Dave Ramsey – Build Wealth Like Crazy, Chapter 12

Or as I would like to title it:  Read About People Much Richer Than You

Here we are:  Baby Step Seven.  We have now entered the top 2 percent of Americans.  Look at us!  Debt free – no house payments, no car payment and almost ready to die of old age (I added that one since that is the time frame I feel I will be at this stage).

Baby Step Seven is all about building wealth.  Dave thinks there are only three good uses for money:  FUN, INVEST and GIVE.

Let’s start with fun.  What would you do with a bunch of money that you could just spend freely?  I think I would buy a new car, travel around the world with my family and build my dream mid-century inspired dream home.  It was actually hard to write that down because these things seem so irresponsible in my current life.  It’s hard to think freely about buying anything.  I’m so tied down and beat down by money lately – it’s constricting, not freeing as it should be.

Next we invest.  Dave says even when you are rich – keep it simple.  Simple mutual funds and debt-free real estate is a good mix.  And always manage your own money but build a team of “teachers” around you to help.  A good estate-planning attorney, CPA or tax expert, insurance pro, investor and good realtor are a few of the essential team members to place in your circle.

I thought this was a good statement:  When your money makes more than  you do, you are officially wealthy.  Good huh?  You have reached the pinnacle point when you can live off 8 percent of your nest egg.

Finally we GIVE.  It is possibly the most fun you will have with your money.  Spending gets tiring, as does investing but most wealthy people will tell you that the most happiness and satisfaction comes from giving.  Where would you give more?  I would definitely give more to our church, I would love to help the women in the Congo, maybe set up some foundations for things my children are passionate about.

As you move through all of the stages you would be doing all three of these on a much smaller scale.  But this stage should be our goal.  It’s the pot at the end of the rainbow.  If anyone reading this has arrived at the stage, I would love to have you as a guest columnist.  I promise not to throw vegetables at you.  I swear.

Dave Wants You To Pay Off That Mortgage! Chapter 11

His mistake in this chapter is kicking it off with the image of this stage being like a marathon runner.  All I know of marathon running is A.  I don’t ever want to do it.  B. Despite his thoughts of them being the fittest people on the planet, I think their 90 year old knees would say otherwise.  But he is right about one thing – bad is not the enemy of “The Best” – it is mediocrity and “good enough” that can keep you from excellence.

I would totally be that runner who at mile 18 thinks that he is about to die and realizes that running 18 miles is an accomplishment and limps off to find a Powerade, never finishing the race.  There I said it.  Mediocrity is in my blood.

If this is any indication of my ability to pay off hundreds of thousands of dollars in mortgage, then I’m in trouble already.

But Dave thinks that this is the next step:  You have no consumer debt, you have a full emergency fund, you are paying into your retirement and college funds and the next step is getting rid of that mortgage.

First, he is a big, big fan of the 15 year mortgage.  There are forms in the book for you if you want to see if refinancing to get one is a good idea.  He also hates the Adjustable Rate Mortgage and the Balloon mortgage.  I agree with that – we had an ARM on our house when we first moved in and got rid of it as soon as we could.  But without it, I’m afraid we would not have been able to get our house as quickly as we did.  Would Dave care?  Probably not.  But I like it.  I’m just glad it is gone.

He also is a hater of the home equity loan.  I imagine there will be some dispute about this.  As I think my parents used it to pay for college for us kids.  They paid it off and all went well but apparently these can be dangerous and a lot of them end up in foreclosure.  Just a few years ago I remember home equities being advertised everywhere to finance luxury vacations, do additions to homes or buy that car you have always wanted.  I think it did get out of control for a while there but with the current market, I don’t think the home equity loan is currently funding Bob and Gigi’s annual Paris trip anymore.  Unless Bob and Gigi are just that stupid.

According to Dave, this last step takes about seven years to get to.  If I am at the point in seven years where I am paying down my mortgage with gazelle intensity, I’ll be very excited.  It’s hard to think that far ahead.  Especially since we will be staring down the nose at college at that point.  But I can see that owning your home outright would be a wonderful thing and I look forward to being at this fork in the road for sure.

Because if I reach the point where this is the next step, I will have already made it in my book.  It’s the 18 mile mark.

Easter Holiday

Long story short?  Warm-ish weather, good friends, cute kids, lots of food, even more wine, a good thunderstorm, some Breakfast Club, egg hunt, Easter service, a game of cards, a few cute vampires and too much sugar.

It was a good Easter.  I hope you had a nice break as well!

Reminder:  Next Dave Ramsey chapter tomorrow.  We’re discussing “How To Pay Off Your Mortgage Early” – that should be comment-filled!

Dave Ramsey’s College Funding…Chapter 10

I have to admit…I really haven’t given much thought to how we’ll pay for college.  I know, I know.  It is so important.  But so many other financial things seem to be more pressing, like how will we pay for braces?

And Keith and I were both very lucky – our parents paid completely for college and we did not have the student loan debt that so many people we know are dealing with.  And that makes me even more mad at myself that we are in debt and can’t even use college as an excuse.

So after we get the retirement ball rolling this will be our next step.  This will be YOUR next step.  I know we are a few years away and that makes me nervous – each year we get closer to college is another year of interest that is lost.  But my goal will be to put away $2,000 each year for each child as soon as the retirement ball is rolling.    So at least I know how much of our budget ($6,000) per year must go to college savings.  Considering I had NO idea how much I should put away two days ago…we’ll consider this a win.  I may not have the money right now, but I have the knowledge of what I will do.

And as Dave says, college isn’t everything.  Education is for knowledge but there are many other factors that go into consideration for success.  In the book Emotional Intelligence, the author discovers after studying successful people, that 15% of the success was attributed to training and education, while 85% was attributed to attitude, perseverance, diligence and vision.  College is an important tool in success but not the answer to everything.  Don’t be disillusioned in thinking that a degree automatically equals a good paying job and security.

Dave’s Rule for College:

1.  Pay Cash

2.  If you have the cash or scholarship…GO

Dave thinks that student loans are like cancer…once you have them, you can’t get rid of them.  I am not going to say any more about it here because I know it is a touchy subject and I know many people who feel they could not have gone to school without them.  And seeing as how I did not have to deal with that…my lips are shut.  All I will say is that he is against them and feels that you can find creative ways to avoid them.  Student loans have become normal…and normal is broke.

College tuitions rise faster than inflation (7% vs 4%) so Dave suggests setting up an Educational Savings Account (ESA), also known as an Education IRA – funded in a growth-stock mutual fund.  If you invest $2,000 a year from birth to age eighteen in funds averaging 12%, you would have $126,000 tax-free for that child.  Which means if you start investing early, your child can go to almost any college on $166.67 per month ($2,000/year).  So even though our oldest is almost 8, we’ll start out with $2,000  a year as our initial goal for each child.  And then we’ll look into secondary options to make up for the years we lost (including this one since we don’t have an extra $6,000 to kick around right now).

If you want to do more than the ESA you may want to look into a 529 Plan.  Make sure it is a “flexible” plan though.  This allows you to move your investments around periodically.  And there goes my attention span for THAT subject.

If you don’t have a lot of time and college is approaching faster than the speed of light…get creative.  We all know what that means:  look for scholarships, work-study programs, military, National Guard, government programs in “underserved areas”, etc.

So there you go…college Dave Ramsey-style.

No, Thanks Anyway!

Okay, wait for it.  I am going to say something nice about this experiment.

It’s totally freeing.

Invited to a home party?  Can’t go, sorry.  Would love to buy a garlic press/purse/home decor/makeup but I can’t.  It’s the rule.  No more worrying about whether or not you owe the hostess some support or that you told Suzie you would go to her next Discovery Toys party.  A total no-brainer.

Got a slew of great coupons via email or snail mail?  Throw it away or delete it.  No reason to hang on to the White House Black Market coupon that you throw away every four months but put in your purse JUST IN CASE you HAPPEN to be in a mall and need it.  Can’t use it, don’t print it, no need to file.  If it isn’t a food or household coupon, there is no use for it.

Feeling the pressure to buy another bag of $20 popcorn or a scholastic book for that school fundraiser?  No guilt now!  Sorry, but my time or homemade goods will have to do.  Find someone else to peddle your popcorn this year.  This mom is on a break.

I can truly tell you that I am more highly aware of the little things that seem to pop up (mostly because I have to constantly ask myself – is this in the plan?) – all of the “extras” asking for a piece of your pie.  Start telling them all NO and you will find that it becomes easier and easier to say and without all guilt, pressure and indecisiveness of the days of yore.

And from someone who was more of a YES girl, this is good stuff.

I Think There Might Be Scrapbooking In Hell

Scrapbooking – a great idea that sounds like fun but in reality is about as enjoyable for me as getting blood drawn.  Which I did today.  And then I realized I forgot to fast and will have to go back and get MORE blood drawn next week.  I’d still rather do that than scrapbook.

Not that I don’t OWN all of the scrapbooking tools.  At one point I was sure this was right up my alley.  I bought the papers, the scissors, the stickers, the stamps and the bag to hold all of the papers, scissors, stickers and stamps.  I was ready to scrap my children’s babyhood.  And then I tried it.

I am still keeping all of those cards, notes, photos, art and other things that all good mothers preserve for their children.  But you won’t find it decorated with stencils, cute quotes, ribbons or die cut images.  I had officially given up scrapbooking years ago until I ran across this idea…

Scrapbooking the Mundane

Every year document one random week of your life.  In an effort to celebrate the everyday stuff and then file it away with the other years – it becomes almost like a time capsule.  A peak into what your life was like that particular year.  Genius!  I am so going to do this.

Here are some how-tos:

1.  Photograph the mundane details of your waking hours: your alarm clock when it goes off, the half-finished cup of coffee or the view on your way to work or school.

2.  Go into pack-rat mode and save everything – receipts, ticket stubs, newspaper headlines, grocery lists, candy bar wrappers…stuff into an envelope each day.

3.  Write a daily message to yourself on a piece of card stock.  Maybe start with what you are grateful for that day.

4.  At the end of the week print out the photos and sort them by day with the rest of your treasures.  Arrange into page protectors and file away in a binder that can be pulled out each year for the same experiment.  Maybe pick a different season or month the next year.

Anyone want to try this with me?  Maybe late April/early May?

Retirement

You’ve gotten out of debt, you have successfully put away enough emergency funds for your family and you are totally on track with this zero balance budgeting thing…now what is a girl to do?

If you said, “Well, finally buy a new freakin’ pair of shoes and find a warm beach” then you are WRONG!  Now you start saving for retirement.  Crazy fun, I know.  (but don’t worry – now that you have room in your budget to actually spend your money properly, you can still save up for those shoes and beachside hotel)

Now we are investing in security.  Saving for retirement means saving for security, and security gives you choices.  Choices mean that at age 75 you won’t be sent to live in some run-down state nursing home with a candystriper named “Big Al”.  Do they even have candystripers anymore?

USA Today reports that out of one hundred people age sixty-five, ninety-seven of them can’t write a check for $600, fifty-four are still working and three are financially secure.  Bankruptcies among those sixty-five and older have gone up 164 percent in the last eight years.  Yikes this is scary!  So how should we prepare?

Answer:  Invest 15% of your gross income in Retirement

Obviously right now many of us cannot do that – we are still in the debt snowball phase.  If you are there, then you should be using your company’s matching benefits in a 401k if that is available to you.  Other than that, you aren’t there yet.  Be patient and diligent with the snowball and emergency fund -  and try to get to this phase as soon as you can.

So here are some tips:

Don’t bank on any potential Social Security benefits.  I’m not getting into this one but you know exactly what I am talking about.  If it is there when we’re older, great.  If not, be prepared.

Dave recommends Growth-stock mutual funds for long-term investments.  Don’t ask me what that means, or which ones are best.  I don’t know and I don’t care.  I’ll reread this portion and really try to grasp it when it is actually relevant to me.  I think the Roth IRA is one that is good – I can understand that.

So how much do you need to save in order to retire?  Good question and there are worksheets in the book to help with that, but basically you are secure when you can live off of 8 percent of your nest egg per year.  And the sooner you can invest, the better.

So let’s all grab our canes and false teeth and yell at the top of our lungs “We are going to WIN!”

Chapter 9 – Tomorrow!

How do you say “I Suck At Posting” in French?  Not sure why that would be important but might distract you from the fact that I’ve been absent as of late.  Had some health issues pop up last week and I sort of go into survival mode when that happens.  As in, all things scratched from the list of to-do’s.  I’ve even used the time to get some extra sleep – you know, it was needed and all and it is amazing how much better one feels with a full night’s sleep.

Why don’t I do that more often?

Must put that on the “to do” as well.  We also declared Saturday a vacation-at-home day and did not leave the house for 24 hours.  It was bliss.  Usually those days come with a large case of cabin fever and five people crawling the walls but I think the late snow and yucky weather made everyone feel snug and content to be shut-in.  It was a total mental vacation for me, and I loved it.

Why don’t I do that more often too?

So tomorrow we will discuss Chapter 9 – Retirement!  Boy, I’ll bet you are on the edge of your seat waiting for that discussion.

Tickets and Tats

See, this is what happens when Karri is so tired that she leaves her blog open mid-post.  Now I can use this opportunity for good or for bad, so I believe it is my duty to do a little of both.

This family journey/project has been exhausting; I mean c’mon how long has it been?  A couple months?  That’s it?!  We’re on step WHAT?!  Ack.  Fine, so it’s a slow process.  We’ll get there, and if you’re reading along and making changes in your own way too, so will you.  This has been good for Karri  (and me) to have you fine readers out there for encouragement, humor and accountability.  So thank you from both of us.

Now, one of the truly remarkable things that has happened to both of us so quickly in this process is an enhanced attention to need versus want.  It’s amazing how little we actually NEED.  And once you realize what your needs are, wants become less important and we’re more thankful for what we have.  For example, a couple weeks ago I really wanted to go to a Rodrigo y Gabriella concert while traveling.  I mean, REALLY wanted to go.  It was a Tuesday night in St. Louis.  NOBODY good ever plays club shows on a Tuesday nights and these guys actually are playing down the street from my hotel.  I checked ticket availability and pricing and they were available and a reasonable $30.  Any other time I could have found a half-dozen reasons why I NEEDED to go and twice as many justifications for why it would be ok to spend the money.   Not this time.  Not in the budget.  No mad money.  I swallowed hard and decided against it.  But in the interest of full disclosure, I even pathetically drove past the venue hoping someone would walk up to the car and give me tickets but amazingly no one did.  So I drove on and resolved that the night would pass, and if I didn’t see the show, the next day would begin, same as any other, and I would be fine.  Not the end of the world.  I WANTED to see the show, I didn’t need to and it made me thankful for all the great music I already have and how many great shows I have already seen.  Ok, maybe I’m losing you with my concert analogy.  Substitute Pyrex bowls and you’ll get right where I’m at.  But for me, this was a big deal and a hard decision to make.  And that’s what this is about–a lot of small hard decisions.  So, I think that’s really cool.

Now I said I’d use this opportunity for bad too.  Well, Karri has two tattoos–one of a Grateful Dead Dancing Bear and the other a Cherokee star.  I won’t say where they are; that’s for another post.

Keith

Chapter 8 – Finishing the Emergency Fund

Once we’ve kicked Debt Snowball butt it is time to go back and focus on that $1,000 emergency fund we set up ages ago (can you tell we’re in the future right now?).  Obviously $1,000 is not enough to cover your butt should anything major come down the pike like job loss, major illness or emergency island getaway.  Okay, I’m kidding about the island part.  And did I just use the word “butt” in two back to back sentences?

So now that we are debt free except for our mortgage (no, your kids are not now in college, it’s not going to take THAT long) we funnel our extra snowball money into an emergency savings fund.  Dave thinks that 3-6 months of cost of living is sufficient depending on your situation and the type of job security you have.  We’re going with six months since Keith is in sales and we’ve already seen how damaging a bad year can be.

The math is easy – figure out what your typical monthly budget is and multiply that by the number of months you are saving up for.  That is how much you should have set aside for your emergency fund.  This is not your retirement, not your child’s college fund, or even your savings – this is a separate line item only to be used in case of emergencies – just like the $1,000.

Step one:  $1,000 emergency fund

Step two:  Debt Snowball until debt free

Step three:  Finish emergency fund with 3-6 months of living expenses

Everything from here on out is setting up our future, responsible selves.  Don’t let it get you down or frustrate you with how far away it feels.  Just think how lucky you are that a light switch has been turned on – and I think if you go through the Total Money Makeover it is like riding a bike, you’ll always know how to do it.

As simple as the principles are, it has been like waking up for us.  Doing this any other way isn’t an option anymore.  No more denial – the cold, hard facts are there.  I can now see why other people who have been through it get so excited when we mention we’re doing Dave Ramsey’s program.  It’s like sharing the best kept secret around and knowing how life changing it will be for the person going through it.  Good stuff.