View Full Version : The Official "Financial Peace" thread
After receiving several PMs and emails about a couple of my comments in another thread here, I've been asked to open a thread to share more of the information I've learned through the Financial Peace University series. I hope that you all can use and appreciate what this thread is about. Over the course of the next few days, I'll be going into some of the tricks and tactics for getting out - and staying out - of debt.
My fiance and I took this course together shortly after becoming engaged. We know that many, many of the divorces that happen in the US happen because of money and money-related issues. The person that introduced us to the course was a good friend, someone we'd grown to trust, and someone who has used the principles in Financial Peace already to get her family out of a very bad situation. Two years ago, they had a son with Leukemia, another son on the way, and over $46,000 in medical debt alone, not to mention car, credit cards, and the like. Last October, she mailed off the last credit card payment - under two years, they were debt free.
That brings me to the introduction of the man who created the course. I bet you've all seen the commercials on TV where you can Get Rich Quick! by mucking around in real estate. This guy doesn't do those commercials, but he fell for one. As a matter of fact, by the time Dave Ramsey was 26 he had a net worth of well over $3 million and enough real estate to make a small city. Then, with a poor decision and a quick market turn, the bottom fell in - he lost everything from his fancy cars to his expensive suits to the house, and almost lost his family. He and his wife sat down, looked at what happenned, and then listened to common sense. They put together a plan, worked on it for a few years, and are now back to where they were before, and beyond - with no chance of the bottom dropping out this time.
That's what I'm going to be sharing with you in this thread, common sense. We live in a world were debt is king and where shopping is tailored towards impulse buys and whim purchases. Through television and radio and magazine ads, you're being inundated with signals that Credit is Ok and Everyone Lives in Debt. That's not true, and it doesn't have to be true. In DaveW's thread, I went into a couple businesses that started up as anti-credit companies (Sears and J.C. Penny's); after the deaths of their founders, they "saved" their business by offering people the ability to buy things they couldn't afford. Hell, Sears makes enough money now through Discover that they're keeping their poor retail sales afloat - how's that for irony?
Over the next few posts this week, I'll make some of you mad. Very mad. We're going to learn how Cash is King and that you should never - ever! - buy anything you can't afford. And no, credit doesn't count as affording it. It's going to hurt, it's going to take some pride-swallowing and truth telling, but if you can try these principles and apply them, you'll find yourself being able to sleep at night the week all the bills come due. As Dave Ramsey says, you have to "live like no one else today, so you can Live like no one else tomorrow."
In case anyone is worried about the legality of this, Dave Ramsey isn't stingy about his course materials. While I'm not going to go out and copy all my audio cassettes and fax everyone the workbook, there's no secrets to copyright - it's all common sense that's meant to be shared. I will be posting some of the worksheets (Debt Snowball, Monthly Budget Planner) as attachments in some of the posts.
Come on board guys - I've already taken this ride, and I can tell you without hesitation it's going to be bumpy. I'll also tell you that the freedom you'll feel at the end will be wel, well worth it.
Up Next: Why Debt is Dumb, and Opening Communication Lines
Oh yeah guys, btw, feel free to ask questions about the stuff in here. Might save a lot of time having to copy and paste 40 or so emails! :D
I look forward to the next episode :)
styles-T
01-14-03, 07:38 AM
Im about 14 Grand in debt..Actually 24 grand if you count my car..
Ive read books and heard cassettes of Motivational Speakers such as Tony Robinson..Is this the same thing? or is this some new approach?
Bring it on Ash..I would love to hear what advice you have to offer..or what youve learned in this proccess.
vampireuk
01-14-03, 07:46 AM
I am £4000 in debt, although this really couldnt be avoided as education costs money:mad:
Here we go, guys....
Part 1a: Why Debt is Dumb
Debt and Credit are two of the most rotten words in the English language. Debt used to be a legal offense (which is actually how the state of Georgia came to be), and credit is this wild, intangible thing that we spend our lives trying to get. Oddly enough, the two are intertwined - we have to go into debt to get credit, and then we ruin our credit by going into debt. It's a wierd, wierd concept.
What happens when we go into debt, though? Paychecks are spent before the next pay period, we start putting necessities on the credit card or borrowing money from friends and relatives. Frankly, there ends up being too much month at the end of the money sometimes. Just to make ends meet, things get thrown out. You stop taking your family or signifigant other out. Then, you cut your diet back to beans and rice. Finally, you start messing with the calendar to see which bill you can pay the latest and borrowing money from the next paycheck. But wait! if we're borrowing money from the next paycheck to make the minimum on the Visa and keep the car from being repossessed, what are we going to pay the next set of bills with?
Let's add another piece into the equation. You take a fall down a flight of stairs and break your leg. That's a few days out of work (maybe even without pay), a hospital stay (don't forget the copay!), and you miss the time to turn in the other due bills. Uh-oh. Now we've got trouble. Our income has dropped, our bills are up, and we're knee deep in Second Notices and phone calls. It gets even worse, too, when we didnt' have insurance to start with. Don't you love how the hospital likes to ask for all $2000 at the same time, regardless of your situation?
To be frank, the borrower is a slave to the lender. Look at what I've mentioned above. Think about your own situation. How many of you have already started fearing the bills coming, because you know you're going to have to pull an Enron somehow? I used to be that way, too. I used to jump when the phone rang. I hated seeing something from MBNA or CitiBank in my mailbox. It became, simply, unhealthy.
Now, let's say you've got a wonderful friend or family member that offers to loan you the money to get back on your feet? Good luck with that one! Ever tried to eat Thanksgiving dinner across the table from someone you owe a couple hundred (or thousand!) dollars to? You start wondering what they're thinking.... "How did she afford that sweater?" "She got me this for Christmas but didn't pay back any of that 5 year old loan?". Believeme, it makes the turkey taste even drier than it really is.
Relatives don't do one thing that everyone else does, though: charge interest. Look at your house payment, your car payment, your credit card payment.... Unless you're paying exhorbitant amounts every month, the interest charges add up quickly. And, for most credit card users, a single purchase a month is more than the minimum payment, and that sets you back double. I won't go into the math here, but the more you're in debt, the faster you'll go FURTHER into debt. I'll do the math later if you want to see it. It might make some of you sick.
Doesn't look so fun now, does it? We try to live up to a certain lifestyle that we're told is appropriate, and we take out loans and credit and trade in our dignity to do it. Praying to make ends meet, wondering what you'll have to give up next doesn't sound like such a bargain, now does it?
Up Next: Part 1b, Openning the Lines of Communication
feel free to chime in with any thoughts!
Nephilim
01-14-03, 03:49 PM
Sweet man. Heh, I figured you would just post a link to where would could get info on the course.
This however is MUCH better....thank you so much AshG :D
Ok, I've got a little more free time to tak. And talking is exactly what this part's about. Get ready to get mad, as we start -
Part 1b: Openning the Lines of Communication.
While learning that Debt is Dumb wasn’t fun, and finding out that the borrower is a slave to the lender wasn’t fun either, this was the hardest section for me to get past. When I took this class, this is the section that caused a husband and wife to quit coming – they couldn’t handle how much they were going to have to change. Many of us would never dream of lying to our spouse, our significant other, or members of our family about some things, but money seems to be the universal exception. That is, when people bother to even talk about it, which is the other major problem.
When trying to get Financial Peace, honesty is not an option. Any type of misrepresentation can cause the whole thing to collapse and cost a job, a car, or a relationship. If you don’t come to the table with everything out in the open, you’re headed for disaster.
The easiest way to get used to being open about finances is to simply sit down and do a money map. Each partner should know how much money is coming in, and how much is going out. I’m not advocating complete spending tracking (yet, that happens later), but it’s important to know which side of the fence you’re on. Take two sheets of paper and write “Income” on the top of one and “Expenses” on the top of the other. Hide the income sheet for now, and look at your expenses. Write down everything you can think of: House/apartment costs, car payment, cable bill, monthly food and gas budget, entertainment, credit card bills (I recommend adjusting this to minimum payment plus interest charges top create a more realistic number), etc. If you have periodic charges (i.e. car insurance), add up the cost for the year and divide by 12. If you can’t account for all of it right now, guesstimate. Total up that number and write it at the bottom of the page.
Now comes the hard part. Write your incoming funds on the “Income” sheet. Include jobs and regular income – if you get an occasional check for eBay sales (i.e. once every 3 or 4 months), do not add it in. Also, never add in “expected” gifts to the Income equation. If Uncle Billy has given you $500 for your birthday every year since you were 5, don’t count it – it may come or it might not depending on how Uncle Billy is doing with his financial outlook. So, just the monthly or biweekly paychecks are all that should go on here. Go ahead, add it all up! Put the Income total about halfway down the sheet. Then, put the numbers from the Expenses sheet down. Subtract Expenses from Income. Try not to puke. This is usually where people get really angry (and, really honest). If doing this by yourself, then things aren’t going to be that hard. If your spouse or partner has held something back, here’s where it usually comes out. If it doesn’t come out and you find out about it later, then there are major issues outside of Finances that need to be worked out.
We’ve sat down and done a money map, good. In the next part of this part(which I wanted to be part of this but I have to go teach another class), we’ll look at two situations where communication is paramount.
Wow, US things scare me ! So, if you don't go to work for some days due to health problems, part of your salary is cut ! :afraid: :wtf:
|JuiceZ|
01-15-03, 12:00 PM
Originally posted by Mod
Wow, US things scare me ! So, if you don't go to work for some days due to health problems, part of your salary is cut ! :afraid: :wtf:
not exactly, there are actually several determining factors here, including your companies policies on medical leave, whether or not you're a contractor or company employee and if you're paid salary vs hourly.
Edited the last part, guys. Go up and read it =)
Originally posted by Mod
Wow, US things scare me ! So, if you don't go to work for some days due to health problems, part of your salary is cut ! :afraid: :wtf:
Not really. In the US you have to pay for health care. If you are in a car accident and have to be life-flighted to the hospital by helicopter, the bill you get next month can easily be in the 10s of thousands. Thats why all american families try to get health insurance. You pay a regular monthly payment and the insurance company pays for any medical expenses. The problem is that health insurance is expensive, starting at around 600 dollars per family for a plan that doesn't have all sorts of hidden costs in it. People who are broke often don't have insurance and just hope they never get really sick. Many employers offer health insurance as part of your total compensation package, which is how most people get insurance. Your company will still pay your health insurance even if you are off sick. But if you pay your own insurance or you don't have any at all then being sick can be a real financial inconvenience, as I have experienced myself.
Originally posted by AshG
The easiest way to get used to being open about finances is to simply sit down and do a money map.
Maybe the answer to this will be in the next episode but there are really three expenses in a married relationship - "His", "Her" and "Our" expenses. Woman have a way of squirming "Her" expenses into "Our" expenses. Hence, avoiding the blame when the "Our" expenses for the month exceed the total revenue of a small industrial nation.
Ever noticed how women always used the world "we" when it comes to spending money? I see this in other people's relationships too...
When the guy wants something he says "honey, _I_ want to upgrade the PC" or "_I_ want to buy new tires for the car". There would be no arguement that these are "his", and only his, expenses. If a guy says "_we_ need a new roof on the house" then it probably is a legitimate "we" expense. A guy would want a new roof when he sees that the old one is about to fall off or has a big hole with a family of squirrels living in it. A guy is unlikely to buy a new roof because he doesn't like the color of the existing one, or just because the neighbours just got a new roof and it makes us look bad.
The woman on the other hand will say "_we_ need a new fridge" ,even though the old one still works fine. "_we_ need new carpets in the house", because they don't match the curtains she just bought. "_we_ need a new bathtub", because there are water stains on the old one. And eventually, after a few weeks of nagging, moody behaviour and sleeping on the couch the guy gives in. A few weeks later the she violates temporal mechanics and re-writes history (a special gift that all married women seem to be born with). It now becomes "_we_ decided to buy a new bathtub", "_we_ made the decision to buy new carpets". Never, "I nagged you and nagged you until I got what I wanted and you put that 3000 dollars on your credit card".
She won't use this tactic for things like clothes since that is obviously for her need only. But for everything else she will argue that its really something for the both of us, so its not "her" expense. But really it is. If she insists on a new fridge, even though the old one isn't broken, then its HER expense, something that she and only she wanted to get. But the only expenses she would likely put on her money map would be the new bra and tampons she bought last week.
How do you deal with this without using a chainsaw and the freezer in the basement?
Originally posted by DaveW
The woman on the other hand will say "_we_ need a new fridge" ,even though the old one still works fine. "_we_ need new carpets in the house", because they don't match the curtains she just bought. "_we_ need a new bathtub", because there are water stains on the old one. And eventually, after a few weeks of nagging, moody behaviour and sleeping on the couch the guy gives in. A few weeks later the she violates temporal mechanics and re-writes history (a special gift that all married women seem to be born with). It now becomes "_we_ decided to buy a new bathtub", "_we_ made the decision to buy new carpets". Never, "I nagged you and nagged you until I got what I wanted and you put that 3000 dollars on your credit card".
That's where you have to be honest and yank out the income/expense sheets. If she can show you how those can be taken care of WITHOUT using credit, that's fine. If she can't, she has to wait.
At some point, somone needs to take a stand against slavery. If you can find a way to either destroy or lock up the credit cards, then do that. Credit isn't an enabler - it's a disabler. if you're going to be debt free and live the lifestyle you want, it will take time and waiting until later to have some things. For me, it's meant waiting painfully for several months for a new video card. Instead of driving a car with a fleece (er, lease) or low monthyl payment, I own an "experienced" quality vehicle that is paid off. Bu it means that I save $400 on my fiance's wedding ring by paying one cash sum instead of taking credit with killer interest.
By the way.... Does your wife notice that credit cards chage up to 5 times the interest of a bank loan? Sheesh - putting anything on a credit card is a bargain killer. Be honest with her, and take a stand. Slice the Visa, Dice the Mastercard, Shred the Discover. It's time to be free!
Nephilim
01-15-03, 04:06 PM
Originally posted by AshG
By the way.... Does your wife notice that credit cards chage up to 5 times the interest of a bank loan? Sheesh - putting anything on a credit card is a bargain killer. Be honest with her, and take a stand. Slice the Visa, Dice the Mastercard, Shred the Discover. It's time to be free!
Haha....
Makes me glad that I decided long ago never to get a credit card.....and no, to this day (10 years later) I still don't have one.
I have 4 credit cards all unused 0 balance. I was tempted to use it when times were tough but never touched them (went through that once too when I was younger)
I've got the next part in my USB keychain, it'll be up soon I promise!
Ben, here's a tasty tidbit... Did you know that banks see $0 balance credit cards as bigger warning signs than they see full-balance credit cards? When banks look over your credit report to decide whether or not you'll be receiving a loan, the $0 balance cards say "Hey, I'm getting a house/car/something big, and I'm going to want to put stuff in it. Ka-Ching!" Wierd, but true...
Ok guys, I've made a decision - I've decided to cut the crap and jump right to the good stuff. No more philosophy, no more hours trying to change names to protect the innocent, here comes what you asked for...
I'l be quick and blunt about the first step you have to take. Make yourself an emergency fund. Open an account at the local Credit Union, or start a new bank account and don't get checks or a debit card for it. This has to be hard to get to, especially at first. The temptation to use this will be pretty great. Set aside a portion of your monthly earnings to go into the Emergency Fund. I recommend starting off with a minimum of $500 (for singles) or $1000 (for couples) in the fund. If you can only afford to put in $20 a month, do that - just make the Emergency Fund a top priority! This will be what may save your butt later on. We'll come back to this part in a few posts.
I'm about to ask you to do something on purpose that many of us do accidentally. This is going to take a major leap of faith. I want you to spend your paycheck before you get it. Good, there you go - blink at me in astonishment! Don't worry, I am going to explain this one pretty soon. It sounds scary, but it isn't. It's actually quite fun. It's called a "Zero Based Budget"
Take a piece of paper (you'll be hearing me say that a lot over the next few posts). In this order, list your following expenses:
Tithes/Charitable Contributions
Rent/House Payment
Food (this does NOT include eating out)
Utility Bills (gas, elec, water)
Phone Charges (long distance, local, cell)
Gas and Transportation
Emergency Fund (when fully funded, change this to "Retirement")
Clothing
Entertainment/Dining Out
Student Loans
Credit Cards
"Blow Money" (a.k.a. Mad Money, fun money, do-what-you-want money)
This part is easier for salaried employees, hourly wage earners should estimate the amount they will bring in.
Write your monthly income at the top of the page. The first thing we do is tithe or give to charity. I realise that not everyone that reads this is religious, but when you give your money away to help other people you'll begin to find that you actually have better control of your finances. Trust me on this one. Make giving a major priority.
The next few lines shouldn't be that difficult Come up with a reasonabl estimate of how much you'll spend on each one; feel free to ere on the side of caution.
For Clothing, Entertainment, and Blow Money, make reasonable choices. Set limits and STICK TO THEM. This will never work if you go about just mucking around and whipping out Mr. Debit Card or Mrs. Checque Book.
Lastly, fill in the remaining "optional bill" (Hey, you chose to have these!) categories with the minimum payments. Add up all the blanks, and subtract the number you get from your monthly income.
If you get a negative number: Sit down and talk with your spouse or partner about what needs to be sacrificed. At this point, if there's money missing something has to go. Or, someone needs to get a second job. I recommend NOT taking money from the Blow Money section except as a last resort - it's the one thing that will keep you sane.
If you get a positive number: Take some of your left over money and "spread it around". I suggest adding the excess to credit card or loan payments before putting any in the Blow Money or Entertainment sections.
When you hit 0: Rejoice, you have a budget that should work. You need to redo this every month, and always do it before the month starts. Take a look at the sheet- you know where all of your money is going next month, right? Good. Sleep well tonight.
For next time - bring some envelopes! Grab a pen and forget the stamps, we're going to put our 0-Based Budget into action!
[addendum: I've misplaced my CD that has this budget sheet ready to print - as soon as I find it, I'll upload the file. Got any questions about anything?)
*waits for more* I'm really glad you decided to do this Ash. With school and all, I hadn't had time to sit down and read it till now but a big thanks.:thumbsup:
styles-T
01-28-03, 03:02 PM
yah..this is pretty good stuff..:D
|JuiceZ|
01-31-03, 07:37 AM
Excellent post Ash, I'm already starting to feel that pinch, heh. I think my dad actually already has that book cause some of this is comming back to me. I'll have to snag it sometime, can't wait for the next installment ;)
t6_shadow
02-01-03, 11:37 PM
"Over the next few posts this week, I'll make some of you mad. Very mad. We're going to learn how Cash is King and that you should never - ever! - buy anything you can't afford. And no, credit doesn't count as affording it. "
Well this should have summed up the whole series right here. Ash is doing a great job on his posts but I don't see what the problem is. Simply DO NOT SPEND MONEY YOU DO NOT HAVE. Credit cards are a bad idea, As mentioned people buy things they can't afford. I have a credit card. However this is only used for gas purchases and not very often. And everytime I get the bill I go to the bank and pay every cent of it off. I do this only to obatin a credit rating so I can one day buy a house. Simple.
keep up the good work Ash.
styles-T
02-02-03, 11:25 PM
Originally posted by t6_shadow
"Over the next few posts this week, I'll make some of you mad. Very mad. We're going to learn how Cash is King and that you should never - ever! - buy anything you can't afford. And no, credit doesn't count as affording it. "
Well this should have summed up the whole series right here. Ash is doing a great job on his posts but I don't see what the problem is. Simply DO NOT SPEND MONEY YOU DO NOT HAVE. Credit cards are a bad idea, As mentioned people buy things they can't afford. I have a credit card. However this is only used for gas purchases and not very often. And everytime I get the bill I go to the bank and pay every cent of it off. I do this only to obatin a credit rating so I can one day buy a house. Simple.
keep up the good work Ash.
True..
But it sounds a lot easier than done..Esp. when it comes to computer hardware/software :D
It takes lots of discipline..
Hey guys, sorry about the absence. Let's get this ball rolling again!
If you tried the paper budget approach from a few posts ago, then you should have a budget that works. The Zero-Based Budget will be your best friend from here on out - since you have a general idea of where your money is going (and you know your limits - right? Shred that VISA!), this should be a cakewalk.
I've also talked about disciplining yourself, and the Zero-Based Budget starts you doing just that. Sitting down and doing the budget is a gigantic step, and now we're going to seal the deal. Grab some empty envelopes, get a pen, and grab your budget. This is going to be fun!
To start, take one envelope. Label it "Food". Take another envelope, label it "Gas". Third envelope is "Clothing", and the fourth envelope is "Blow Money". Take a look at how much you have allocated for the month for each of those categories. Turn the envelope lengthwise (longer than it is tall) and write the amount from your budget at the top. Now, go to the bank and withdraw that amount. Yes, in cash. Put it in the appropriate envelope. Hide the debit card.
When you go to the store, take the Food envelope. When you go clothes shopping, take the Clothes envelope. I know, I'm being Mr. Obvious here - but it is important that the envelope goes and the plastic stays. When you buy something, put the change and receipt in the envelope and subtract the expense from the total and write your new total underneath. Once the money runs out, that's it - no more spending! The first month is very tough, and you might find yourself having to survive on beans and rice for a couple days or, Lord Forbid, the wife can't afford another pair of shoes to match that purse she bought with her Blow Money.
Here's the good thing about using the envelope system. If you find something that is eating away at you, begging to be an impulse buy, you're chained to your memory. Did you remember to bring the envelope with you? If yes, think long and hard about whether or not it's a purchase that you'll regret down the road; the money in the envelope is all you have that month - don't blow it. If you forgot your envelope, go home and get it. Chances are you'll have lost the impulse and talked yourself out of it before you make it back to the store.
This is one of those things that becomes automatic. To reward myself, I usually put what's left from Food and Gas at the end of the month in my Blow Money envelope and cut it from the next month's budget. The Clothing and Blow Money enveloped can also be used, month by month, to save for specific things.
Try this for a while. See if it works. I went from being the Debit King to only using my card once or twice a month. Things are much simpler this way, and I've got a few hundred tucked away I never thought possible.
(edit - Yes, it's ok to have a Computer Fund envelope and budget section! We geeks have to live somehow, you know...)
ASCI Blue
02-09-03, 03:21 PM
Okay Mr Ash (btw I'm not mad I rather like this info) what happens if your local businesses are stealerships rather than dealerships reguardless of product and buying off the 'net is the best and cheapest choice but we can't use COD and checks are going the way of the dodo. Do we use credit or paypal.
The area I live in has this problem. An Asus A7V two years ago off the 'net was around $130 including freight. Local it was $195. $65 is quite a chunk of money, that's easily a night out with the family at a reasonably priced restaurant and gas money left over.
Ah, good question!
Really, Debit Cards are ok - just make sure the money is budgeted before you dust it off and use it. Like it or not, some form of "card" media is necessary nowadays, and when used responsibly it can be very helpful.
If you can get a better deal by buying online, then by all means go for it! Use A debit card or PayPal if possible, or pay off the credit card balance IMMEDIATELY. Otherwise, you've just taken out a loan for that item at an average of 18% interest...
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