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
