Did you know that 70% of Americans live paycheck to paycheck? Or that more young adults file for bankruptcy than graduate from college? Can you believe that Forbes 400 richest people in America said that the #1 way to become wealthy is to stay debt free?
crazy huh?
I don't know if you know who Dave Ramsey is, but you should. He is legit. I have listened to my Dad praise him for years and I never really understood why....but now I get it. This guy knows what he is talking about when it comes to money. We started watching his Financial Peace University a few weeks ago and we were surprised at how much we agreed with Ramsey's ideas. We are only a few discs in and we have already learned so much. It really is amazing.
Now we just started this new way of living, so things are still a little rough, but we are pretty serious about this whole saving money and budgeting thing. Let me just tell you how it all works.
Very important first steps:
1. Emergency fund of $1,000 (or $500 if you make under $20,000 a year). Eventually your emergency fund should equal three months worth of expenses.
2. Budget. We used Ramsey's sheets for budgeting and we love them! You should create the budget before each month and write down everything that you will spend. And you have to actually stick to the budget or it's basically pointless.
3. Envelope system. Some categories in your budget you should use cash to pay for. The cash goes in the envelope at the beginning of the month, and once it's gone, it's gone!
Also, Ramsey does not believe in credit cards or debt other than a mortgage. That includes car payments, loans, and especially credit cards. This sounds crazy to most people, but after listening to his two hour session on debt, I was a believer. Now I can see that debt isn't a privilege, it is a product.
"Myth: Debt is a tool and should be used to help create prosperity.
Truth: Debt isn't used by wealthy people nearly as much as we are led to believe.
Truth: Debt isn't used by wealthy people nearly as much as we are led to believe.
Debt is dumb. Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you're in debt, then you're a slave because you do not have the freedom to use your money to help change your family tree."
Thankfully Jordan and I don't have credit cards, and we will never ever get one. ever.
Helpful Hints:
1. loaning money to a friend/relative is not helping them
2. don't co-sign for a loan for someone else
3. gambling will not make you rich
4. car payments are not a way of life
5. a car lease is the most expensive, buy used!!
6. never take our more than a 15 year mortgage
7. You don't need a credit card for anything. You can use a debit card for everything.
8. If you use cash you spend 12-18% less. (It hurts more to give your cash away)
9. Debt consilidation is a con. You can't borrow your way out of debt.
10. Borrower is slave to the lender. Debt is not a tool.
"My contention is that debt brings on enough risk to offset any advantage that could be gained through leverage of debt. Given time—a lifetime—risk will destroy the perceived returns purported by the myth-sayers. I once was a myth-sayer myself and could repeat the myths very convincingly. I was especially good with the "debt is a tool" myth. I even sold rental property that was losing money to investors by showing them, with very sophisticated internal rates of return, how they would actually make money!
Boy, what a reach. I could spout the myth with enthusiasm, but life and God had some lessons to teach me. Only after losing everything I owned and finding myself bankrupt did I think that risk should be factored in, even mathematically. It took my waking up in "intensive care" to realize how dumb and dangerous this myth is. Life hit me hard enough to get my attention and teach me.
According to Proverbs 22:7, "The rich rule over the poor, and the borrower is slave of the lender" (NRSV). I was confronted with this scripture and had to make a conscious decision of who was right – my broke finance professor, who taught that debt is a tool, or God, who showed the obvious disdain for debt. Beverly Sills had it right when she said, "There is no shortcut to any place worth going."
- Dave Ramsey
In regards to credit cards....Having credit can be a good thing. If you don't have credit, lots of times you can't get a mortgage on a house. I know lots of people that has happened to. They aren't eligible for a lot of things. If you don't have a credit card to build your credit, how does he suggest you build your credit score?
ReplyDeleteSo good!!! My whole family is very Dave Ramsey-we actually went to his convention last October in Indy-it was so good!!! Keep up the good work-you will definitely appreciate the hard work when it's all said and done and you can say "we're debt free!" :)
ReplyDeleteHere is what Dave Ramsey says about that:
ReplyDelete"Like it or not, your credit score is not an indicator of winning financially. All it tells you is whether you are good at borrowing money and paying it back. That’s it.
Your FICO score is an I-love-debt score, isn’t it? Does it factor in your income—or, even better, your debt-to-income ratio? Nope. Does it factor in your savings accounts, net worth—anything other than debt? Absolutely not.
The only way to have a good credit score is to go into debt, stay in debt, and continually pay your accounts perfectly—without adding too much debt or paying too much off. In other words, stay in debt for as long as you can. How ridiculous is that?
How can you get a mortgage without a credit score in the first place? Isn’t this magic number your key to the world of mortgages and homeownership?
Actually, no, it isn’t. You can get a mortgage without a credit score. How so? Manual underwriting.
Not every lender is going to do manual underwriting—which is basically when they use a little common sense and look at factors like your income and not just your credit score. Churchill Mortgage is the lender we recommend for manual underwriting.
Now, this doesn’t mean that just anyone can walk into a bank or mortgage lender and walk out with a home loan using manual underwriting. Remember, this is the way weird people do it, so there are some requirements you’ve got to live up to. Specifically, you must:
Put at least 20% down on your home.
Choose a 15-year, fixed-rate conventional mortgage.
Have a strong employment history and personal income to support the loan.
Demonstrate 4–6 trade lines that span 18–24 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.
Also, your old credit history has to be in good shape. Even if you have a zero score, the old history is still there and impacts the loan decision. If you have an old history of late or missing payments, then you could have some problems.
Dump debt, save money, and pay cash. Do that and you will be well on your way toward building wealth—not your credit score. And what’s more important?"
Read this for yourself right here:
http://www.daveramsey.com/article/the-truth-about-your-credit-score/lifeandmoney_creditcards/
Jessica, that is so cool I wish we would have gone to that convention! Jordan and I just need to pay off my college loan and then we will be able to say that! haha. I can't wait :)
ReplyDeleteHooray for Dave and budgeting!
ReplyDelete1. The cash envelope system is awesome. We have been doing it since February and wish we'd started when we first got married. It makes such a difference to know how much is going out for those entertainment/grocery expenses. Brian was afraid to do it so we tried just watching our budget for years but after just one month of it his opinion was completely changed. The last few months have been crazy so I haven't split my cash up into envelopes and it still works. Next month we will get back on track, but I truly cannot express my love of this system enough. The first month we saved over 18% of our income.
ReplyDelete2. We just bought a house, we don't have any "debt" and we didn't do manual underwriting or put 20% down (though I really wish we could have!). Ok,I guess technically we do have some debt but this is what our picture looks like. a)Brian's school loans are in his name so they are on our report, but it was his dad's agreement to pay for them so they are paid on time and above the minimum amount. b) we bought a car a few years ago and had a 4 year loan but paid it off in 11 months. c)cell phone bill and electric bill are on his report. d) we have some medical bills (payment plan) with our hospital but those do not show on our credit report.
Because all of our bills and things were in my husbands name (I did have some "lines of credit" like my paid of school loans and old cell phones etc but they were too old) our mortgage broker said I could not be on the loan unless we 'proved' credit for me by calling our land lady and saying that I pay the rent, our hospital and saying I pay that bill, and adding my name to someone else's credit card. We opted not to do all of that nonsense and just put it in my husbands name. Other than this our lack of debt was never discussed as being an issue. In our experience it was not hard to get a house even though we have had minimal debt.
Another thing we did when we bought a house which I felt made a huge difference, is we figured out what we thought we could afford. We did the math and crunched numbers, THEN we called our broker and asked for a pre-approval letter for up to that predetermined amount. This is important because we never got a number of what the bank thought we could afford, and I know it would have been A LOT more. Remember that I said we put the house in Brian's name alone? That means we were approved based solely on his income, but I bring in an income as well and our number took our total income into account. I know their number would have probably been 50 to 75 percent higher and given a number that high it would have been really hard to practice self restraint and not look at houses that would have been beautiful but would have made us feel very house poor.
Sorry for the book but I loved this post. It is so good, even when you are trying hard, to read advice and suggestions, and share your experiences, because it helps to renew the passion and keep you budgeting strong!
I know you aren't a mom yet, but I highly recommend Moneysavingmom.com she is a Christian, and her and her husband have an amazing Dave Ramsey inspired testimony on how they got him through law school and bought a house debt free. I'll look for it for you because they married young and the story talks a lot about the beginning that you guy's are in now and it could be very encouraging to you guy's.
I bet you'll be surprised at how fast college will get paid off. Both my sister's husband and my brother's wife had some loans coming out of college-and with Dave on their side-both were paid off in about a year. But yeah-the school should have advertised this convention! But it would probably decrease the attendance of the school for several years until people had A LOT of money saved up... So they probably never will. But if you haven't taken Personal and Family Finance-I would HIGHLY recommend it! You go thru FPU and make up a whole budget to go with your projected income and adding insurance and all that junk. Plus prof showalter is awesome
ReplyDeleteI love automated income. With this blog I currently have no sales, no employees, no products, no inventory, no credit card processing, no fraud, and no customers. And yet I’m still able to generate a reasonable and growing income. credit reports from all three bureaus
ReplyDelete