Total Money Makeover, Week 4

It’s week four of my Total Money Makeover, and I had my first Financial Peace University class this week.  The class only has three people attending, myself and a newly engaged couple.  The instructors seem very nice!  The FPU class consists of watching a DVD of Dave Ramsey doing the lesson each week, followed by discussion.  We started late this week due to the instructors traveling and being delayed half an hour, so there wasn’t much discussion afterward.  I hope that changes in the future.  I am a little disappointed the class has so few people but I still think it will be a really good resource for me to help keep me accountable (you know, besides my Dave Ramsey friends on Facebook and posting weekly on the blog!).

Week 1 of FPU is all about saving.  DVD-Dave discussed baby steps 1 (save $1,000 for a starter emergency fund) and 3 (save 3-6 months expenses in a fully funded emergency fund).

Some important take aways from the first class:

• To avoid “running out of money” for savings or giving in your budget, take them out first.  Give, save, and then pay bills.  I used to automatically take out 10% of each pay and move it to a savings account.  I am temporarily not saving so that I can focus all extra money on debt repayment.
• Money is amoral.  It is not good or bad.  Being wealthy does not make you a good or bad person.  Money is like a brick; you can use it to smash a window or build a hospital.  The important thing is to use money in a good and moral way.
• Saving money is about emotion and contentment. This is really important to understand and was something that really clicked for me in class.  We save money for things that are important to us.  Consider the analogy of a life-saving treatment that’s a non-negotiable need. If your kid is sick and you need $1000, $2000, $5000, whatever amount – you can save that up.  You might sell everything you own, you might cancel cable, you might get a second job.  GETTING OUT OF DEBT IS JUST AS IMPORTANT – RUN FOR YOUR LIFE.
• Dave says over and over again… “If you live like no one else, later you can live like no one else.”  Basically, if you’re a 25 year old professional willing to take a weekend job and additional freelance work, cancel internet (haven’t committed to that but I still think about it), and sell your Star Trek autographs on ebay, then in a few years you’ll be able to do whatever. you. want.
• We should save for three reasons: emergencies, purchases, and wealth building. The emergency fund is important because it’s insurance.  It is insurance that you won’t have to cash out your retirement or sell your home if hard times hit.  And, Dave reports, most people find that when they have a fully funded emergency fund, they stop having emergencies.
• Always pay cash. Dave’s best example for saving up to pay cash is a car.  The average car payment is $492 per month for 63 months.  If you just put $492 into a cookie jar, in less than a year you can buy a $5,000 car with cash.  Boom.  Then you save up more, trade in your $5,000 car, and you can get an $8,000 car, and so on.  How great would life be with no car payments?  This method applies to every purchase – cars, furniture, appliances, etc., and you’ll be able to save money with cash too.  If you walk in with a handful of hundred dollar bills, you can bet a store or seller will come down on the price and you can get a deal.
• Start saving NOW. Dave gives the example of “Ben and Arthur.”  Ben starts saving $2,000 a year from age 19 to 26, then he stops saving.  Arthur starts saving at age 27 and saves $2,000 a year until age 65.  Due to the miracle of compound interest, Ben comes out of this with almost $2.3 million while Arthur only has $1.5 million in the bank.  …clearly I need to get me to a bank and start saving ASAP.

Some of the discussion questions from the workbook include:

Talk about one or two things you are worried about having to deal with or something you are looking forward to achieving as you work through the program. I am honestly less worried now than I was a month ago… I have a plan, a real plan.  That does a lot to comfort my fears.  I am looking forward to being able to discuss with the group, and I am REALLY looking forward to week 4, the week of plastic surgery.  (More details later).

In what specific areas could you be more diligent about saving? I want to start saving for retirement and an emergency fund (I know the emergency fund comes first).  Seeing all this information about how small investments now can become millions by retirement really inspires me to start saving now.

Talk about a financial emergency you’ve had over the last few years. How would the situation have been different if you’d had an emergency fund? When I first separated from my ex-husband and lived with friends, I was putting everything on my credit card.  I only made $600 a month from my graduate assistantship, and my car payment was over half of that.  With gas and food to pay for, I had no money.  I put McMuffins on my credit card.  McMuffins.  I am so happy I paid interest on a $3 crappy breakfast sandwich.  Not.  If I’d had an emergency fund, I would have been fine.  I could have afforded food, gas, car payment, everything, without the use of credit cards.

Dave recommends building sinking funds into your budget to cover big purchases and future expenses.  Talk about some expenses you’ve had in the past that could have been less stressful with a sinking fund. Well, my car.  I had $1,000 down and we financed at 7.75% because were NEWLYWEDS and wanted ADULT STUFF because THAT’S WHAT PEOPLE DO.  At least we bought it used and a couple years old.  But I wish I had had Dave Ramsey in college to teach me these things before I went into into the world and promptly jumped off the plank into debt-infested waters.  I have always saved up for things (mom taught me that saving is important) but it just never translated into the big stuff like student loans and cars.  Probably because my mom also missed the memo that ALL DEBT IS BAD DEBT (except maybe a mortgage, if you do it right).

Imagine yourself debt free with a fully funded emergency fund in place, fully funding retirement and college investments, and writing the check to pay off the house.  What are some things you can’t wait to do with the money – and freedom – you’ve secured for yourself? Well, step one for me will be to afford being a stay at home mom, but that will happen before all of the baby steps are completed (hopefully).  But, say 5-8 years into the future, all debt is gone, there are no payments, retirement and college funds are going strong… I’d like to take a family vacation.  I want to go somewhere awesome and beautiful.  Beyond that, I want to go to restaurants and leave $100 tips, or throw $100 bills into musicians’ open guitar cases on street corners.  And I want a house with land so I can have chickens and a garden. 🙂

Homework for Week 1 includes making a quick-start budget (I already have a detailed budget I follow), complete the Financial Reality Check in the workbook (below), and read the chapter “Super Saving” in Dave Ramsey’s Complete Guide to Money (already read the book but I will do a refresher).

Financial Reality Check

What is your total non-mortgage debt? $62,232.51

How much liquid cash do you have available? $2,200 (ish)

How many open credit card accounts do you have? 5 ($0 balance)

Rate the following emotions in regard to your personal finances (scale of 1-10)

• Fear: 4
• Anxiety: 4
• Confidence: 8
• Hope: 10
• Peace: 5