Saving Money and Building Wealth with Dave Ramsey
Live like no one else, so later you can LIVE like no one else.
This is Dave Ramsey's motto.
Preview of the first class
Dave Ramsey on Youtube
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Financial Peace University
I while back my mother signed me up for some classes through her church. It was called Financial Peace University taught by Dave Ramsey. I have to say out of all of the things I've ever learned this class was the most helpful. It wasn't boring either. Dave Ramsey is funny and seems to really care about people.
When I got to my first class I was given a box that contained several items. I received the whole course on cd, so I could go back and listen to his advice whenever I need it. I received a workbook so I could be interactive throughout the class, book by Dave Ramsey, several Help cards, and a wallet like thing that is to aid me by putting a certain amount of money in the envelopes inside the wallet...this is the envelope system. All very nice and good quality items.
You're not going to get out of debt overnight. Basically this course will give you the steps in order to get out of debt, but it's going to take a little work on your part. You will learn what a necessity really is and what and how to prepare for emergencies.
It consist of 13 weekly lessons. Some will be able to go through these and be financially free sooner, some later. Everyone has different incomes and different debts so it's going to depend on your drive, your spouses drive, and what you actually had to work with.
Personally, I wish I had learned these things before I ever graduated high school. If I did I would be in a much better position than I am in now. But ever since I took this course life has been better. You cannot go wrong with this course. In fact I heard from my mother that the school in my hometown is looking to implement this course into the school. Lucky kids!
Baby Step 1-$1,000 in the Bank
Now if you make under $20,000 a year you save $500 in a savings account. If you make more than $20,000 a year, you need to save $1,000. Now this doesn't necessarily have to be a savings account. You can keep it in a coffee can and bury it in the yard... just don't forget where you buried it. This is your emergency fund.
You should also pay yourself a percentage and give away a percentage...tithing, charity, what have you. This is very important. A closed hand that won't give, is not able to receive either.
With this part of the course you will be able to make a simple budget. This is to determine where your money actually goes. Have you ever gotten halfway through your pay period and discovered you don't have enough money to make it through the rest of the pay period? Where did it all go? It must have been the spouse, right? Well, after doing this I was able to pinpoint where it all went. This may also help deter money arguments with your spouse, unless it really is the spouse.
Saving must be a priority. Determine what you actually need to live and what is defined as a want. Do you really need that new pair of shoes?Well, not if your closet has 20 different pairs.
Another way to save up for your emergency fund is to have a garage sale. Most of us have so much stuff that we hang on to "just in case." Well, a good rule of thumb is "if you haven't used it in a year... you probably never will. If you can't fit into it, get rid of it.
Coupons, become a coupon warrior. You can actually save a lot of money with coupons.
In one of the classes I heard someone say that what helped them get through denying themselves their normal spending pleasures was the fact that they wouldn't have to do it forever. It is a means to an end. An end of being broke.
Baby Step 2 - Pay off all Debt
In depth debt relief, the snow ball effect...
Your next step is to dump your debt. Now this part of the course was really interesting to me. I learned a lot about how the credit system worked. Dave Ramsey talks about how to deal with creditors that call. I didn't know that a lot of charges can be removed by simply telling them to remove it. Much of the time these creditors and collection agencies know what is legal and expect the public to be dumb so they threaten you and tell you that you have to pay these extra charges. If you know what you are talking about you can tell them to remove it and they have to. But you really need to know your stuff. Some things can be removed, some things can't. It also depends on who you are talking to.
In this step you will revamp your first budget to a more detailed budget and learn where to "cut the fat." You will learn just what percentage of your income should be used for each item on your budget. This is extremely helpful.
Get rid of your credit cards. Why should the bank charge you for using your own money?
"The credit card industry takes in $43 billion per year in additional, unexpected fees from the consumer, just as late payment, over-the-limit, and balance transfer fees. Late fees alone bring in more than $11 billion."- Dave Ramsey.
"It would take over 13 years to pay off the average credit card balance if only making minimum monthly payments of 4% at an average interest rate of 15%." - Dave Ramsey.
If you pay with cash you have a lot more bargaining power. Just think... you want a television. You go to the TV sales place. You walk in with cash. You point to a TV that you want. You flash your money in front of the salesman and tell him you want that TV and you only have so much cash to buy it. As long as you are reasonable about what you are willing to pay, the salesman will a lot of the time will bargain with you. Now that only works if the salesman can do the bargaining. Sometimes a manager may have to approve the deal. Sometimes you can get really good deals if the item is on display.
Save up your money and buy a car that you can afford and pay for it up front. The car salespeople make their money off of financing. I remember buying a car for $1,400 one time. The salesman tried really hard to get me to finance it. He even went as far as to tell me that if I financed it with $500 down, I would have some spending money left over. Can you believe that! At $200 a month after that for 1 year would equal to $2,400 more. REALLY!
Know what is on your credit report. 79% of credit reports contain mistakes and 25% of those are serious. Write a letter for each mistake requesting that they be removed, staple it to a copy of your credit report, send it certified. If the credit bureau cannot prove that it is accurate within 30 days, request that it be completely removed.
Now you should pay for what is yours, just don't be taken advantage of either.
Once you have corrected inaccuracies...start paying it off. Once you have saved your $1,000 emergency fund, start using the money that you would be putting back for that to pay off your debts. Pay the smallest off first and get it out of the way. Once you have the smallest one paid off you take the money you would pay on that bill and add it to the money you would normally be paying on the next largest one. Then work your way up to the largest. It saves you money in the long run and gives you a feeling of accomplishment.
Baby Step 3 - Three to Six Months expenses in savings
Once you have done these first 2 steps you should now have leftover money. What to do? Throw a party? NO NO NO. You are trying to make smarter decisions with your money now. Now you take the money you were using to pay off you debts and save 3 to 6 months of expenses. This is your insurance for large unexpected expenses.
You car breaks down, you can afford to purchase another one with this money. You don't need a new car, you need to get from point A to point B. Who cares about "The Jones's" The Jones's are not paying your bills for you.
Your ultimate goal in this step is to save this money in the right kind of savings account. You want to find a savings account with an Annual Interest Rate of 6% or higher
"Just $100 per month, every month, from age 25 to age 65 at 12% will build to over $1,176,000." - Dave Ramsey workbook.
Remember..."Live like no one else so you can LIVE like no one else." - Dave Ramsey
Baby Step 4 - Invest 15% of Household Income
Now in this step you will learn about IRA's, ROTH IRA's, SEPP's, Retirement plans. It's not as confusing as it sounds and you should NEVER let anyone else make these decisions for you. You will also learn about Money Markets, Mutual Funds, Bonds, and Single Stocks.
It is vital to know what someone else is doing with YOUR money.
Here you will learn in layman's terms what each account does and you will be able to determine which one is right for you.
I'm not going to go into details about these right now. Dave puts it in a very simple and understanding way for you to decide yourself. I am not a financial adviser and would not want to accidentally give anyone the wrong advise.
For me, my goal is to invest $10,000 in a Mutual Money Market account and go from there.
Baby Step 5 - College Fund
This step teaches you about saving for you children's college fund.
Basically again you want one that leaves YOU in charge.
Dave Ramsey's three "Nevers"
1. Never save for college using Insurance
2 Never save for college using savings bonds (Only earns 5-6%)
3. Never save for college using Pre-paid college tuition. (Only earns 7% inflation rate)
He states you should first save in an Education Savings Account (ESA) or and "Education IRA". If you don't meet those requirements then you might want to check out UTMA or UGMA plans. This stand for Uniform transfer/ Gift to Minors Act.
Dave Ramsey knows a lot more about this than I do at this point in my life so I won't go any further into this.
Also, don't forget about all the scholarships available too.
Baby Step 6 - Pay off your home early
By this time you should start focusing on paying off your home. Some people discover that they have much more home than they need and downsize.
He talks about downsizing and selling your home, buying another one. tips and tricks to get the most out of your home when selling.
Basically you should not pay more than 25% of your yearly income on your home. If you are then some changes may need to take place in your life. And if you have to have a mortgage you should get a 15 year mortgage, not 30 year. It will save you in the long run.
Baby Step 7 - Build Wealth and Give!
Once you've gotten to this step it is important to give.
Straight from the workbook...
"You can do everything we teach you and you will prosper, but if you don't understand this lesson, you will never have Financial Peace."
"The Great Misunderstanding, the paradox, is the mistaken belief that the way to have More is to hold on Tightly. "
I had to quote on this because I couldn't have said it better myself.
I wrote this hub because this system has helped me a lot and I think it could help so many others. I do not claim any legal ties this institution. I am not responsible for any financial decisions you may make. Although, I do think this class will help just about everyone.
More Great Hubs about Dave Ramsey and Financial Peace
- Reducing Your Expenses When You Think You Can't Cut Anymore
- Dave Ramsey's Financial Peace University
- Dave Ramsey - Debt Free and Loving It!
Dave Ramsey is a Television and Radio Talk Show Host who assists callers, listeners and guests become debt free. His helpful advice and debt counseling has served countless guests with smart personal economic decisions.