. This lesson is the Retirement and College Planning lesson.

There can be a lot of fear around investing, but Dave makes it incredibly simple and breaks it all down. He starts off with a simple example of a 30 year old couple who invests $600 a month for 40 years. At 12% interest, they would have over $7 million! If they could manage to invest $833/month they would have $9.8 million.

If that doesn’t motivate you to start saving, I’m not sure what will. Even if you don’t get 12% on your investments, you’d still have a huge pile of money!

After the $1000 emergency fund, paying off all your debts but your mortgage, and building up a 3-6 month emergency fund, baby step 4 is to invest 15% of your income for retirement. Dave recommends the use of mutual funds since it helps take some of the risk out of investing by spreading your money across several different companies. He recommends splitting up your investments equally among growth and income funds (sometimes called large cap), growth funds (sometimes called mid cap), international funds, and aggressive growth (sometimes called small cap).

When you purchase mutual funds, you can purchase them through several tax favored accounts such as 401k’s and Roth IRAs. A 401k or Roth IRA holds mutual funds and other investments, it is not the investment itself. The type of account tells the government how to treat it when it comes to taxes. For example, with a 401k, you put all of the money in pretax, but when you withdrawal from it in retirement, you will pay taxes on everything you withdrawal. With a Roth IRA, money is put in after taxes have been paid, so all of the money grows tax free and you don’t pay any taxes on it when you withdrawal from it in retirement. You can read more about it here.

To maximize your investments, Dave recommends funding your company’s 401k (or Roth 401k if they offer it) to get all of the match that they offer. You don’t want to leave free money on the table. After that, you should put money into your Roth IRAs until you reach 15% of your income. If you still haven’t reached 15% but have maxed out the Roth IRA, then go back and fund your 401k until you reach 15% of your income.

After covering investing for a while, Dave’s daughter Rachel Cruze comes out to talk about saving for college (Baby Step 5). They recommend saving in an Education Savings Account first, and then using a 529 after the ESA is maxed out. Personally, I’m not sure why Dave hasn’t completely adopted the 529 as the primary choice. The only thing I can think of is that there are so many 529s out there and they are different in each state. For example, in Ohio where I live, any money we put in up to $2000 per child is tax deductible from our state income taxes. I wouldn’t get that benefit from an ESA. Look at your 529 options closely. You don’t have to invest in the 529 for your state if you like another state’s options better.

Rachel warns against using insurance, savings bonds, or prepaid tuition to save for college. They don’t get the same returns as using mutual funds. Always look for something that allows you to control what you’re invested in and doesn’t change with age. Finally, they stress the importance of graduating from college debt-free. Some of their money saving tips are to go to an in-state school or community college, look at all your living options (including living at home), get tutoring for the ACT/SAT to improve your scores and get more scholarships, and finally WORK while you’re in school!

I agree with graduating without student loan debt. Personally, my wife and I were able to do it because of the work we put in while in high school and the scholarships we got. When a student graduates with debt, they don’t have the freedom to find the job they really want and instead are sometimes forced into a less than ideal position so they can pay their student loan payments. This makes no sense to me really. Parents and students spend all of this money on college so that they can have the “experience”. If they do it right, a person will be spending a lot more time in the working world than in college and the last thing they need to do is start off in a position that they despise and have student loans hanging off their back.

Next week’s lesson will be covering real estate and mortgages.

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Dave Ramsey’s Financial Peace University – Week 6

Car Accident

Insurance. One of those things that you don’t want to think about, but when you need it, you’re glad you have it. Do you have the right kinds of insurance? Are you spending money on insurance that isn’t necessary? That’s what Dave Ramsey covers in lesson 6 of Financial Peace University, called “The Role of Insurance”.

The purpose of insurance is to transfer the risk from you to the insurance company. It helps to protect what you have, and any money you’ve accumulated. Without going into too much detail, I’ll quickly cover the types of insurance you need and the types of insurance you don’t, as taught in this lesson.

Insurance you need:

  • Car Insurance – In most states I think it’s illegal if you don’t have it, but you want to make sure that you’ve got an adequate amount. There are companies that sell the minimum legal amount, but if you’re in a bad accident, they will only pay out until the maximum is reached. If it ends up costing more than that, you’re on the hook and it could force you into bankruptcy.
  • Homeowner’s Insurance – Make sure you have enough to cover the rebuilding of your house. Personally, I know that the amount they cover you for seems crazy since it’s a lot more than you could sell your house for. But they aren’t giving you money to buy the house all over again, but to rebuild what you had, and that can be expensive.
  • Renter’s Insurance – Renter’s insurance is cheap and if something happens to your stuff while you live in an apartment or rental, you’re responsible for insuring it.
  • Umbrella Insurance – This is helpful if you start to build wealth and look like a target for crazy people.
  • Health Insurance – This one is kind of a no brainer. With the laws changing, you’ll have to get it. A Health Savings Account might be a good option for saving money, but it may not be for everyone. I’ll try to write another post about HSAs at a later time.
  • Long Term Disability Insurance – If something were to happen to you and you became permanently disabled, you’ll want some income to pay the bills. This one takes care of should that horrible thing ever happen.
  • Long Term Care Insurance – Dave says if you’re over 60, you need to purchase one of these plans. If you or your spouse needs long-term care, it could wipe out your nest egg.
  • Identity Theft Protection – This is probably the newest recommendation from Dave. He suggests you get a policy where they will assign someone to clean up the mess should your identity be stolen.
  • Term Life Insurance – You need to get a term that will cover you getting out of debt and paying off the house. It should be 8-10 times your income.

Insurance you don’t need:

  • Whole Life Insurance – It’s incredibly overpriced and you would be better buying term and investing the difference or using it pay down your debt snowball.
  • Credit Life and Disability
  • Cancer and Hospital Indemnity – Your health insurance should take care of this.
  • Accidental Death – Remember term life insurance?
  • Pre-paid Burial Policies – You would be better off setting aside the money and investing it.
  • Mortgage Life Insurance – So, they will pay off your mortgage if you die, but as you pay down your mortgage, the amount of coverage your paying for is decreasing. You’d be better off buying extra term insurance until the house is paid for.

That pretty much covers them all, but not in nearly as much detail as when you attend the class. Dave goes into much more detail about the levels of coverage you should get and other things to look for and avoid. Next week’s lesson is about retirement and college planning!!!

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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.

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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.

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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.

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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.

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