Dave Ramsey’s Financial Peace University: Week 13 - The Great Misunderstanding
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:
- When selling a home, think like a retailer.
- When buying a home, think like an investor.
- Never get more than a 15-year fixed mortgage. Don’t tie up more than 25% of your income in house payments
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
- The Great Misunderstanding, the paradox, is that we believe that the way to have more is to hold on to what we have more tightly.
- A steward is a manager, not an owner.
- Give the first 10% of your income to your church or favorite charity.
I’m glad that they decided to focus on giving, I just wish it had been earlier in the class!
Think holding on to everything you earn is the way to get more? Think again!
The first thing we talked about in class in week 13 was the paradox that most people believe that the best way to earn and save more is to just keep your fist tight around everything you earn. Save it all!
According to Ramsey, things rarely work out that way. We’re usually best off when we’re giving. Here’s a passage from the Dave Ramsey website on avoiding “stuffitis” and finding true contentment.
In 1913 a cartoonist named Arthur R. Momand coined the phrase “Keeping Up with the Joneses” when he created a daily comic strip by the same name. The strip was Momand’s satirical take on his experiences living in an affluent society. It struck such a cord with Americans that it ran for 28 years.
We’re not that much different today. We still strive to keep up with friends, neighbors and even strangers – partly because we inherently crave prestige and partly because we’re bombarded with ads for all the things that will allegedly make us happy.
Dave says that the most important key to financial peace is not budgeting, debt snowballing or investing. The key is contentment. You have to know how to be content with less before you’re able to dig in and do the practical things that lead to financial freedom. Ironically, the people who are most content with their finances and their possessions are those who actually have less.
Marty Nemko of Bankrate.com says, “Most wealthy people know that additional money beyond a fairly modest income yields little additional happiness.”
In her book You Don’t Have to be Rich, Jean Chatzky goes a bit further and says, “The financial habits of people who believe money equals happiness stand in the way of achieving that happiness.” This type of person is less likely to do the things that lead to true contentment and control.
So what’s the answer? How do we go against the grain of a greedy, possession-driven society? One thing we can do is not allow our possessions to possess us. Working just to buy the best clothes, the newest car, the latest technology or the biggest house is futile. Our aim should be a life of peace and freedom where our family, health, and wholeness are the priorities.’
Having and possessing things can’t be the only aim of our lives. Making our family, health and giving to others around us needs to be a priority as well. When we make them priorities, we will be blessed.
Giving away other people’s stuff is easier - isn’t it?
Dave talked about in this lesson on how sometimes it can be hard to give because we feel like we want to hold on to everything we have with a tight fist. It is our money, possessions and time and we want to keep it as our own!
He then turned the tables on that thinking by reminding us that everything we have is only ours because it has been given to us by God. Everything we have comes from God and is owned by God.
The silver is mine and the gold is mine,’ declares the LORD Almighty. Haggai 2:8
Since everything we have is God’s, we are only stewards of what we’ve been given, that makes it a lot easier to give away doesn’t it? Would you rather give away your own fortune, or someone else’s?
We are commanded to be good stewards of what God has given us as well.
So then, men ought to regard us as servants of Christ and as those entrusted with the secret things of God. Now it is required that those who have been given a trust must prove faithful. 1 Corinthians 4:1-2
Give the first 10% of your income to your church or charity
Nearly every day callers to “The Dave Ramsey Show” ask Dave, “If I’m still in debt, should I stop giving to my church or charitable organizations?”
For Christians and practicing Jews, this is a slightly more complicated situation because the Bible and the Torah instruct believers to give at least 10% of their income to the church. There are many people who simply want to be able to give whether they attend church or not, but they don’t feel they can afford it while they’re working the debt snowball.
In this situation, Dave offers some very sound and simple advice: give.
While it may be tough during the rice-and-beans, debt-dumping days of Baby Step 2, Dave says that even if it’s not much, don’t worry. It’s not about the amount or what it does for the organization to which you give. It’s about what it does to you, deep down inside.
You’ll be happier, healthier, and you’ll get so much more out of life when you intentionally and regularly give. Plus, continuing to give during the financially dry spells will solidify in you a spirit of generosity that will carry over when you’re cup is overflowing!
Whether you give to your church, your synagogue, or a charitable organization, just give. And even if you’re working the debt snowball, just stick to your budget and you’ll be in good shape.
There are three things to do with money: spend, save and give. You have to spend in order to have the things you need to live and should save in order to secure your family’s future. But there’s something special about giving, something about the way it refreshes your heart and helps you see what is most important. No matter the amount or the recipient, just give.
Recap
So there you have it - 13 weeks of Financial Peace University. We were extremely blessed to have taken the class, and we learned a good deal of very good information while taking the course. If you have a chance to take the class near you, I would highly suggest it. Even if you’re in relatively good financial shape, the things you’ll learn in this class will still be valuable - and last you a lifetime!
If any of you have questions about the course, or about your own situation, please don’t hesitate to contact me through the link at the top of the page.
Dave Ramsey’s Financial Peace University: Week 12 - Real Estate and Mortgages
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:
- The average job in America is now 2.1 years in length.
- The key to power in our careers is to first look at ourselves.
- Plan your work around your life rather than planning your life around your work.
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
- When selling a home, think like a retailer.
- When buying a home, think like an investor.
- Never get more than a 15-year fixed mortgage. Don’t tie up more than 25% of your income in house payments
So where to start - how about selling a home?
photo credit: TheTruthAboutMortgage.com
Selling a home - think like a retailer
My wife and I bought a townhouse after we were married, and 2 years ago we went through the process of selling the home after living there for 4-5 years. Selling a home can be a stressful prospect, especially when you’re having to sell under the gun - in order to pay for a new house, or when you’re in the middle of a move. In our case we were able to sell at the price we were looking for, and luckily we sold right before the real estate bubble burst. If you haven’t been as lucky, here are some things you can do to help in selling your house:
- Present your house in a positive light: If you’re selling your house you need to think about how to best present your house in order to make someone fall in love with it. This means doing things like fixing up your front yard, removing clutter from the house, making sure the house is always clean when there are showings, finishing up those small projects that may make the house look bad (like painting that bright pink bedroom to a more neutral color, and removing un-needed objects from the house to make the house feel bigger.)
- Stage the house: One thing that a lot of sellers neglect to do is stage the house. To do that they need to arrange the house in such a way as to set the stage for the buyer to imagine themselves living there. That means removing personal items from the house like wedding photographs and baby pictures, and putting up more neutral nature scenery. Or it might mean removing big or excess pieces of furniture and replacing them with fewer and smaller pieces of decor. You want the buyer to feel relaxed and calm in your home, and not feel like they’re being crowded out by clutter. You might even consider hiring a professional stager if you think your house is especially bad.
- Find a good agent: Find a good agent who will market your house for you, and that doesn’t mean your brother or a high school friend (unless they’re good). Find someone who knows the market, who knows how to find prospective buyers in your house’s market (both in traditional and new media) and follow up with them to make sure they’re working hard on selling your property.
- Remember, your house is only worth what someone else will pay for it: Often you can become attached to a house, and have an inflated notion of how much it is worth. Remember to set a fair selling price, and that the house is only worth what someone will pay for it!
Buying a house - think like an investor
When buying your house Ramsey strongly suggests never getting yourself into a house payment that is more than 25% of your income. Any more that and you can be getting yourself into a mountain of debt that can take over your life. This isn’t a piece of advice that we followed, but we bought our house before getting into the Dave Ramsey paradigm. Our house is closer to 30%, but it is also our only debt that we have to worry about. Make sure to buy a house that fits within your budget, and that isn’t going to take over your life. Don ‘t become house poor!
One of the biggest things Ramsey suggests doing when buying a house is using a real estate agent who knows what they’re doing. They know what is a fair price in a given area, they have a heart of a teacher and will help you navigate the process of buying a new home. Buying a home can be both a joyful and a stressful time, but make sure you’re covering yourself by having a good agent on your team. Some other tips to help in buying your new home:
- Know what you need before you buy: Dave says that people will often look for two different houses when they shop - the house that they need, and the house that they desire. Make sure you know the difference, and if you can, try to find a house that fulfills both your needs and desires. But if you can’t, don’t buy a house for the wrong reason - know what’s important to you, and buy for the right reasons. Satisfy your needs first.
- Find out if your agent offers a buyer profile service: Many agents will offer to send you listings based upon your needs - and only ones that are in your price range. This can help you in avoiding homes that may seem like something you’d want, when actually they aren’t what you need.
- Don’t bid blind: Know what houses in an area are selling for so that you can make an informed bid. If you don’t have this basic information, you can way overbid for a house.
- Get an inspection: Get an inspection on the home you’re thinking about buying because this can often disclose unknown problems that will need to be fixed by you or the owner. Make the purchase contingent on the problems being fixed - or the sale contingent on the inspection giving the house a clean bill of health.
- Get pre-approved for your mortgage: Get pre-approved before you start home shopping so that you know the money is there when you find the home of your dreams.
- Understand home buying fees in advance: Walk through the various home buying fees that you’ll have to pay with your real estate agent. Often people don’t plan for those charges, and then are surprised at the closing.
- Don’t rush the closing: Make sure you know what you’re getting into , what the terms of the sale are, and that all the contingencies of the deal have been fulfilled. Ask to have the paperwork a day before the closing so that you can peruse the documents at your leisure. If there is something that is a deal breaker, bring it up or you may be out of luck!
Getting a mortgage - what kind should you get?
Dave Ramsey talks about how he thinks you should never get into a home loan that is for over 15 years - at a fixed rate. The shorter the loan term - the less interest you’re going to pay. So once again, get a 15 year loan, never for more than 25% of your income.
So does that mean you should refinance if you’re in a 30 year loan? Not necessarily. Dave talks with a caller about when it makes sense, and when not to:
More home buying and selling tips
Find more home buying and selling tips at Dave Ramsey’s Real Estate Center.
Next Week
Next week is the last lesson of Financial Peace University, and it’s a lesson called “The Great Misunderstanding”. In it Dave talks about the importance of giving and being good managers of what we’ve been given by God.
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:
- Independence in retirement is up to you. Don’t depend on Social Insecurity.
- Fund college education only after you are funding your retirement.
- 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
- The average job in America is now 2.1 years in length.
- The key to power in our careers is to first look at ourselves.
- Plan your work around your life rather than planning your life around your work.
Work is important, but there are some things that are even more important, like your faith and family. Don’t let your work become the only thing important in your life.
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. Download the .pdf here:
Personal Trait Inventory (63.58 KB)
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.
Here’s a 5 minute sound clip from the Dave Ramsey show where Dave talks through a potential job change with the caller.
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.
Dave Ramsey’s Financial Peace University: Week 10 - From Fruition to Tuition
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 investment strategies. Some of the key points:
- The best way to invest is to be OUT OF DEBT first.
- Don’t put all your eggs in one basket - diversify.
- Only work with investment advisors who have the heart of a teacher.
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!
- Independence in retirement is up to you. Don’t depend on Social Insecurity.
- Fund college education only after you are funding your retirement.
- If you don’t have a will, get one TODAY!
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!
Dave Ramsey’s Financial Peace University: Week 9 - Of Mice and Mutual Funds
Last week - Clause and Effect
Last week was week 8 in Dave Ramsey’s “Financial Peace University“. Week 8 was all strategies for negotiating, and using cash to reduce the cost of the items you buy.
- Don’t be afraid to negotiate. Be willing to walk away.
- Always use the power of cash.
- Remember the places where you can find great deals.
It was a good reminder for me in week 8 that a lot of places that you think might not be negotiable, are in fact negotiable. Give it a try, you can often still find a great deal!
This week - Of Mice and Mutual Funds!
- The best way to invest is to be OUT OF DEBT first.
- Don’t put all your eggs in one basket - diversify.
- Only work with investment advisors who have the heart of a teacher.
When should I start investing?
When you are working on the Dave Ramsey plan, you’ve got a few steps to finish before you start investing. You got out of debt first, and build up your emergency and reserve funds! So before you invest, do these things:
- Start an emergency fund.
- Get out of debt.
- Save up three to six months of expenses.
Once you’ve completed those steps you’re ready to start saving 15% of your income on retirement.
Where do I start?
There are so many options nowadays for people to invest in, it can begin to get quite confusing. So where should you start when beginning to invest? Dave Ramsey gives his theory:
If you receive a company match in your 401(k), 403(b), or TSP; invest in those plans, up to the match, first. Once your contribution equals the company match, fully fund a Roth IRA for you and your spouse. If you’ve maxed out your contribution to your Roth IRA and still have money to invest, invest the rest in your 401(k), 403(b), or TSP.
So contribute up to the 401k match (if there is one), then do a Roth IRA up to the maximum. Then max out your 401k or other plan.
A lot of people are hesitant to start investing when it is a down market. Dave Ramsey says that you needn’t worry because over the long run the market will go back up, and as long as you’re in it for the long run, you’ll come out ahead.
If you still need some reassurance, here is a clip from Dave Ramsey’s radio program where they talked about this very point:
What are my investment choices?
Your choices for different types of investment is pretty wide and varied. One thing to keep in mind when investing - diversify! Don’t get caught with only your company’s stock, or a couple of stocks you think will perform well. You’ll end up getting burned (think Enron)!
Some of the options that you have when you invest, and what Dave Ramsey thinks of them:
- Mutual funds: select mutual funds that have a winning track record of more than 5 years and preferably more than 10 years. I don’t look at their 1 year or 3 year track records because I think long term. I spread my investing evenly across four types of funds. That means I put 25% of my investment amount into each of the following:
• Growth and Income Funds
• Growth Funds
• International Funds
• Aggressive Growth Funds - Single Stocks: Ramsey doesn’t suggest buying single stocks as the returns you see won’t consistently be as high as just buying mutual funds. If you do buy single stocks, keep it to less than 10% of your portfolio.
- CDs: Not good for long term investing. They offer low interest rates that can’t keep up with inflation, restrict access to your money and often carry penalties for early withdrawls.
- Bonds: Not suggested as they can be volatile and can have lower returns than mutual funds over long periods of time.
- Fixed Annuities: Ramsey says - “Stay away”!
- Variable Annuities: VAs are savings contracts with a life insurance company. The primary benefit of
VAs is the tax deferred growth. However, 401(k)s, Roth IRAs and Traditional IRAs offer tax deferred
growth without the additional costs that VAs charge. - Exchange Traded Funds (ETFs): ETFs are bunches of single stocks that intend to operate like mutual funds. Ramsey says they’re good in theory, but he doesn’t recommend them.
- Real Estate Investment Trusts (REITs): REITs just don’t stack up to good growth stock
mutual funds. If you decide to invest in a REIT, keep it to a maximum of 10% of your portfolio. - Equity Indexed Annuities: Equity Indexed Annuities contractually agree to limit your loss while you agree to limit your gains. Not recommended by Ramsey.
- Thrift Savings Plan (TSP): Ramsey’s suggestion is as follows: Put 60% in C fund, 20% in S fund, and 20% in I fund.
So as you can see Dave Ramsey mainly suggests that you get invested in mutual funds through a Roth IRA and/or company 401k plan. Some other options may be acceptable, but not necessarily recommended by Ramsey.
Values based investing
Another thing that often becomes an issue is the topic of values based investing or ethical investing. I won’t go into it too much here except to quote what Dave Ramsey says on the topic:
I do not use a values based investing approach. I agree with the concept; it makes sense to invest in something that aligns with your beliefs. However, very few of these funds meet my criteria for picking mutual funds. For you, this is a very personal decision to make. It’s also known as a slippery slope.
For instance, if you no longer invest in funds that might invest in a company that supports abortion you would also need to stop banking because nearly all banks contribute to United Way, which supports Planned Parenthood. Whatever your stance, just be sure you don’t choose these funds out of guilt. Don’t make poor investment decisions to choose these funds.
Next Week
Next week is a lesson entitled “From Fruition to Tuition” which talks more in depth about saving for retirement, saving for your children’s school, and more!
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