Dave Ramsey’s Financial Peace University

by financialmom on March 23, 2010

in Debt, Emergency Fund, Financial Peace University, Financial Plan, Money

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It was my  friend Matt Wegner of FinancialExcellence who first clued me in to Dave Ramsey’s Financial Peace University. Financial Peace University is a hugely popular personal finance program taught by Dave, spreading fast all across the country, and interestingly enough, mainly being offered in churches.

Dave Ramsey is an unashamed Christian, and is not afraid to tell it like it is when it comes to what we should be doing (and not doing) with our money.   He states right up front he expects you to be tithing your income before any of these steps are applied.

I have found although we may know what we should be doing with our money, we don’t do it.   I started recommending Financial Peace University as an excellent program to get your finances organized, and take back control over your money.

Matt kept encouraging me to attend the program myself, and my husband and I did just that last summer at a local church.  Since there is so much buzz about Financial Peace University, I thought it might be helpful to have a Financial Advisor’s point of view on the program.  I will also state up front I receive no compensation for these comments, or for anyone who attends Financial Peace University.

Financial Peace University covers Dave’s now famous Seven Baby Steps, to be followed in order, which I will comment on below:

$1000 In An Emergency Fund

First of all, what is an emergency fund for, and why do you need it? An emergency fund is not for digging into when you don’t feel like cooking and want to go out to eat.  It’s not for a vacation to Jamaica because you feel you deserve it.  An emergency fund is for the surprises that happen in your life – the unexpected medical bill, the sudden job loss, the water heater that fails, and the car accident your teenage son swears is not his fault.

The reason you need an emergency fund is to cover those unanticipated events so you don’t have to charge them on a credit card, and you don’t spiral down into a deep well of debt.

Use the Debt Snowball to Pay Off Debt

The idea of the debt snowball is to list all of your debts, in order of smallest to biggest, and start paying them off in that order. Some people disagree with Dave on this one, and recommend you attack your highest interest debt first.  The problem with that approach is our highest interest debts are also often some of our largest debts.

As a society, we need some instant gratification, and paying off a debt very fast gives us the incentive to continue plugging away at it. Yes, it’s psychological, but it works to give you a much needed boost of confidence that you can beat debt at its own game.  The exception here is your mortgage, which is covered in another baby step.

3 – 6 Months of Expenses in Your Savings

Now that you are out of debt except for your mortgage, it’s time to get serious about fully funding your emergency savings. If you think this amount of money in a savings account is excessive, talk to any of the millions of unemployed workers all over the United States.  Ask them if they wished they had this amount of money in their savings before they became unemployed.

I recommend you have a discussion again at this time as to just what constitutes an emergency, so there are no disagreements later regarding what to spend this fund on.

Invest 15% of Household Income

Now is the time to be  investing 15% of your household income for your future. It’s very important you start this as soon as you can, to take advantage of the benefit of time.  But do get the first three steps done first – or you may find yourself pulling money out of your retirement investments to pay for debts or emergencies.

You want to start with your company plan if you are working, especially if your company matches a portion of what you invest (free money!).  Once you have contributed enough to get the full employer match, it’s time to look at a Roth IRA. Retirement accounts are the place to start, because of their tax-free growth while you are building your investments.

If you max out your Roth IRA contributions as well, and still have money to invest, it’s time to talk to your financial advisor for more recommendations.

College Funding for Children

This can be a controversial one.  Spouses may disagree as to whether it’s a good thing to fund their children’s college education, probably based on what their own experience was. Personally I think it’s good for a child to learn the value of a good work ethic, and to contribute towards a future goal for themselves.  I do also wish we had done more to save for our children’s college education, to help them avoid college loans altogether.  I hate debt enough at this point to not want debt for any children as they enter the real world.

Whatever you do, do not fund your children’s college education at the expense of your own retirement.  Your children can get loans for college, but you may not be able to get loans if you need more money in retirement.  And you may live a very long time in retirement!

Pay Off Home Early

All your extra money at this point should be applied towards paying off your home early.  As long as you have taken care of the previous steps, this can become the realization of a dream for you! Get this done, so you can live a life free of all debt.  Think of what a great feeling this will be, knowing you do not owe anybody – and all the fun you can look forward to – which brings me to the next step.

Build Wealth and Give

This is my mission as a financial advisor – to help you get to this point, where you can build wealth to bless others both right now and as a legacy after you are gone. Think of all the fun you will have giving lots of money away – and all the great charitable causes you can make a huge difference for.  It really doesn’t get any better in this life, and if you follow the above steps, you will get there sooner than later!

Click here to find a Financial Peace University class scheduled  in your area.  As Dave Ramsey says, “Live like no one else, so you can live like no one else.”  In other words, do things now most people are not willing to do, so you can live like no one else can later.  Beautiful.

New Profile Pic 2599R Dave Ramsey’s Financial Peace UniversityPamela Otten is CEO of Pamela Otten LLC, a Registered Investment Advisor. She loves to work with women business owners and entrepreneurs, and women in transition due to job change, death, or divorce. Pamela will help you set and reach your financial goals, educate you to understand your investments, and teach you how to do more charitable giving. Pamela is a Qualified Kingdom Advisor (www.kingdomadvisors.org), trained and committed to integrating biblical principles with her investment advice.

cc smallest Dave Ramsey’s Financial Peace UniversityPhoto Credit – bitzi

Financial Planning, Investment Advice, and Investment Management provided through Pamela Otten LLC, Registered Investment Advisor.

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