Over the years I’ve written quite a bit about Dave Ramsey here on this site. For those that don’t know Dave Ramsey is a nationally syndicated radio talk show host, author and financial guru.  I’ve written about his 7 Baby Steps plan for getting out of debt, as well as his 13 week financial class called Financial Peace University.  I’ve also read and recommend his book Financial Peace Revisited as it was included in the Financial Peace University packet when we took the class.

As you can probably tell, I’m a big Dave Ramsey fan. I’ve taken his classes, helped facilitate the class as a leader.  I think his methods are great for helping people to get on a solid financial footing, and to get rid of debt.

With all that said, today I wanted to talk about something that I’ve heard quite a few people talk about in the last few months – the pricing of Dave Ramsey’s programs.  I’ve heard some people say that his programs cost too much, and that he’s making his fortune off of the mis-fortune of others.  I’ve heard this even more since it was revealed that Dave Ramsey had built a huge new multi-million dollar house for his family.  Others say that his programs are priced reasonably, and are well worth the cost for what you get.  Today I thought I’d examine just what his program costs, and whether or not it’s a good value.

What Is The Cost Of Financial Peace University?

The main Dave Ramsey offering that I’ve heard people talk about and complain that it’s too expensive is Ramsey’s Financial Peace University.  How much does it cost?  From Ramsey’s site as of 4/2011

Class Cost: Lifetime Membership – Memberships include all class materials and usually cost around $100 per family. You can purchase your membership from Dave’s online store or from the class coordinator.

So the class costs $100 per family.  $100 is exactly what we paid when we took the class 2-3 years ago.  So apparently it hasn’t gone up in price.  One thing that should be noted is that the $100 covers a lifetime membership to the class, so if you decide you want to take the class a second or third time – you won’t have to pay the $100 cost again.  I’ve been through the class now twice, and I found it helpful to attend more than once.  Sometimes the first time through you may have some confusion about certain topics, and want to go over them again. Taking the class a second time can help you with that.

Financial Peace University also has a home study program as well, which will cost more because it also includes the DVDs of the lectures, which aren’t included in the regular class package.  The cost for that package is currently $169.

Note: I’ve been told that you can also attend the first class of Financial Peace University at no cost to decide if it’s something you might want to do.  Something to consider for those on the fence.

What Do You Get For Your Money?

When you sign up for the Financial Peace University class and pay your $100, what exactly are you getting?  You get the class itself and a membership kit:

• 13 weeks of class (lifetime membership)
• The book Financial Peace Revisited
• The Financial Peace University workbook
• Audio CDs of the 13 weeks of lectures, in a nice faux leather folder.
• CD with some sample video content
• CD to share with a friend
• Cash envelope system for envelope budgeting
• Debit card sleeve (to remind you to think twice about spending)

To me that’s actually a pretty good value. You’re getting all that books and materials as well as the class for only $100.  For the 13 weeks of class alone that would be around $7.70 per class. That’s pretty darn affordable I think.  (Check out my FPU Kit unboxing post for more pictures of the materials)

You also get some intangibles when taking the class, one of which is a sense of peace knowing that you’re in better control of your money.  Having a budget and a plan can really give you a sense of power that many didn’t have before.

Where Could You Find $100 In Your Budget?

The question a lot of people bring up when talking about the class is – “If I can’t afford to pay my bills, how can I afford to pay for the class?”.

In some instances I know that some churches that offer the class will help people to pay for the class with full or partial scholarships.  Even Ramsey suggests, however, that it is a good idea for people to pay their own way.   They’ve found that people who pay their own way tend to have more success in the program, in part because they have something invested in it.  If they don’t pay, since it’s not their own money they don’t feel as bad dropping out after 2 weeks if they don’t like it. Pay the cost, and they’re more willing to stick it out and do the hard work.  We saw this very clearly in our own class, one of the few people who got a scholarship ended up dropping out after the 3rd week.

So where can you find $100 in the budget?

• Cancel cable TV, and you’ll save hundreds over the course of the year.
• Get a lower tier cell phone plan.
• Create some freelance income, or get a part-time job.
• Eat out less for a month or two.
• Sell some stuff on Craigslist.
• Sell some plasma.

The point is, there are a ton of ways that you can come up with an extra $100, you just have to be creative!

So Is It Worth It? Is FPU A Good Value?

So is Financial Peace University a good value, and will you be glad you spent the money?  In my opinion it is an extremely good value for what you’re getting – a roadmap to a solid financial footing.   It really isn’t that hard to find an extra $100 in your budget if you put your mind to it, and the returns you’ll get through the program will more than pay for it.

If you don’t like Dave Ramsey or his methods, you may want to look elsewhere because there are other programs out there that may cost a bit less – like Crown Financial’s Money Map program.  But for my money, and from my experience, Dave’s program is effective, engaging and fun, and it just works.

What are your thoughts? Are you convinced that the program is a good value? Do you still think it costs too much, or do you have other issues with Ramsey and his program?

• Read a week by week review of the Financial Peace University program here:  Financial Peace University Review
  

• Dave Ramsey’s Financial Peace University™ – Program Review
• Dave Ramsey’s Financial Peace University: Week 13 – The Great Misunderstanding
• Dave Ramsey’s Financial Peace University: Week 12 – Real Estate and Mortgages
• Dave Ramsey’s Financial Peace University: Week 11 – Working In Your Strengths

Here is an in depth look at Dave Ramsey’s Baby Steps plan for getting out of debt, building wealth and giving.   The plan really is a pretty simple one, some might say it’s common sense,  but it brings home a lot of concepts that a lot of us don’t normally think about.

I thought it might be helpful to go over the baby steps and see how they can help you.

Baby Step 0: Getting Started, Making A Decision To Change

Before getting started on the Baby Steps plan you may not have ever thought about working on your finances before. You just kind of let your money happen to you.  To get started on this plan you have to make a conscious decision to care about where your money is going, and to live responsibly and within a budget.  For many of us, this will be a quite the shift.

For some people they won’t want to make a change until they’ve hit rock bottom, facing a foreclosure or bankruptcy.  Hopefully you’re getting started before reaching that point.  Whatever point you’re at, just remember that you’re not alone, and you’re making this change to make your family’s lives better.  It won’t be easy, but nothing worth having ever is!

Commit yourself to living within a budget, and to creating no more consumer debt!  As long as you’re creating new debt, none of this plan will work!  Once you’ve made the decision to make a change, cut up the credit cards, get on the same page with your significant other (if you have one), and move on to step 1!

Baby Step 1: Save A $1,000 Baby Emergency Fund

Baby step one is where you start building up an emergency fund for your family to cover any incidental and emergency expenses that might come up while you’re paying off all the debt you’ve created.

Some people don’t feel secure with only $1,000, and depending upon your circumstances, you may need slightly more.    But $1,000 is a good starting point, and for most families will be more than adequate to cover the little expenses that come up for every family.

Get “gazelle intense” about saving that first $1,000.  Most people will get it saved in the first 1-2 months of the plan.

Baby Step 2: Pay Off All Debt Using The Debt Snowball

In baby step 2 the family starts their debt reduction portion of the plan.   This is often the hardest part of the plan for most families, especially if a large amount of debt has been created.

To get rid of the debts Ramsey has put together what he calls the “Debt Snowball”.  In this plan you setup a debt repayment plan where you pay your necessities first (food, clothing, shelter, transportation), and then you pay the minimums on all of your debts.  Once the minimums are paid, you pay as much extra as you can on the smallest debt.  You continue doing that every month until the smallest debt is paid off.  Once that debt is paid you “snowball” all the extra money created by paying that debt off into the next smallest debt.   You continue doing that until all of your debts are paid off.

Some people can get the debt paid off within a few months, where others can take a few years.  In either case it will sometimes be helpful to get part time jobs, sell stuff and do other things to temporarily create extra income to help pay off the debts.     Once the debts are paid off you can quit those part time jobs because you’re debt free except the house!

Baby Step 3: 3-6 Months of Expenses In Savings

In baby step 3 you continue building that emergency fund that you started in baby step 1.  Starting from the baby emergency fund of $1,000 you build your reserves until you have 3-6 months of expenses saved in an easily accessible savings account.    Depending upon your family’s expenses, the amount you’re saving up will be different, and some people will prefer to build up more than 6 months of expenses depending on their desired level of risk, and what they feel comfortable with.

Remember, you’re saving up this money to help eliminate much of the risk that comes from the “little murphies” or life’s unexpected events that just seem to pop up.  Things like car troubles, medical expenses and job losses.  When you have the emergency fund buffer, it makes these life events seem more like bumps in the road instead of horrible car wrecks.

Baby Step 4: Invest 15% Of Income in Roth IRAs And Other Pre-Tax Investments

After you’ve saved up your 3-6 months of expenses it’s time to get cracking on investing and saving for your retirement.    Dave Ramsey suggests saving at least 15% towards retirement, and saving it in a Roth IRA or other pre-tax investment.  The order he suggests saving for retirement is this:

• Company 401k or other plan up to the match
• Roth IRA for you and your spouse
• Back to the 401k or other plan

Some people debate on whether 15% is enough to invest, or what types of investments are the best.  For me I believe the key is just to get started investing, and do it now!

Baby Step 5: College Funding For Children

After saving 15% of your income for your retirement, it’s time to save for your child’s education!  Some people think that this step should come before step 4, but Ramsey stresses the point that your child will have other options to help fund their education if they need to including scholarships, grants, working part time and other things.  If you don’t fund your retirement, however, you’ll never be able to get that money back!  Fund retirement first, and then your children’s college.

Some good places to save for your kid’s education include:

• Education Savings Account (ESA):
• 529 Plan

Other options exist as well, but the above options are the best.

Baby Step 6: Pay Off Your Home Early

Once the children’s college is paid for, it’s time to start making extra payments on your house! There are a lot of good reasons to pay off the house, including:

• Less Risk:  With no house payment and a fully funded emergency fund, there aren’t many things that can happen (like a job loss) that can threaten your well being.
• Peace Of Mind:  With no house payment you’ll be free to do a lot of things with your time and money that you might not have been able to otherwise.
• Interest Savings:  By paying off the house early you’ll save thousands in interest.  The earlier in the life that you pay the mortgage off, the better you’ll do!
• Less Stress:  With no worries about losing a house, paying off debt, or small expenses coming up, you can live  a more stress free life!

Paying off your house will free you up to do so many things with your time and money!  It’s like getting a raise since you’ll have all that extra money every month.  With that extra money you can save, give and live like no one else!

Baby Step 7: Build Wealth And Give

The last step of the baby steps is the one that gets me the most excited – building wealth and giving!

When you are debt free and you have no large payments like a mortgage, it frees you up to begin building wealth, and it allows you the freedom to help others with the blessings that you’ve received.

As a Christian I feel called to give to others, and getting to baby step 7 is something I look forward to because it will allow my wife and I the ability to help others out even more than we are now!  We are stewards of everything that God has given us, and God wants us to give because giving to others makes us less selfish people, and better in every aspect of our lives.  Less selfish people are more successful in relationships, business and in life in general.  Plus, we are happiest when we are serving and giving!

Conclusion

Thanks for taking the time to look at Dave Ramsey’s 7 baby steps with me, it has truly been a lot of fun for me.

I really do believe that his plan is a good one, and can help others as it has helped my wife and I.   If you’re looking at your checkbook and accounts and you have a mountain of debt – don’t delay! Get started on getting out of debt today!  Step one is only a decision away!

Live like no one else today so that tomorrow you can live like no one else!

• Dave Ramsey’s 7 Baby Steps Review: Is This A Debt Management Plan You Should Try?
• Dave Ramsey’s Baby Step Series At The M-Network
• Financial Peace University: Is It Worth The Price Of Admission?
• Why Dave Ramsey’s 7 Baby Steps Really Work

Doing a budget has decreased our spending

photo credit: Jeff Keen

Within the past few months my wife and I have started doing a zero based budget where every dollar is allocated before it comes in.  When the paychecks are deposited each and every dollar is assigned a job, whether it be paying bills, groceries, personal spending money or savings.  Since we give every dollar a job, money doesn’t just “disappear” in the ether,  and we have more money at the end of the month.

We’ve been using the envelope system for problem spending categories as well.  Sometimes, even when you have a budget, you inadvertently spend more than you should in categories like groceries, eating out or miscellaneous spending.   Using the envelope system is helping us to eliminate those overspending problem areas.  We have a set amount of money in our envelopes every month for those problem categories.  When the money runs out, we can’t spend anymore.  It’s a nice concrete way to control our spending.

Unintended consequences of making a plan

One thing we’ve realized since we’ve been doing our monthly budget is that there are some great side benefits to doing the budget, besides the improvement to our bottom line.  Here are a few:

• We argue less about money: Since we have a budget, and we both know what our financial plan is, there is less opportunity to disagree and argue about money.  We used to argue about each other’s personal spending money every month (her spending on clothes, my spending on electronic gadgets).  Now we have a budget, and we both have a set sum we can spend every month without having to ask the other.  That makes it easier to trust each other and not have to worry about spending on things we shouldn’t.
• We are more peaceful about our financial situation:  It’s so much easier to feel peaceful about your financial situation if you have a plan, and you know how much money is coming in and going out.  Before we felt like we were doing ok, but there were also times where we felt like we were sinking.  Now we KNOW where we are, and it gives us peace.
• When bad things things happen, we don’t feel panic anymore:   When life happens and an emergency comes up, we don’t have to feel panic anymore.  We have an emergency fund, and are building up 3-6 months of expenses (as suggested by Dave Ramsey) and we know we can weather the storms that might come our way.  Previously a large car repair bill or medical bill might have caused us to panic and feel like we weren’t in control.  Now we have a plan for emergencies, and insurance to cover large expenses (like medical bills), and we are more confident in where we are.
• We’re eating healthier: Because we’ve cut down considerably on eating out at restaurants the last couple months, it also means that we’re eating healthier. Previously we would eat out 5-7 times a week, and not only was it a budget drain, but we weren’t eating very good.  Because our budget cut out a lot of that eating out, we’re making out own meals now, and making healthier eating decisions.
• We’re able to help others: Because we’ve been taking financial classes, and because we’ve setup our own budget, we’ve been able to help others on their road to financial peace as well.   People see us pulling out our envelopes to pay for things, and are naturally curious. This has allowed us to get them into doing their own budgets, and turning around their own financial situations.
• It’s easier to say no.  We don’t buy as much junk: Before we would just buy stuff because we liked it, or because it was on sale (why not?).  Now, because we have a budget, it’s easier to say no to purchases because “it doesn’t fit in the budget”.  This means we’re saving a ton of money on “stuff” as well as meaning we don’t have as much clutter around the house.  Double benefit – more money, less clutter!

So those are a few of the unintended but welcome benefits that we’ve found as a result coming up with a financial plan, and doing a budget.

Are you doing a budget?

Is your family on a budget? Why or why not?  If you are on a budget, what unintended consequences did you find once you started working your plan?

• Financial Peace University: Is It Worth The Price Of Admission?
• Dave Ramsey’s 7 Baby Steps Review: Is This A Debt Management Plan You Should Try?
• Dave Ramsey’s 7 Baby Steps Review: Get Out Of Debt, Build Wealth And Give.
• A Way To Control Spending: The Envelope System

We need a way to cut our spending

This past summer my wife and I took a class called “Financial Peace University“.  The class is built around the teachings and personal finance framework put together by Dave Ramsey. Ramsey has made it his career goal to help people take responsibility for their financial life, get out of debt, and save for their future. The class is a very good one, and I suggest you check it out if you’ve ever had problems managing your finances.

Maria and I loved the class so much that we’re now helping to facilitate a class at our church by helping some friends teach the next session of Financial Peace University.   One thing we’ve realized by teaching the class is that we’ve let our own finances slip the last couple of months as we were out of the country for a few weeks and dealing with other various issues of life.  We just haven’t been doing our budget, and certain spending categories have gotten out of control.   If we were going to be teaching this class, and being a good example to others there, we figured we had better get things in order, and get our spending back in line.

So how to cut our spending?  One thing we neglected to do last time we took the class was to control our spending using what Dave Ramsey calls “The Envelope System”.  We figured we could do a “virtual envelope system” using the computer and money software like Microsoft Money.  We were wrong, and now we decided to give the actual physical envelope system a try.

The Envelope System – getting started with a budget

The first thing you have to do when you’re trying to control your spending is to set up a budget. If you don’t know where the money is going and what your set expenses are, it will be difficult to setup a working budget or envelope system.

Tracking our expenses was relatively easy because we log pretty much every dollar coming in or out in Microsoft Money.  We have a good 1-2 years of history right at our fingertips.  With that we were able to see exactly how much we were spending on set expenses (mortgage, utilities, taxes), as well as other categories where the spending was out of control (food, shopping).

Once you’ve got a good baseline for what you need to spend every month on the basics, you’ll want to set up a monthly cash flow plan, and give every dollar a name through doing a zero based budget.  What that means is every single dollar of income that comes into the household will be allocated, and assigned a job.   If you make $5000 of net income, all $5000 of that should be allocated either to an expense or savings category.  That way you won’t have the extra money (after expenses) disappearing into the ether.  It gets saved, or assigned to a debt, or gets some other job. Your money works for you instead of just melting away.

So to review, the first steps you’ll want to take include:

1. Figure out your regular monthly set expenses.
2. Figure out other variable expenses (like food, shopping, entertainment) and assign a realistic dollar amount for that category in the budget.
3. Put together a zero-based budget where every dollar of income and expense is allocated.  Every dollar has a name and a job.

Setting up your envelope system

Once you’ve got a budget setup, and you know how much you want to spend on each category, it’s time to setup your envelope system. The idea behind the envelopes is that it helps you control your spending on certain problem categories by giving you a set amount of money each month in your envelope that you need to use towards that category.  When the money is gone from the envelope, you can’t spend any more money on that category. If  you absolutely need to spend more, you have to take money from another category to fill in the gaps.

We have a couple of big problem categories that we consistently overspend in.  Eating out/restaurant spending and shopping spending.  My wife and I love eating out, and in some ways eating out has become our way to connect with each other and entertain ourselves.  If we have a date night we go out to a nice restaurant and enjoy an evening together.   The problem is that we’re doing it way too often, and spending way too much money doing it.  The solution?  We added these problem categories to our envelope system.   In the picture below you can see our envelope for “restaurants”.

We also set up envelopes for some other categories with variable expenses including groceries, shopping, entertainment and “blow money” (personal money we can spend for every and any reason).  Whenever we get paid we are now going to withdraw money for each spending category and place that money in the envelope.

For example, if in our budget we allocate $400/month for groceries, we’ll withdraw $200 from the first of the month’s paychecks and put $200 in the envelope. Whenever we go shopping for food we can then only spend money from that “groceries” envelope, up until the point the money is gone. If we go shopping and the bill comes up to $201, we must take that $1 from another envelope, or put back $1 worth of food. For the last paycheck of the month, we’ll once again withdraw $200 for food and add it to the envelope. If we’ve only spent $100 the first two weeks we’ll then have $300 in the envelope.  At the end of the month, if you have money left over, decide how to allocate that money – either putting it towards debt, or saving it.

Using this system may be a bit uncomfortable at first, especially if you’re using envelopes for a larger number of categories. We know of one couple who set up a ton of spending categories using this system, and then ended up withdrawing thousands every month and putting it into envelopes. We decided it would be easier to just choose some of our biggest overspending categories and withdraw the money for those. It comes out to about $800/month that we’re withdrawing and putting in envelopes.

So the envelope system boils down to this:

1. Set up a zero-based budget, and know how much you should spend in all categories.
2. Find some of your biggest over-spending categories, or places where the expenses vary quite a bit every month and set up an envelope for those categories.
3. Every paycheck withdraw enough cash to fully fund the envelopes for your envelope system.
4. Only spend what you have in the envelopes, and if you don’t have any money left , don’t spend.  If you need to spend more, take it from another envelope.
5. Any money that is left over, either save or put towards your debt snowball (if you have debts).

While we’re still setting up our envelopes, we know from watching others use the system that it can have a dramatic effect on how much money you’re spending.  Not only are you setting limits on yourself and actually living on a budget, you’re spending cash, which hurts more.

Studies have shown that when you use a credit card, even if you’re paying it off every month, you spend on average 12-18% more.  Using cash for those problem categories will help you to rein in that spending, and force you to not spend more than you make.

What do you think of the envelope system?  Are you currently using the system, and how does it work for you?  Do you prefer physical envelopes or using “virtual envelopes”?

Links:

• NCNblog.com: Video tutorial of the envelope system
• Simple Mom: Envelope System
• Frugal Dad: How to implement an envelope budgeting system
• Bargaineering.com: What is envelope budgeting?

• Financial Peace University: Is It Worth The Price Of Admission?
• Dave Ramsey’s 7 Baby Steps Review: Is This A Debt Management Plan You Should Try?
• Dave Ramsey’s 7 Baby Steps Review: Get Out Of Debt, Build Wealth And Give.
• Unintended Consequences Of Doing A Budget

Teaching Financial Peace University™

My wife and I were just asked by some friends at church if we would help them in hosting a Dave Ramsey Financial Peace University™ class at our church. They had been planning to teach the class by themselves, but in the wake of our tough economic times they had over 60 people sign up for the class. They decided they were going to need several other couples to co-host the group, and they asked us to be one of them. We agreed to do our best to help facilitate the class.

In preparation for our new class, I thought I’d do a quick review of our own experience in Financial Peace University™. So here is a review of the 13 week class.

Financial Peace University™ – Review

To start out, here’s a previous post looking at the FPU package that you get when you sign up for the program. In case you don’t want to check out the linked article, you’ll be getting audio CDs, CD-Roms, books, workbooks, cash envelopes and more. It is included with your class registration and fee.

• Unboxing Dave Ramsey: Opening the Financial Peace University™ Membership Kit

After we received the package from our group leaders we quickly jumped in head first and started reading Ramsey’s included book “Financial Peace Revisited”. It’s a great book for debt reduction, with plenty of insight and motivation. The program also has you read from the book each week during the class.

Starting The Class: Reviewing Where You Are, Relationships

When you attend the class for the first few weeks, it’s apparent that the focus starting out is going to be on setting a baseline framework from which to work for the rest of the weeks. Before fixing your problems with debt, it’s important to know why you got into debt, talk about how you and your spouse relate about money – and how that may be different, and then look at how you can set up a framework to make changes going forward.

The class starts out looking at saving up an emergency fund to give you a nice base to work off of so that you don’t continue going into debt if some “emergency” were to happen. It also talks about setting up a larger emergency fund of 3-6 months once you’re out of debt.

Next the class looks at money in marriage, how our money affects relationships and how different people have different outlooks on money. They explore how that needs to be accounted for through having monthly budget meetings where finances are discussed.

Setting Up A Plan For Your Money

After communication about money is established the class dives into the important topics of cash flow planning and budgeting for your family. It stresses the importance of assigning every dollar to a job (so money doesn’t just disappear), and shows you how to do a zero based budget in conjunction with the cash envelope system.

We set up our own budget recently using the software called “YNAB – You Need A Budget” which uses the idea of zero based budgeting and cash envelopes, but in electronic form.

Dumping Your Debt

After you’ve set up a budget, and have instituted the envelope system to cut your spending, the FPU class looks in depth at how to categorize and get rid of your debt. It gives an in depth exploration of the debt snowball system in which you pay off your debts from smallest to largest. The system is great for motivating people to get out of debt by giving them small wins, and keeping them on the path to debt freedom. It also explores ways to create new income – even temporarily – while you pay off debt.

The program also talks about the use of credit, how it has gotten out of control, and how they believe that you should forgo the use of credit altogether – especially for those who are in debt.

Making Responsible Purchasing Decisions

The program also spends a week or two looking at how class participants can make better purchasing decisions in order to stay out of debt, and find better deals in the process. It looks at how companies sell to consumers, and helps tip people off to some of the sales tactics used and the psychology behind them.

It also looks at how to get a better price when you are buying, and how to negotiate a better deal. Those classes were some of my favorite in the whole series.

Planning For The Future

A whole bunch of the lessons right in the middle of the class are devoted to setting up a financial and life plan with your spouse. The topics covered vary from buying insurance for your family (home, health, life, disability, auto, long term care) to investing and saving for your kids education. It looks at the many options, and discuss which options are the best and should be considered.

It also looks at buying and a home (What type of mortgage, how much can you afford, etc), the best ways to sell a home. It also has a week on considering your job and work life and what type of career you should be in. It talks about working in your strengths and finding a career that you’ll love.

The Reasons Why We Get Out Of Debt And Save

The final class – and throughout the 13 weeks one thing that is stressed is that you shouldn’t just be getting out of debt, saving and planning for retirement only for selfish motives. You need to be doing these things so that you can also focus on other more important things in life like giving to those in need, supporting people and programs that you believe in – and just being more giving in general.

When you’re drowning in debt it isn’t something you can really do, but when you’re out of debt and on track for retirement – it will allow you to live more and GIVE more.

Conclusion

The Financial Peace University™ class put out by Dave Ramsey and the Lampo Group is a great class that I would recommend to just about anyone who is interested in getting their finances under control, dismissing their debt, and moving towards a brighter financial future. While there is a pretty decent investment in time since the class is 13 weeks long, and there is a lot of work involved as far as creating budgets, reading the book and workbook activities – it is all worth it in my opinion because the class is very motivational, and for thousands of people has helped to flip that switch to make a change.

The only caveats that I would place on the program surround the investing portions of the class. While I think some of the advice is sound, I also think some of it is a bit dumbed down for the wider audience – and makes some assumptions that may or may not hold true (like a 12% return on investments). For the debt reduction and motivational aspects of the class, however, I think it is second to none. That, and Dave Ramsey is extremely entertaining to watch during the weekly videos.

Have you taken The Financial Peace University™ Class? Did it make changes to your life? Tell me your experience with FPU in the comments.

• Financial Peace University: Is It Worth The Price Of Admission?
• Dave Ramsey’s Financial Peace University: Week 13 – The Great Misunderstanding
• Dave Ramsey’s Financial Peace University: Week 12 – Real Estate and Mortgages
• Dave Ramsey’s Financial Peace University: Week 11 – Working In Your Strengths

Last Week – Real Estate And Mortgages

Last week was week 12 and we talked about real estate – buying homes and selling homes. Things we touched on:

Be careful when buying a home and don’t get overly attached emotionally to a house.  Get professional help when selling!

This Week – Giving And Being A Good Steward

• Financial Peace University: Is It Worth The Price Of Admission?
• Dave Ramsey’s Financial Peace University™ – Program Review
• Dave Ramsey’s Financial Peace University: Week 12 – Real Estate and Mortgages
• Dave Ramsey’s Financial Peace University: Week 11 – Working In Your Strengths

Last Week – Working In Your Strengths

Last week was week 11 in Dave Ramsey’s “Financial Peace University“. Week 11 was all about careers and doing what you love for work.  Ideas talked about:

Doing something that you enjoy is the key to being satisfied in a career.  Take the time to explore your career options, and find something that you’ll love.

This Week – Real Estate And Mortgages

• Financial Peace University: Is It Worth The Price Of Admission?
• Dave Ramsey’s Financial Peace University™ – Program Review
• Dave Ramsey’s Financial Peace University: Week 13 – The Great Misunderstanding
• Dave Ramsey’s Financial Peace University: Week 11 – Working In Your Strengths

Last Week – From Fruition To Tuition

Last week was week 10 in Dave Ramsey’s “Financial Peace University“. Week 10 was all about retirement, education and planning for the future.  Key points:

1. Independence in retirement is up to you. Don’t depend on Social Insecurity.
2. Fund college education only after you are funding your retirement.
3. If you don’t have a will, get one TODAY!

While my wife and I don’t have children yet, it is still good to be thinking about what might happen down the road, and planning for their college.  Our retirement savings will come first though, and we’re already started on that!

This Week – Working In Your Strengths

Life Is Too Short To Not Do What You Love

One thing that really jumped out at me during this lesson was just how much Ramsey stressed that you should try to do something that you enjoy doing for your work.  If you’re dreading going to work every Monday, and you’re watching the clock til it strikes 5pm, then you may want to think about doing something else for a career.  At the same time, there is no shame in working hard at a job you don’t enjoy for a while, just to get out of debt, or for a short term goal.

A book that Dave suggested people buy in order to help them finding the right path for work was 48 Days to the Work You Love:

The book, written by Dan Miller, talks about exploring yourself, finding out where you true abilities lie, and then finding work that you enjoy doing.  Definitely worth a read.

When Is It Time To Switch Jobs?

Have you found yourself in a job situation where you don’t enjoy what you’re doing, and you can’t wait til you go home every day? If that’s the case, you may need to think about moving to a new job.  At the same time don’t just go and quit your job before you have something new lined up. It’s important to first figure out what you truly love to do, and research where you’ll be able to do that work.  From the Ramsey website:

When searching for job or vocation, it is important to know what kind of personality you have, as well as your strengths and weaknesses. By identifying your traits, you are much more likely to find a job in which you will love and excel, and you will learn how to work well with people who have different personalities.

Ramsey suggests even taking a personality test, to find out what kind of a career you might excel at. We were given an example of a personality assessment and the careers we might excel in with those traits in our class.  You can probably find the test at the Ramsey website.

Once you find something you think is a fit, make sure that you do your research, and know exactly what you’re getting into. Research salaries and responsibilities. Be ready to explain what you bring to the table. And negotiate your new salary by making a value proposition to your prospective employer.

Write A Mission Statement

After you’ve figured out what traits you have, what type of a career might fit you, and where you can do those things, try writing a career mission statement. Write down what you would like to accomplish in your home and work lives, what career you would want to hold, and what values you will hold dear. Hang onto the mission statement and refer to it!

Next Week

Next week is week 12 and a lesson called “Real Estate and Mortgages“, where Dave Ramsey talks about real estate, buying a house, selling a house and paying off your mortgage early.

• Financial Peace University: Is It Worth The Price Of Admission?
• Dave Ramsey’s Financial Peace University™ – Program Review
• Dave Ramsey’s Financial Peace University: Week 13 – The Great Misunderstanding
• Dave Ramsey’s Financial Peace University: Week 12 – Real Estate and Mortgages

Last Week – Of Mice And Mutual Funds

Last week was week 9 in Dave Ramsey’s “Financial Peace University“. Week 9 was all about mutual funds and other stock investment strategies. Some of the key points:

It was good to get into some detail about saving, what your options are, and what will work best for most people when investing.

This Week – From Fruition To Tuition!

Where Should I Put My Retirement Funds?

As was discussed last week, Ramsey suggests putting your money into some good mutual funds, with a nice diversified spread of investment types – from international stocks all the way to small company stocks.  Check out last week’s lesson for details.

The first thing you need to do when planning for retirement, is actually make a plan.  Decide how much  you’re going to need in retirement, and figure out how much you’ll need to save in order to have that much (adjusted for inflation) in the future.  There are plenty of good calculators out there that can help you figure this out.  Do this before anything else to figure out how much you need to save.

So where should you be putting your retirement funds to save for retirement – in your company’s 401k plan, or in a Roth IRA?

Ramsey suggests that if your company does a match, to invest in your company’s 401k, up until the match.  Once you reach the match, switch over to investing in your Roth IRA.   As of 2008 the max contribution to your Roth IRA is $5000.  Once you’ve reached that, you can max out your 401k as well if you like. You can put in as much as $15,500 as of 2008.   Do this for up to 15% of your income (or more if you need to catch up, and you have the extra income).  Dave also reminds us that:

Don’t forget that you can only contribute to Roth IRAs if your income is at least $4,000 a year and no more than $154,000 a year, married and filing jointly.

That won’t be a problem for me. 
photo credit: Martini Captures

So go forth and invest!

Should I Pay For My Kid’s College? If So, How?

I’ve talked about paying for your kid’s college costs on this blog before, in this post.  Basically I asked the question about whether parents should feel obligated to pay for their kid’s education, before anything else.  The conclusion I came to is that the parent’s retirement and other costs should come first, but that helping out isn’t necessarily a bad thing.  At the same time, I believe making the child pay for part of their own education through work, grants and scholarships is also a very important piece of the puzzle.  They’ll appreciate it more!  Dave Ramsey says that you don’t have to go into debt to send your child to college. Here is a funny quote that Dave Ramsey has on his website about kids and college:

“I believe that we parents must encourage our children to become educated so they can get into a good college that we cannot afford.” – Dave Barry

Ramsey actually suggests encouraging your child to go to a good school – in state – where tuition will be lower.   You can save a ton of money by taking that step alone.

So let’s say you’ve decided to help out your kids with the cost of college, what options are there to start saving for their education now?

• Education Savings Account (ESA): You may save $2,000 (after tax) per year, per child that grows tax free!  Beneficiary must be under 18 years old.  Money must be used for education purposes only. Otherwise, a 10% penalty and taxes will apply.  Money must be used or rolled over to a qualifying family member by age 30 or a 10% penalty and taxes will apply.  Singles with an income over $110,000 – or Married couples with an income over $220,000 are not eligible.
• 529 Plan: If you do not meet the income limits for an ESA, or if you want to save money above an ESA, you can use a certain kind of 529 plan. You can save up to $12,000 per year, per child in a 529 plan. The money must be used for higher education only. Otherwise, a 10% penalty and taxes will apply to the gains only.
• UTMA/UGMA Plans: UTMA (or UGMA) stands for Uniform Transfer (Gift) to Minors Act.  According to Dave Ramsey, while this is one way to save with reduced taxes, it is not as good as the ESA or 529 plans.

Do I Need A Will?

Yes!  If you don’t have one, get one.  It can mean the difference between your loved ones having to fight for your assets in your death, versus just having the money divided as you wish.  Do them a favor and get one now.

This is one of the things on my “to do” list.

Next Week

Next week is a lesson called “Working in your strengths“, where Dave Ramsey talks about doing the things you love – in your work.  Sounds like a good one!

• Financial Peace University: Is It Worth The Price Of Admission?
• Dave Ramsey’s Financial Peace University™ – Program Review
• Dave Ramsey’s Financial Peace University: Week 13 – The Great Misunderstanding
• Dave Ramsey’s Financial Peace University: Week 12 – Real Estate and Mortgages

The next big crisis?

The past year has been a tough one for our economy.  We have seen the companies suffer as the mortgage industry undergoes a huge crisis.  Thousands of foreclosures have happened to people who got into mortgages they couldn’t afford.  Adjustable rate mortgage and interest only loan rates started going up, and people found they couldn’t afford their mortgages anymore.  (One could argue that they never could afford them in the first pace, but that’s an argument for another post)

photo credit: danesparza

Now, according to ABC News there may be another crisis ready to explode. The credit card crisis:

With banks limiting home equity lines, gas and food bills on the rise, and homeowners struggling to make their mortgage payments, some Americans are turning to credit cards to make ends meet. Many, however, are finding their cards more expensive to use as credit card companies increasingly raise interest rates, lower credit limits and cancel inactive accounts.

It’s all happening, some industry watchers say, for a good reason: The companies are trying to avert a crisis.

In the first three months of the year, commercial banks in the U.S. took losses on 4.7 percent of their credit card loans, up from 3.9 percent the year before, according to the Federal Reserve.

In the last two weeks, major credit card players like American Express, Capital One, Citigroup and Bank of America have all reported larger losses from unpaid card bills. American Express saw second-quarter profits from its U.S. credit card business fall a stunning 96 percent from $580 million in the spring of 2007 to $21 million this year. (Overall, the company reported $655 million in second-quarter profits.)

So people are getting behind, they’re having a hard time paying their mortgages, their home equity lines and paying for everyday essentials.  It’s no surprise that they’re using their credit cards more, making balance transfers and then in turn getting behind on those payments as well.

Who is to blame for the looming credit card crisis?

The article argues that the credit card companies are to blame for much of the problem themselves because when the mortgage sector started tanking, they looked to their credit card divisions to bolster their meager earnings.  They upped the credit limits and offered more cards to higher risk buyers.  It only stands to reason that when they offer credit to people with a history of not paying (thus high risk), that they’ll show a higher number of people defaulting on their debts.

Credit card lending became “a bit too aggressive,” said John Ulzheimer, the president of consumer education for Credit.com, a credit card information site. “People were getting credit vehicles maybe they should not have been getting. Those bad issuances of cards are, in many cases, coming home to roost right now.”

Can companies survive this credit crunch?

Now the question is this, will this looming credit crunch be enough to do in some of these struggling credit card and other financial companies?

Analysts agree that credit card troubles alone likely won’t be enough to topple any one bank in the same spectacular fashion that subprime mortgage losses led to the collapse of Bear Stearns.

But Ron Ianieri, the chief market strategist for the investor education company Options University, said that for banks already suffering from other financial woes, more trouble on the credit card front “could be enough to be the straw that breaks the camel’s bank.”

“I don’t think a credit card crisis would be strong enough to collapse a bank under normal conditions, but these aren’t normal conditions,” he said. “These banks are teetering right now as it is. One more push — it doesn’t have to be a big push — and it could knock them off the top.”

So it’s really up in the air. This credit crisis, along with the foreclosure problems that we’ve seen in the past months could be enough to do in some of these companies. It’s hard to feel sorry for really anybody involved in this fiasco.

Banks started lending and giving credit cards to people who had no business getting one. People taking advantage of these offers  really had no business getting into home loans they couldn’t afford, or using credit they couldn’t pay back.  Irresponsibility abounds and plenty of blame is assignable to all parties involved.

In the short term, the credit card companies will probably survive by bumping interest rates up, and lowering credit limits.  That means customers will be paying more in fees, and be even less likely in some cases to make their payments.

If you’re having problems with your debt, I suggest getting into a good financial program, much like Dave Ramsey’s Financial Peace University where you can set up a plan to repay your debts, get rid of your credit cards for good, and find freedom in living without debt.

LINKS:

Credit Cards: The Next Financial Crisis?

• Government Foreclosure Settlement Means Homeowners Could Get Reduced Principal, A Refinance Or Compensation
• 8 Things Every High School Graduate Must Know About Money
• If You Were Strapped For Cash, How Far Would You Go To Make Money?
• Tip: The Credit Card Companies Are Not Your Friend, They Just Want Your Money