Some of My Notes

WARNING: This is a very LONG post with NO pictures!!

I feel like I have finally reached my own scholar phase. I didn't think is was possible for a Mom to be a scholar along with four kids and a household to care for, but somehow or another it has happened! I have found myself studying for multiple hours every day. I am taking notes, discussing my findings, sharing my enthusiasm for learning with my kids (and anyone else who will listen to me!), and researching the areas of my interest in depth. Instead of going out with friends once a week, I leave the kids with my husband and go to the library! I have read 4 books in the last month, some of which I believe will be life changing. Sacrifices have been made for this endeavor (I have had to neglect a few past times- such as this blog, my house is not as clean as usual, the kids make a lot of their own food, and I have been staying up a bit later and rearranging some of my morning exercise goals to make sure I am well rested- always a balance to figure out!).  But the blessings are HUGE. 

I find that I am much more excited in general. Learning time does not always mean Mom helping Ben with his phonics or Mom testing Brad on his spelling. Yes it still means that, but it also means Mom gets to study what she is passionate about and Mom gets to learn new skills to make herself better. And you know what I've found has happened as I study independently? The KIDS study more independently! The 7th key of great teaching is "You, not Them." We must be an example for our children to follow. How can they eventually become scholars if they have never seen a scholar phase? Granted I can't possibly study 6 to 8 hours per day like many scholars do, but I am taking great strides to study more frequently and for longer stretches of time. I am doing it for me, but it is also blessing my family!

I am a woman of action. I love to study, and I mostly read non-fiction/how-to type books. I have a problem or a question and I want to find out HOW to fix the problem or answer the question. And then, I want to DO it! Lately I have found myself devouring financial books. I have my calculator and paper and I'm crunching numbers, and I have been absolutely blown away by some of the ideas that I have been exposed to. Myths and belief systems I have had my whole life about money and financial security have been annihilated. James and I have completely re-done our budget and the way we handle our money. We are so excited at the prospect of becoming completely debt-free (including our home) and we are dedicated to this plan of action! Total Money Makeover by Dave Ramsey is one of the books I have been reading and it is the one I am most excited about right now.

SO...before I post dozens of pictures from the last month of our family adventures, I thought I would post the notes from this pivotal financial book in case there is some nugget that might help one of you. Thanks for indulging me, I hope you learn something too!

Total Money Makeover by Dave Ramsey

Notes:

Motto: If you will live like no one else, later you can live like no one else.

Debt Myths: 

Myth: Debt is a tool and should be used to create prosperity.

Truth: Debt adds considerable risk, most often does not bring prosperity, and isn’t used by wealthy people nearly as much as we are led to believe. It always leads to bondage, and is contradictory to the commandments of God. If you do not have the money for something, then you should not purchase it right now (very few exceptions exist where debt should be used and none of these are to create prosperity).

Myth: If I loan money to friends or relatives, I am helping them.

Truth: If I loan money to a friend or a relative, the relationship will be strained or destroyed. The only relationship that would be enhanced is the kind resulting from one party being the master and the other party a servant. If you have the money, and you feel it would truly help someone, just give it to them.

Myth: By cosigning a loan, I am helping a friend or relative.

Truth: Be ready to repay the loan. The bank wants a cosigner for a reason, which is that they don’t expect the friend or relative to pay. If debt is the most aggressively marketed product in our culture today, if lenders must meet sales quotas for “loan production,” if lenders can project the likelihood of a loan’s going into default with unbelievable accuracy- if all these things are true, and the lending industry has denied your friend or relative a loan, there is little doubt the potential borrower is trouble.

Myth: Buying things with cards but paying them off before interest starts accruing, is like paying cash.

Truth: It is not the same as cash. If you flash cash in front of a store manager who has a sales quota to meet, you will likely get a discount. If you can’t get a discount, go to the competitor and get one. You never get a discount when you sign up for the finance plan. Also, most people do not pay off the debt in the allotted time, and lenders bank on this happening.

Myth: Car payments are a way of life: you’ll always have one.

Truth: Staying away from car payments by driving reliable used cars is what the average millionaire does: that is how he or she became a millionaire.

Myth: You can get a good deal on a new car at 0 % interest.

Truth: A new car loses 60% of its value in the first four years- that isn’t 0 %.

Myth: You should get a credit card to build your credit.

Truth: You won’t use credit with your Total Money Makeover, except maybe for a mortgage, and you don’t need a credit card for that. This is the best myth that bankers, car dealers and mortgage lenders have told America for years. Get into debt so you can get more debt because debt is how we get stuff! The truth is cash buys stuff better than debt. You will need to “build your credit” by borrowing and repaying debt in a timely fashion if you want to live a life of credit cards, student loans, and car payments. If not, you don’t need credit. If you can’t afford to pay cash for your house and you choose a 15 year fixed rate loan, you will need to find a mortgage company that does actual underwriting. That means they are professional enough to process the details of your life instead of using a silly score. You can get a loan if you have lived right:

You have paid your landlord on time for 2 years.

You have been in the same career for 2 years.

You have a good down payment, which is more than “nothing down.”

You have no other credit, good or bad.

You are not trying to take on too big of a loan. A payment that totals 25% of your net pay is conservative and will help you qualify.

Myth: You need a credit card to rent a car, check into a hotel, or buy online.

Truth: A debit card will do all of that.

Myth: Make sure your teenager gets a credit card so he or she will learn to be responsible with money.

Truth: Getting a credit card for your teen is an excellent way to teach him or her to be financially irresponsible. That’ s why teens are now the number one target of credit card companies. 80% of graduating college seniors have credit card debt before they even have a job! Teach your kids the principles you are learning yourself and let them see your example as you handle money responsibly and pay for things that you can afford appropriately, not with someone else’s money.

Money Myths:

Quick, easy money is one of the oldest lies, or myths, in the book of the human race. A shortcut, a microwave dinner, instant coffee, and dot-com millionaires are things we wish would give us high quality, but never do. The secrets of the rich don’t exist, because the principles aren’t a secret. Living right is not complicated. It may be difficult, but it is not complicated.

 Myth: Everything will be fine when I retire. I know I’m not saving yet, but it will be okay.

Truth: Ed McMahon is not coming. And please don’ be under the illusion that this government, one that is so inept and dim-witted with money, is going to take great care of you in your golden years. That is your job! You have to save. You have to invest in your own future.

Myth: I can get rich quickly and easily if I join these groups, buy this tape set, and work three hours per week.

Truth: No one develops and makes a six-figure income on three hours a week.

Myth: Cash Value life insurance, like Whole Life, will help me retire wealthy.

Truth: Cash Value life insurance is one of the worst financial products available. A Cash Value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are horrible. Even VULs are only averaging 7.4% and you pay expenses and commissions out of your monthly payments.

Myth: Playing the Lotto and other forms of gambling will make you rich.

Truth: Lotto and Power Ball are a tax on the poor and people who can’t do math. The Lotto is a rip-off instituted by our government. This is not a moral position; it is a mathematical, statistical fact. Gambling represents false hope and denial. Energy, thrift, and diligence are how wealth is built, not dumb luck.

Myth: Mobile homes, or trailers, will allow me to own something instead of renting, and that will help me to become wealthy.

Truth: Trailers go down in value rapidly, making your chances for wealth building less than if you had rented. People who buy a $25,000 double-wide home will in five years owe $22,000 on a trailer worth $8,000. If I were to suggest you invest $25,000 into a mutual fund with a proven track record of dropping to $8,000 in just 5 years, would you invest in that? Call it a manufactured house, put it on a permanent foundation, add lots of improvements and landscaping, and it is still a trailer when you are ready to sell it. The only exception is to buy a used trailer for cheap (and with cash) and live in it while building your dream home on the same property.

Myth: Prepaying my funeral or my kids’ college expenses is a good way to invest and protect myself against inflation.

Truth: Plans for prepaid funerals and college expenses give low rates of return and put money in the other guy’s pocket.  When you prepay something, your return on investment (interest) is the amount the item will go up in value before you use it. In other words, by prepaying, you avoid the price increases, and that is your return. Prepaying items is like investing at the item’s inflation rate. For example, prepaying college tuition will save you about 7% (tuition inflation),  but mutual funds will average about 12 % over a long period of time, and you can save for college TAX-FREE. The same is true for prepaid funeral expenses. Preplanning the details of your funeral is wise, but prepaying is unwise. An average prepaid funeral and burial plot can be $3,500. If you put $3,500 in a mutual fund averaging 12% for 40 years you will have $368,500!

Myth: I can’t use cash because it is dangerous. I might get robbed.

Truth: You are being robbed every day by not using the power of cash. Cash is powerful. If you carry cash, you spend less and you get more bargains by flashing cash. Cash enables you to say no to yourself. When the food envelope is getting low on cash, we eat leftovers instead of going out to eat again.

Myth: I can’t afford insurance.

Truth: Some insurance you can’t afford to be without (see the how to section below).

Last few thoughts that may hinder us from success: We must identify our hurdles or personal obstacles to winning financially. Once we identify and admit our weakness (for us eating out, entitlement spending- we deserve that, we “need” that etc.), we must plan a way over them, through them, or around them. Budget money for the items we splurge on. Find cheaper ways to get them. Bargain hunt, if applicable etc.

We must invest time in learning how to be financial “fit.” We have a basic understanding of what to do, but we need to set aside time and energy to becoming great with our resources. We need to read books, communicate properly, spend more time and less money acquiring the things we need/want, and be mindful of every dollar we spend. Above all, we need to never compare ourselves to others. We do not need to keep up with the Joneses (read The Millionaire Next Door). Peer pressure is powerful. “We are scaling down” is a painful statement to make to friends and family. “We will have to pass on that trip or dinner because it is not in our budget” is virtually impossible for some people to say. Being real takes tremendous courage. And being successful, like with all other things in life, takes determination, sacrifice and follow through. But the results are so worth the effort. So let’s get started!

HOW: BABY STEPS:

1.(a) We must make a promise NEVER TO BORROW AGAIN!

1.(b)  Set up a budget EVERY Month. Do this as a couple. Every month make a new one BEFORE the month begins. Spend every dollar we make on paper before the month begins (zero-based budget), and give every dollar a name. Income minus outgo equals ZERO. Agree that each of us will never do anything with money that is not on the paper. If something comes up have a meeting to rebalance our budget. A Dr. visit comes up during the month that costs $50, we must then lower our spending somewhere else by $50 to balance the budget. We must always agree.

1.(c) SAVE $1000 CASH as a starter emergency fund. Keep it liquid and accessible, but not too accessible. Put it in a savings account that is not linked to our checking so it can’t become overdraft protection. This is not meant to earn us money so we don’t have to worry about the interest on the savings account. This is to help us not go into any more debt if an emergency comes up, and one always does!

Things that are NOT emergencies: Annual events like birthdays, Christmas, kids needing new clothes, routine Dr. visits. We know these are coming up and these should be in our monthly budget. If we do not budget for these they will seem like emergencies.

How to save $1000 FAST: Wring out the budget, cash out any life insurance savings, bonds, etc. Work overtime. Sell stuff. Whatever we need to do, we need to do this step as fast as possible, and no longer than 30 days. Even if we move on to further steps and an emergency comes up and we are forced to use money out of this fund, stop whatever step we are on and put any excess money we have into our emergency fund until it is fully funded again ($1000). So if we spend $300 to fix the car, we will repay $300 before we do anything else. Always keep $1000 in this account for now.

STEP 2:  DEBT SNOWBALL:

Make a list of ALL of our debt from smallest to largest owed (excluding our mortgage). Pay off smaller debts FIRST, pay the minimum or eliminate (if possible) all others and keep going until that first debt is paid off. Then use all our excess money plus the old payment for that first debt and apply it to the second the debt- keep going until we are debt free! Every dollar we can find goes to this debt! 

Get creative- cut out all unnecessary spending and sell anything we can’t pay off in 18 to 20 months (except our home), or find ways to bring in more income. Stop retirement contributions, cancel any unnecessary subscriptions, cancel VULS and replace with term- get radical! The sooner we get through these steps, the sooner we will be debt free! EXTREME SACRIFICE is needed here.

Again set a goal, 18 to 20 months tops!

STEP 3: Finish Funding Our Emergency Fund:

Now that we have $1000 in our emergency fund and NO debt except our home, we have freed up control of our largest wealth-building tool- our income! Now we need to save 6 months of expenses (expenses, not income). Be very choosy, and prayerful before using this fund. Always agree, and “sleep on it” before dipping into this fund. This is for true emergencies only. Again keep this liquid but since it will be a good amount of cash, find a money market acct with no penalties for withdrawals and full check writing privileges. Find one that pays interest equal to a one-year CD. Bank’s money market accts are not competitive. This money is not for investing or making money off of, it is for security, but it is still nice to have a large lump sum somewhere that earns a little.

3.(b) Now that we are debt-free and have a large emergency fund, it is time to protect this emergency fund by making sure we have the appropriate kinds of insurance in place. Here is the insurance we should have:

Home and auto (choose high deductibles to save on premiums)

Life Insurance (20 year term, if we follow this plan we will be self-insured after this term expires)

Health Insurance- HSA (health savings acct- again choose the highest deductible to save on monthly premiums)

Long-term disability- buy this through work.

If over 60- long term care insurance (nursing homes can cost up $40,000 per year and can eat up a spouse’s savings very quickly)

Once this step is done, we should focus our efforts on building up our food storage and other emergency items we have been wanting to purchase. We should also spend some time and money on our Will and Estate Planning. We can also play a little. Maybe take a small vacation or do some home renovations. Budget and save for them, and pay cash. Remember we are not going into debt ever again! Don’t play too long or we will lose all of our momentum.

STEP 4: Invest 15% of our income in our retirement. That’s 15% of our gross income, not including company matches. Do this through growth stock mutual funds. Read Financial Peace by Dave Ramsey for more info and study this in depth ourselves (or go to www.daveramsey.com, MY TMMO).

Always start with our 401k if the company matches. If they match 3%, that will be the first 3% of our 15% we will invest. Next fund Roth IRAs- fully fund them. The remainder of our 15%, put in our 401k and research more in this area to make sure we can retire in comfort and style.

STEP 5: Save for College (our kids or ourselves):

College is not a necessity and it certainly is not a reason to go into debt (As far as wealth and success go, college/education gets your 15% results while attitude, perseverance, diligence, and vision take you the remaining 85% of the way). A college education or degree does not guarantee a job in this economy. Unless you or your child wants to go into something very specialized that requires a degree, college is a luxury. Either way, debt should be avoided at all costs. That being said, college should be high on the “luxury list.”

Places to save- we must earn 7% to keep with the inflation of tuition. ESA- Education IRAs- grow tax free. You can invest $2,000 per year, per person ($166,67 per month).

For kids if you start before they are 8, you will be fine. If you need more money or your income doesn’t allow you to use an ESA, check out 529 plans but pick a “flexible” plan.

Also, always check into scholarships. You can buy a software program that will tell you all the eligible scholarships you can apply for. Thousands of scholarships are available each year in various amounts. Apply for EVERYTHING (or have your child apply) and it could help tremendously. Free money is the best.

STEP 6: Pay Off Our Mortgage:

Every dollar in our budget above living, retirement, and college should be used to make extra payments on our home. If we purchase a home in the future, never take more than a 15 year fixed rate loan and never have a payment of over 25% of your take-home pay. Saving and paying cash is an even better idea (the 100% Down Plan) so pay off your first home as fast as possible, and then a save a LOT for the next bigger house following the above rules.

STEP 7: Build Wealth

Now that we have all of our affairs in order (We have NO debt, not even a home payment, we have a fat emergency fund, we have the proper insurance in place, we have a year’s supply of food and water, we are saving for retirement and college, etc.), now we can have FUN. Fun we can actually afford. So don’t feel guilty- have some fun, also invest and give to others as we feel prompted by the Spirit (large fast offerings, helping those in our family, community charities, etc.).

By now we have built years of good financial habits. We should continue to use these habits, have our budget meetings, and be prayerful about our money, but it will not take quite as much effort as it did in the beginning.

Investing- Keep it simple until you have over 10 million dollars. Use simple mutual funds and debt-free real estate. Always manage our own money. Gather a team to help, but make sure we are VERY involved and call ALL the shots. Our team should consist of:

A good estate planning attorney

CPA

Insurance Pro

Good Realtor

Maybe a Financial Planner (but make sure you are the boss!)

Now we have reached the point where our money works harder than we do! When our money makes more than we bring in from our income, we are officially wealthy. We have reached this point when we can live off 8% of our nest egg. To figure this out, simply times our savings by .08 and if we can live off of that number or that number is more than we bring in from our jobs, we have made it! We can also use this formula to figure out how close we are to hitting this financial security milestone.

Lastly, GIVE. Being wealthy is not a sin, but making money our God is. Be careful to stay Christ-like and share appropriately.  This is actually the best part of truly being wealthy- helping others. 

*I think what I loved most about this book was that it was the first book that I have ever read that explained to me how we could truly become financially independent on James' current salary; how we can utilize the money we already have coming in more effectively to pay off debt and use our discretionary income wisely. I have always thought we needed to make more money or start a new business or have a second job etc. This is a plan almost anyone with any income can follow. We were able to save up our $1000 emergency fund in 2 days by making a few simple changes. Three days after that, Emma fell and we had a $200 emergency room visit. We were easily able to pay cash for it instead of putting it on a credit card. Two days after that we received 3 child support payments so we were able to re-fund our emergency fund and put extra money toward our debt (we had not received child support in many, many months so this was a testimony to me that we were doing something right!). We have created very detailed spread sheets and have had several budget meetings. Fortunately James and I are both on the same page and are both willing to make some sacrifices to get where we need to be- it will be tough for awhile, but the blessings FAR outweigh the sacrifice once again. :)