Financial Peace Revisited

My most recent book i’ve read is Financial Peace Revisited by Dave Ramsey.  In this book Dave gives you Peace Puppies.  Things such as plant seeds and handle credit report corrections yourself.  This book is an updated version of Financial Peace and adds a couple of chapters.  I’ve never read Financial Peace for the same reason college classes use the newer versions of textbooks; updated information.

Having started my own financial plan and listened to The Dave Ramsey show nothing in this book was all that new to me.  I’d describe this as the back story and build up to his baby steps.  The book was designed to be uplifting and give you a sense that you can have financial peace.  It does i good job of doing so.  It does not, nor was it designed to, go in-depth into his baby steps.  Having not read it my guess is that is what The Total Money Makeover is.

Each chapter ends with Dave’s wife Sharon giving her two cents.  This is followed by the Peace Puppies.  I’d have liked the key points to be highlighted separately. Dave lists all the Peace Puppies you’ve gone through every chapter.  I’d like just the new ones and all of them listed just at the end.

What did you think of this book.  Share in the comments.

Town Hall For Hope

You may not drink the Dave Ramsey Kool-Aide.  You may be his biggest fan.  Either way his broadcast “Town Hall For Hope” is worth the hour 45 minutes to watch it.  If you missed it, Town Hall For Hope was a live broadcast at the start of May broadcast to churches and community halls all over the country.  6000 locations strong.  This broadcast was free and has been available to buy on DVD.  It is now available for free on Hulu.

 

Is an Emergency Fund right for me?

I am a firm believer in an emergency fund.  I tell others about the benefits and why they need one.  I have it as part of my long term plan.  I just don’t have a fund right now.  Lazy Man and Money is Glad he has an emergency fund.  I am glad i don’t have a fund right now.  Dave Ramsey advocates having a $1000 emergency fund first.  My wife and i are working on our credit card debt first.  So why don’t we follow this advice yet?

The costs of an emergency fund

The first cost of an emergency fund is the fund itself.  If you have a $1000 emergency fund your first cost is $1000.  If you have credit card debt putting $1000 in to a savings account is no different than taking a $1000 loan against your credit card.  This $1000 is keeping me in debt longer.  It is $1000 not going to pay down my debt.  On our plan this is now 2 1/2 months longer with credit card debt. Had we started when we first began working to become debt free this was almost 6 months longer.

When paying down debts you pay down the lowest balance or the highest interest rate.  We chose the highest interest rate.  An emergency fund equates to a loan of $1000 at the highest interest rate.  The rate on this emergency fund loan drops each time you pay off your highest interest debt.  Each month i don’t use that $1000 toward debt lengthens the time i will be in debt.

When an emergency hits what happens?  There is no difference to my finances with or without this emergency fund.  If i have a $500 car repair hit and don’t have an emergency fund this bill gets added to my 8.24% interest rate card.  If i pull this out of my emergency fund i add $500 back to the fund before paying extra on my cards again.  This leaves the credit card with a $500 higher balance until my emergency fund is replenished.  Either way i pay the interest on the $500 on the credit card bill. Six in one hand, half dozen the other.

Financial Insurance

Having an emergency fund is an insurance policy against trouble.  It protects you from paying interest on these emergencies.  Until you are out of high interest debt the costs are the basically same.  Insurance is a gamble against yourself.  Life insurance is a gamble that you will die.  Car insurance is a gamble that you will be in an accident.  Health insurance is a gamble that you will have health problems.

When to start the emergency fund

Hopefully never.  Wait, never?  With some advance planning you can have an ING Savings fund for health costs, car repairs, lost job, etc along side your vacation fund.  Since most people don’t want to plan that much in advance they lump all of these into one “emergency fund”.  Even i don’t want to plan that much so i too will opt for the emergency fund.  If you were going to have these separate funds you don’t start until your debt has been paid down.  Using a lump “emergency” fund then i suggest starting at this same point.  Don’t take a loan against yourself.

 

What do you think?  When do you start your emergency fund?

Dave Ramsey's 7 Baby Steps

Quite possible the largest financial program i know of is Dave Ramsey's 7 Baby Steps. Dave is often the person that got other bloggers and financial analysts into the field. He has a number of books and programs to not only teach you how to establish financial freedom but to help you complete the program and path. Before beginning his program he suggests you have a plasectomy. This is a process of removing your ability to produce more debt. On his TV show he even shows the creative videos people send of destroying their credit cards. Let me explain the steps.

1. $1000 Emergency Fund : Things happen we don't plan for. When starting out we often have been using our Credit Cards for Emergencies. This fund is to replace the credit card for emergencies.
   
   
2. Debt Snowball : List all debts and minimum payments from smallest to largest balances (don't include the mortgage as this comes latter). Do everything possible to pay off that first debt. Once the first is gone take the full amount you were paying and add it to the second debt until all debt is gone.
   
   
3. 3 to 6 month Emergency Fund : Take your emergency fund and increase it to be large enough to live on for 3 to 6 months. Now you can survive if you lose a job instead of just fixing a broken appliance.
   
   
4. Invest 15% of your income : Use your pre-tax (401K, 403B, etc) to its max then put the rest of the 15% into a Roth IRA. This is creating your retirement fund.
   
   
5. Create a college fund for each child : Save enough to pay for their college. Since Dave wants you out of debt he does not want you children to start with college loan debt.
   
   
6. Pay off the home : Once the college tuitions are secure; pay off the home as quickly as possible. Get rid of the mortgage payment.
   
   
7. Build wealth and give : Invest in mutual funds and real estate to build wealth. Use this wealth to help those in need. Help how you feel best.

Dave has a great program. I feel it is not the best plan for me. I know what motivates me and how my mind works. In the next post i'll show our plan and compare it to Dave's Baby Steps. Dave's plan is fundamentally sound and more can be found in his book The Total Money Makeover.

An Introduction

Money is hard work. Having money is hard work. Being broke is hard work. Saving is hard work. Making budgets is hard work. Financial planning is hard work. Finding a job is hard work. Making money is hard work. Everything about money is hard work. Spending money can even be hard work. I like money. I like spending money. I like enjoying what i've spent money on. Money does not always like me. I am currently undertaking some of the hardest money challenges almost anyone ever makes. Being unemployed and paying down debt.

I have not always been the best at managing money. I have made plenty of mistakes. I have also made some smart money decisions. I do some money planning. Now that i am married i have someone to help me with money. We can make the same mistakes we have in the past or we can continue on the path of financial prosperity. We are on that path now. We are not yet to our destination. Hopefully following my journey will help you find your path the financial prosperity. I get advice from Dave Ramsey. I get advice from other blogs (perhaps some will guest post here one day). Each has it's own plan. My wife and I have taken all those and developed one that we feel will work for us. It is working for us. If someone learns from our mistakes and grows from it i will consider this blog a success.