Great White Snark: "Where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice."

Sunday, December 16, 2012

"Where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice."

Well, I wouldn't, but I know someone who would!
I just finished taking Dave Ramsey's Financial Peace University class at a local church and thought I should probably blog about it. I don't agree with everything he teaches 100% (because if I did, that would be Maryism, which, contrary to the popular belief of every protestant ever, is not just another name for Catholicism), but I agree with about 90% of it, and it's helped me out in a BIG and very real way. 

First of all, who is Dave Ramsey? He's a Tennessee guy who made his first million by 26 and lost it all and then some by the time he was 30. His journey from millionaire to bankruptcy was the catalyst for him developing a money philosophy: build wealth by not having any debt whatsoever. 

Now, a lot of people think they're debt-free. I did. But Dave will be quick to point out that everything you owe anything on--car, credit cards, medical bills, student loans, everything but your house--is a debt, and it needs to be paid off ASAP. If you have no debt and no payments, you can use ALL of your income to save and buy cool things, like houses, and cars that cost more than $9,000. 

Paying off everything sounds great on paper, but it's just not practical to wake up one morning and go, "I think I'll just pay off everything." First of all, no one has that kind of money. Secondly, you still have your basic living expenses: food, gas, rent, etc. that must be paid even though you'd like to pay off certain things. Thirdly, you can't do it overnight or everyone would do it and American Express would be out of business. 

This is why Dave developed what he calls the Seven Baby Steps to getting out of debt. They are as follows:
1. Save up a starter emergency fund of $1,000 (or $500 if you make $20,000/year or less). This is in case something happens when you're tackling step #2. Also, I can personally attest to the fact that as someone who's never had an "emergency fund" before, having one is EPIC for your peace of mind. 
2. Begin to pay off your debt snowball. A debt snowball is where you list all of your debts in order from smallest to largest. Every week or month, you dump as much money as you can onto the smallest debt and get it paid off while making minimum payments on everything else. Once debt #1 is paid off, you take the money you were putting towards that debt towards debt #2. Then you pay that off. Then that money goes towards paying off debt #3 and so-on. His philosophy is that by attacking one thing with intensity, you'll actually PAY IT OFF as opposed to paying a little bit on everything over the period of an eternity.
3. Build up an emergency fund of 3-6 months' worth of expenses. That way, you don't need to go back into debt when (not if) those emergency-type things happen.
4. Once you've taken care of the debt snowball (no more credit card payments! No more car payments! Whee!), you put 15% of your income towards retirement. He recommends investing in IRA's and growth-stock mutual funds, but I'm not even here yet, so I can't talk about investing and mutual funds and other really financially-adult things yet. 
5. Put away money for the kids' college. This is also irrelevant to my life, but I know that I DO want to be able to fund my kids' educations, because I have very little faith in the government actually doing so. 
6. Pay off your mortgage. I'd probably care more if I had a house. 
7. Build wealth and give

His philosophy is "live like no one else (driving crap cars and making sacrifices and budgeting) so that later you can live like no one else (having a paid off home, and car, and no debts whatsoever)." 

I initially discovered Dave in the car. As many of you know, I spend an average of 60-100 minutes a day in the car, depending on traffic. I listen to music in the morning, but on the way home I need something engaging to help keep me awake (I've found that I spend an awful lot of time either trying to stay awake or planning how I can squeeze a nap into my day). I found the Dave Ramsey Show and initially started listening to hear all the crazy money problems other people were having. It made me feel better about my own situation. Kind of like how we all watch Maury and Jerry Springer. Only the more I listened, the more I realized that I wasn't really in any better situation that a lot of the callers. And what Dave Ramsey said actually made sense. He doled out useful advice (instead of chairs to hit people with and Mardi Gras beads to people who flashed the audience), and it just made sense to me. Of course! If you have no payments you can keep ALL of your paycheck! Why had no one thought of this before?!

So when I heard a church down the street was offering his class, I sort of arm-wrestled my parents into going with me. 

So do I recommend the class? Absolutely. I loved it (so did my parents). It goes for 9 weeks and covers all the baby steps in detail so you know exactly how to tackle each one. I had also read his book, The Total Money Makeover, and I recommend it HIGHLY to anyone looking for a financial revamp. It really did change the way I look at money and finances, and while I'm disappointed I didn't find this all out sooner, I think I found it at a great time, because I can arm-wrestle my future husband into this way of thinking, and maybe, just maybe, we won't have credit card payments and our kids' college will be paid for. 

One of the biggest proponents of this class is getting rid of credit cards. I had already gotten rid of mine, because I had major credit card debt (when I say "major" I mean "major for someone who makes roughly $20,000 a year." We're not talking 5 and 6 digit major, here, but major for me). Being a shiny-eyed, naive college student, I signed up for credit cards (like, a lot of them) under the pretense that I needed to build credit in case I ever bought a house or something. What I didn't realize then is that a) I have a serious addiction to shopping, and b) in order to build credit, you actually have to be able to PAY your bills. So, being the young idiot I am, I got myself way in over my head in credit card debt, which I am still paying off. Dave teaches to cut them up (in what he refers to as "plastic surgery.") and use cash in their stead. With cash, you physically FEEL money going away. You had a full wallet, and then your wallet got skinny when the money went away. With a card, you can swipe away $100 and not feel a thing.  

I thought this was stupid and cheesy at first, but it's so accurate, it's painful.

I am completely on cash now. I am making (and sticking to!) a budget for the first time in my life. Each week, I divvy up my paycheck according to what I need to buy, what I need to save, and what I need to pay off. It's tight (like, Adam Lambert's pants tight), but I'm making it work. One of the things I realized is that having a budget is, ironically, freeing. It's nice to know, "okay, AFTER I put aside money to pay my bills, I have this much left over to spend." I didn't realize how stressed I was about money until that stress went away. 

In short, I am working really hard on my financial situation, thanks to Dave Ramsey, and I cannot recommend his books and class enough. It's a long road, but I feel like I'm equipped now to make the journey--successfully. 

Dave's Book, The Total Money Makeover (I recommend this the highest out of anything mentioned in here)

If you guys have any questions about this, leave a comment or shoot me a message! I'd love to discuss this with my readers! I hope you're all having a really lovely Christmas season, btw. 

PS: I should mention that Dave is an evangelical Christian, and as such, makes copious references to scripture and the teachings of Christ. This doesn't bother me in the least bit, but if you were thinking of taking a class, take note: he does mention God stuff a lot. If that puts you off, I'd listen to his radio show or read his book. The order of preachiness goes like this, from least to highest: radio show, books, FPU class. The FPU class is traditionally taught in churches, so it tends to be more heavy-handed on the Biblical aspects of finance. He keeps it pretty neutral on his radio show, and in the books you can skip over it if you don't like it. Like I said, I actually like this part, but I'm a practicing Christian so it doesn't bother me. Just FYI. 


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  2. My husband and I first started out with Larry Burkett who pretty much had a similar philosophy to Dave Ramsey. We were late comers, but at 56 years of age, we are completely debt free and paying for everything with cash, and my husband can retired as of this moment. Our biggest mistake was not starting out younger, but from my way of thinking any time is the right time to start. I've run the course in all brands of Christianity. Evangelical doesn't bother me either, even though I no longer follow that philosophy. I'm pretty adept at skipping over what might come across as Christian preaching. The money advice is spot on.

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