Tuesday, July 31, 2007

Flip That House?

House flipping has been around for years, but the recent run-up in real estate prices has made it a hot topic. Television shows such as "Flip that House," "Property Ladder," and the upcoming "Flipping Out" are making many people think that anyone can go buy a shack, since $25,000 into it and make $50,000 or more.

Is that the case?

First, let me say that the idea of flipping a house appeals to me. I'm writing this post for me as much as anyone else! While I live in a super-slow real estate market, there are some decent markets not far from me (areas around Hoover, Alabama, for example). I don't think I'll be trying this anytime soon, because I want to do a ton of research before even considering it.

However, my wife and I enjoy watching some of the shows listed above, and those shows make it seem so easy. Is it?

The following video features an interview with "The Real Estate Baroness," Barbara Corcoran. I have seen her on "The Millionaire Inside" and visited her website and blog. While I don't agree with all she has to say (or, especially, with her attitude about some things), this interview is very good. If nothing else, it will cause you to think before you decide that house-flipping is no big deal.

Notice that Corcoran does not say that you shouldn't do it, but she emphasizes the "homework" side of flipping.

This trend will slow somewhat with the real estate slowdown, but if the market ever starts picking up again, there will be a new rush to turn every house over for major profit. We need to be good stewards of the money God has blessed us with. If we don't know what we are getting in to, we need to avoid such activities as house flipping. Yes, you can make money, but only if you know what you are doing.

Monday, July 30, 2007

Monthly or Annual Payments?

Many different services offer the option of paying monthly or annually. This raises a question we have to consider of which is best for the given service. There are several factors which I believe ought to be considered.

Factor #1: Price
Generally, when you choose to pay annually, you are given some sort of discount. Sometimes this discount isn't very large, though it can add up to be significant when you pay for all of your services annually. My car/renter's insurance premiums incur an extra $1 service charge per month to be paid monthly - a cost of $12 per year (a fee of less than 1%). The Xbox Live gaming service is billed at $5 per month or $50 per year, so the cost of paying it by the month is $10 per year (a fee of 20%!). Consumer Reports Magazine is available through a one year subscription rate of $26, or cover price which would total $71.87 over the course of a year, so the cost of paying by the month is $45.87 (a fee of 176%!). Consider the extra cost which paying monthly will incur, and what percentage of the annual cost this fee is!

Factor #2: Convenience
When faced with annual or monthly payment options, which is more convenient may depend upon the service. When something is billed annually, you only have to concern yourself with paying for the service once a year. When it is paid monthly, it is much easier to budget as you don't have to put away money each month in preparation to pay the annual fee/premium, but instead you simply pay each month without the temptation of spending what ought to be saved for a future premium.

Factor #3: Satisfaction Guarantee
Sometimes when signing up for a new service it is a good idea to pay by the month at first, to ensure that you desire to continue the service before you put down the large cost of an annual payment. Within a few months you should know if you want to keep the service or discontinue the service. If you want to continue it, then you may wish to change to annual payment. The added security of being able to easily cancel without having to get a refund on your annual payment may be worth the extra cost at the beginning.

When considering paying for something by the month instead of paying annually, look at which option is cheaper, generally the annual payment option. Recognize that the service you are paying for costs that lower amount. Then consider the extra cost of paying for the service in the other option. Is the convenience or satisfaction guarantee given by that second payment option worth the extra cost? Because the extra cost you are considering to be able to pay for the service monthly is a fee for convenience! Many times we can cut convenience fees and save a significant amount of money in the long run and over many different services!

"The Total Money Makeover" (chapter 13 and recommendation)

It has been fun to re-read Dave Ramsey's The Total Money Makeover. This makes four times through the book for me, and I get excited every time I read it. Each time I read the baby steps, and see them build, I want even more to be debt free. It is going to be a great day! We have a goal in place, and we are doing all we can to reach it!

The final chapter is very brief, only covering 5 pages. It is meant to put the teachings found in the book into their proper place. Ramsey mentions Proverbs 10:15, which teach that a rich man's wealth can become his walled city. He goes on to simply remind us that, even if we become debt-free and have millions of dollars to our name, that's not the most important thing. I couldn't agree more!

If you haven't been able to tell, I highly recommend reading and applying this book. I have tried to mention a few things in the book with which I do not agree, but there simply are not many! Ramsey makes the process logical, focused, and--when done as a family--fun.

If you wish to order a copy of this great book, click on the link below.

To read any of the chapter reviews in this series, click on the appropriate link:

Chapters on "Attitude"

Chapters on "Action" (the Baby Steps)

I hope this series has been helpful and has helped you think about your financial situation. The next book I will review will deal specifically with giving.

Friday, July 27, 2007

"The Total Money Makeover" (chapter 12)

Before really getting into the seventh (and final) baby step itself, the chapter begins by asking a very important question: "Why do you want to have a Total Money Makeover, anyway?" In other words, now that you have no debt (including the mortgage) and you have a fully-funded emergency fund and you have retirement savings and the kids' college is taken care of.......

what now?

Ramsey suggests that we do three things with the money: have fun, invest, and give.

Of course, as Christians, giving should come first. Now that we have achieved a level of financial security that so few ever do, should we not use that as a grand opportunity to give like we've never given before? While the Lord and His work should be first in our giving no matter our financial situation, when we reach this stage, we should truly seek to "ramp up" our giving. Sadly, many Christians do achieve this level and then just spend the money on more "stuff" for themselves. Remember the words of the Bible? "From everyone who has been given much, much will be required" (Luke 12:48).

But, we should also continue investing. Why? Because at this point our investments are still quite small--for retirement's sake. I love to work, but I would also like to know that, when I retire, I can live off my investments and also beat inflation. So, we need to continue to put money away in investments for retirement. Ramsey suggests continuing to put away at least 15%. (Pages 207-212 have a good discussion as to why this point is important.)

Finally, we should have some fun. I think far too many people have too much "fun" when they reach this stage, but we should have some! You have sacrificed very hard to get to this point. Now you can enjoy it. Take your spouse out for an all-out dinner at one of those "chez" restaurants. Buy something you've always wanted. If you want, buy another house (for cash!!!) as an investment or as a rental. The possibilities are great to think about!

Lest you think the book is over, though, Ramsey adds a 13th chapter to "sum up" the book.

However, when you make it to this point, it's time to give like you've never given before...

...and enjoy the fruits of your labor some, too.

Thursday, July 26, 2007

"The Total Money Makeover" (chapter 11)

While it is just coincidence, it is odd that the chapter on home mortgages is "chapter 11." So many people default on home loans every year. The numbers are staggering.

While I am certainly no expert on buying a house (I've bought a grand total of...1), I do know a couple of simple facts that one needs to keep in mind when purchasing.

  • Don't buy too much house! Many people decide that, since they have 2 kids, they need a four- or five-bedroom house. Then we make sure it's in an upscale neighborhood. Then we make sure we can just move in without having to fix anything. Before you know it, you have a house that it too big and you simply cannot afford the mortgage!

  • Figure out the actual cost of owning a home. It's not only the mortgage. If you are paying for the house, you are also paying for all maintanance; and taxes; and lawn care; and additions; and.... well, you get the idea. So many people think, "We can afford $700 a month for a house," and so they get a house that has a mortgage of $700 each month. When the pipes bust, or the lawn needs to be mowed, where's the money going to come from?

Why all this real estate talk? Because the sixth baby step, and the focus of chapter 11, is Pay Off the Home Mortgage.

If you've been following this series, you'll remember that baby step 2 required you to pay off every debt, except the mortgage. Now it's time to rid yourself of that debt, too.

Many people think it is a good idea to keep a mortgage because you get tax help. While that is true to some degree, the tax help is not as big a deal as having no house payment!

If you have a home with a payment of around $900, and the interest portion is $830 per month, you have paid around $10,000 in interest that year, which creates a tax deduction. If, instead, you have a debt-free home, you would in fact lose the tax deduction, so the myth says keep your home mortgaged because of tax advantages.

This situation is one more opportunity to discover if your CPA can add. If you do not have a $10,000 tax deduction and you are in a 30 percent [tax] bracket, you will have to pay $3,000 in taxes on that $10,000. According to the myth, we should send $10,000 in interest to the bank so we don't have to send $3,000 in taxes to the IRS. Personally, I think I will live debt-free and not make a $10,000 trade for $3,000. (page 187)

It is also true that houses--nearly every time--are a great investment. But, if you pay six-figures worth of interest, you have lost much, if not all, the "investment" part of the house.

Of course, paying off your mortgage early will require a great amount of discipline and (here's that word again) focus. But, keep in mind that you have no other debt and you are also no longer feeding your emergency fund--it's fully funded.

You also have your retirement building, and your children's college fund is building (and, depending on how young your kids are, you may build it all the way and be able to "add on" that money to paying off the house!).

So, how do you pay off that major amount of money?

STEP 1: Get a 15-year fixed rate mortgage that equals no more than 25% of your take-home pay. Note a couple of things from this recommendation:

  • 15-years. The most common type of mortgage is 30 years. Yes, a 15-year mortgage is more expensive per month, but the amount it saves is amazing. On page 191 of the book, Ramsey illustrates with a $110,000 mortgage at 7%. If it were a 30-year fixed, it would cost about $732/month and you would pay a total of $263,520 over the 30 years. However, if it were a 15-year fixed, you would pay a total of just $117,840 (over $85,000 less), and it would only cost you $256 per month more ($988).

  • Fixed-rate. Mortgage rates move up an down, and sometimes quite dramatically. Many people got ARMs a few years ago and are now wishing they hadn't. They have two choices: pay the new, much higher, payment or pay a large fee to refinance. Even if you go with a 30-year, get it at a fixed rate!

  • No more than 25% of your take-home pay. I would like it to be more like 20%, just to give some wiggle-room. Especially if you are building up a college fund (or funds!), you simply cannot afford more house than that. One thing Dave doesn't spend much time in the book on, but that he mentions often on his radio show, is that it you need to make a down-payment of at least 20% (and more is always better). The more you pay down, the bigger (and, presumably, nicer) house you can own for this percentage of your income.

STEP 2: Pay off the mortgage faster than 15 years. Attack the mortgage with the same intensity with which you attacked that debt. Squeeze out every extra penny to put on the mortgage. People who truly follow Dave's plan say it takes about 7 or 8 years to pay off a mortgage...

...and then???

...can you imagine???


Wednesday, July 25, 2007

"The Total Money Makeover" (chapter 10)

If you have been reading this series from the beginning, this is the step where many of us start to worry a bit. I know what you are thinking: "How can I worry? I've got an emergency fund in place and I'm automatically saving for retirement!"

It's because the kids are getting older and college is--last time I checked--not getting any cheaper!

In chapter 10, "College Funding: Make Sure the Kids are Fit Too," Dave discusses how to pay for college. At the outset, let me say that I agree with his premise (no debt), but I do not agree with everything he teaches in this chapter. You'll see why soon.

The first part of the chapter deals with the basics of college. Why do we want our kids to go? Simply put, an education is one of the best investments anyone ever makes. I know men and women who didn't go to college and make a tremendous amount of money. But, I know many more who did go and are making great amounts of money. As you well know, many employers are now requiring a college education.

College is fun, but Dave teaches--and I agree--that our kids need to understand the real purpose for their attendance in those classes. They are not going to school to learn how to party, meet girls/guys and live off-campus. They are going to school to get an education and learn better how to work.

Most people think that, to attend college, you have to have student loans. Dave's plan wants us to think otherwise. How can we send our kids to college debt-free? Here are a few suggestions from the book:

  1. Start young. As soon as you reach this baby step, no matter how young the kids are (if you have kids), start a college fund. If you don't have kids, start a fund the day they are born!

  2. Contribute to the fund automatically and take advantage of tax shelters. The point of this article is not to discuss specific plans, but 529s are a popular choice, and provide tax advantages.

  3. Teach your kids to work and to pay for part of their education. My parents did this with my sister and me. We didn't have to pay for our entire education, but we did have to pay for part of it. This gives the student a sense of importance and responsibility. He/she is less likely to waste money when it's his/her own!

  4. Work on scholarships...over and over and over. Get as many as possible. Dave loves to talk about how to get lists of unclaimed scholarships. While those are great (and should be explored), I like to urge young people to start applying for scholarships well before their Senior year of high school. Build them up. Apply for as many as you can.

  5. Live in the dorm, not off campus. Many students get deeper into debt because they are living off campus in high-rent apartments and eating out every night. That's not the purpose of school!!!

The final way Dave suggests going to college debt-free is to only attend community colleges and state schools. He strongly suggests staying away from private institutions. Obviously, I disagree with this, seeing as how I sent to a private university--and did so without student loans.

It's not easy to do, but you can even pay for a school like Freed-Hardeman (where all four writers of this blog went to college) if you will plan ahead. And, as much as you are going to hate this sentence, student loan debt is not the worst kind you can have. If you use the loans to pay for school (and not for pizza and off-campus living) and if you use it for a solid Christian education, it's worth it.

Use the points listed above, but, if you want to attend a school like FHU, do it. Go as debt-free as possible, but don't miss out on the opportunity to meet Christian friends in a great environment. That's an eternal investment!

But, if you will plan ahead, you can even go somewhere like that without one dollar of student loan debt when you graduate.

And then? Step 6.

Tuesday, July 24, 2007

A Crumby Illustration

Mrs. Baughman was a Sunday school teacher for my 6th grade class. One morning, she brought a pan of brownies to our class. As the goodies sat over by her chair, she gave each child a slip of paper marked with a household expense - house payment, utility bill, phone bill, entertainment, etc. My slip had a car payment.
Before long, Mrs. Baughman picked up the tray of brownies and began naming the expenses written on the papers. As we gave her our expenses, she redeemed each one for a brownie. “Car payment!” she announced. I jumped up to get my brownie from the pan. Finally the last brownie had disappeared. But one boy named Donald still held his unredeemed slip. “God!” called Mrs. Baughman. Donald came forward, hoping the teacher had one more brownie hidden somewhere.
With a knife, Mrs. Baughman scraped the crumbs from the bottom of the pan into Donald’s napkin. He got a pretty raw deal, I thought - just crumbs.
“The brownies represent your money,” the teacher explained to us. “If you don’t give God His share right away, He probably won’t get anything except maybe the crumbs.”
We never forgot that illustration. It was the day my friend Donald got only brownie scrapings, and I learned that God should have first rights to everything I have. In the years since Mrs. Baughman’s class, I have struggled with giving and priorities. But whenever I recall the “crumby Sunday School lesson,” I know who must come first in my life.

Inkjet Printer Ink

My posts have been nil all last week for a reason! I was in Nashville Monday morning through Wednesday afternoon and again Thursday morning through Saturday evening working with a Future Preacher's Training Camp there. It was a great week, but very tiring.

Free Image Hosting at www.ImageShack.usFor today's frugality post, I ask that you consider how you purchase ink for your printer. My brothers buy a cartridge, then don't print anything else for months, and so when they need to, they go buy another cartridge since the first has dried up. On the other hand, with both of us in grad school and me printing Bible class materials, sermons, etc., at home, we go through an above average amount of ink. Below I'll consider a few different ways of meeting your printer ink demand, and consider which is most cost effective. We'll consider this for four different printer models: an Epson R200 (my current printer, about $100), a Canon iP4300 (about $100), and an HP C5180 all in one printer ($180 after rebate) and for the budget purchaser, a Lexmark X1270 all in one printer (less than $40 after shipping from Wal-Mart's website).

Ink Options Available
  1. OEM Cartridges - Cartridges made by the Printer Manufacturer
  2. Remanufactured or Compatible Cartridges - Remanufactured cartridges are OEM cartridges which have been professionally cleaned and refilled; Compatible cartridges are made by other manufacturers to fit these printers.
  3. Refill Kits - Refill your own cartridges - very messy, I don't recommend this.
  4. Continuous Ink Systems (images below)- These systems are made to feed ink from large containers on the desk into your printer through tubes. The large containers can be refilled, thus ink is purchased in bulk.
Free Image Hosting at Free Image Hosting at

Epson r200 Stylus Photo
- Uses 6 ink cartridges
  1. OEM Cartridges - $69.98 from Wal-Mart - 13 ml per cartridge
  2. Compatible Cartridges - $14.49 from eBay merchant - 18 ml per cartridge
  3. Refill Kits - $55.20 from eBay merchant for refillable cartridges, 118 ml black and each color, effectively yielding 9 cartridges each for $1.02 per cartridge, $6.12 per set. Additional ink $27.50 for 6x85 ml, or $4.23 per set.
  4. Continuous Ink Systems - $42.84 from eBay merchant with 100 ml each color pre-installed, effectively $5.71 per set. Additional ink $27.50 for 6x85 ml, or $4.23 per set.
Canon iP4300 - Uses 5 ink Cartridges
  1. OEM Cartridges - $50 from Canon (Wal-mart is more) - 13 ml per cartridge
  2. Remanufactured Cartridges - $50.95 from (most cheaper sets do not have the chips on the cartridge, causing more problems)
  3. Refill Kits - $10 from eBay merchant but doesn't include the photo black single use
  4. Continuous Ink Systems - $70.34 from eBay merchant with 110 ml each color pre-installed, effectively $8.79 per set. Additional ink $41 for 5x118 ml, or $4.56 per set.
HP c5180 - Uses 6 ink cartridges
  1. OEM Cartridges - $57.98 from Wal-Mart - only about 5 ml per cartridge
  2. Compatible Cartridges - $26.98 from eBay merchant - 12.5 ml black; 7.5 ml colors
  3. Refill Kits - $65.44 from eBay merchant for refillable cartridges prefilled, plus 100 ml of all six colors to use in refilling, thus $3.30 per set. Additional ink $29.20 for 6x100 ml, or $1.46 per set.
  4. Continuous Ink Systems - $74.19 from eBay merchant with 100 ml each color pre-installed, effectively $3.71 per set. Additional ink $29.20 for 6x100, or $1.46 per set.
Lexmark x1270 - Uses a black cartridge and a color cartridge
  1. OEM Cartridges - #16 and #26 OEM - $61.62 from Wal-Mart - 10 ml black; 12 ml color
  2. Remanufactured Cartridges - $27.80 from eBay merchant
  3. Refill Kits - $11.34 from eBay merchant for 120 ml black, 60 ml three colors - effectively yielding 12 black cartridges and 15 color, for $0.667 per cartridge, $1.34 per set
  4. Continuous Ink Systems - $122 from eBay merchant with 85 ml each color pre-installed, effectively $8.20 per set. Additional ink $32 for 4x100 ml, or $1.83 per set.
Looking at these four printers, I recommend the continuous ink system. HOWEVER use of such a system does void the printer's warranty. I use a CIS (continuous ink system) on my Epson r200, and have loved it! It hasn't caused me any trouble, and after a year of printing on dvd's and cd's, papers for school, sermons, etc., I've had to refill the black once, and have about 1/5 levels in my color spots. So it's a very cheap option. The Refillable cartridges can be almost as cheap. However, these have to be refilled much more option, creating the possibility of a mess much more often. That's why I completely recommend the CIS instead. It isn't available for all printers, though, and I realize that. It just happened to be available for all of these. IF you cannot get a CIS for your printer, or if you don't want to void the warranty, at least be frugal enough to purchase remanufactured or compatible cartridges and save a lot of money there! Also, I strongly encourage you to look into what options are available to you before you purchase a printer. Purchase a printer which will give you the option of cheap ink, instead of being forced to spend $25 per cartridge for ink to go into a $20 printer!

Hope this information helps you to be more frugal in purchasing a printer and printer ink!

"The Total Money Makeover" (chapter 9)

It's an amazing concept, when you stop and think about it. If you follow Dave Ramsey's plan and work hard, this is the step where you get to breathe a little easier. Think about it: you have gotten completely out of debt (except the mortgage) and you also have a great buffer against "life" with your fully-funded emergency fund.

I'm not there yet, but I think about it every day. What a great day!

As I've said in this book review series, and as Dave says in the book (several times), this isn't some "get rich quick" scheme. This system takes time, dedication and great focus. But, when you get to this point, you begin to see the system really working for you. No more interest payments (except the mortgage). Life's financial problems taken care of. And now...?

Baby step four: Invest 15 Percent of Your Income in Retirement.

How can you afford 15%? That depends. I think that's a great number to shoot for, but Dave teaches tithing. While many teach that as well, I think we should aim for giving more than just 10% to the Lord. If you are giving more than 10%, you might have trouble attaining the 15% level at first.

However, you also now have no payments! You are not sending money to GMC or MasterCard or...well...anyone else! You have now freed up all that money you were sending to your creditors.

15% seems like an aggressive number, but, sadly, many of us are not starting at 18 years old. We have fought for several years to get out of debt and, now, we need to "ramp up" the number a bit, so we can make up for lost time.

So, when I get to this step, where do I put the money? As with other things, Dave has a simple rule. First, he teaches that we need to get a good financial planner; one who has the "heart of a teacher." If you don't understand the investment, don't make it. If your planner is calling all the time asking you to move your money, it's time to change advisers. Get a good planner and stick with him or her.

On page 157 of the book, Ramsey gives a "Reader's Digest" version of where you and your planner need to put your money:

I select mutual funds that have had a good track record of winning for more than five years, preferably for more than ten years. I don't look at their one-year or three-year track records because I think long-term. I spread my retirement investing evenly across four types of funds. Growth and Income funds get 25 percent of my investment. (They are sometimes called Large Cap or Blue Chip funds.) Growth funds get 25 percent of my investment. (They are sometimes called Mid Cap or Equity funds; and S&P Index fund would also qualify.) International funds get 25
percent of my investment. (They are sometimes called Foreign or Overseas funds.) Aggressive Growth funds get the last 25 percent of my investment. (They are sometimes called Small Cap or Emerging Market funds.)

There is far more in this chapter, but this system does two things:

  1. First it puts money into retirement automatically. If you work for a company that allows you to put money in before you see it, take advantage of that. Set up the system and put the money in. Every month.

  2. The system also diversifies the money enough to where you can feel safe. You may want to select individual stocks or another type of fund, but Ramsey (and I) would recommend only doing that above and beyond these investments--and only when you finish steps 5 and 6, as well. In other words, if you want to speculate a bit, that's okay, but wait until you actually have money you can afford to lose. Even at this baby step, you're not there...yet.

15% for the rest of your life will add up quickly. Compound interest is a beautiful thing. Are you beginning to see how Ramsey's plan, combined with a great amount of focus, will pay off? Near the end of the chapter, Ramsey writes:

After completing this step, you have no debt, except the house, around $10,000 cash for emergencies, and you are taking steps to make sure you will retire with dignity. I think I see a smile broadening. (page 166)

Monday, July 23, 2007

A Cool Motivational Tool

Want to get out of debt? Trying to save your emergency fund? Having trouble staying motivated? What if you knew that literally anyone in the world could follow your progress; would that help?

That's exactly what you can do if you join the No Credit Needed network. Each member of the network lists how much they owe, how much they have paid, and a date set for their goal to complete the debt payment (or when they want to have a certain amount saved). The network then puts those amounts into a chart that shows up in blog form.

Every member's chart is updated whenever the member sends in the updated numbers. I joined and hope to update at the end of each month. Here is our first chart:

21.6% out of debt. That's going the right way!!!

If you want to see the charts, or join the group, check out the No Credit Needed Network.

WYTI Links: 07.23.2007 (Back from ICYC Version)

Top 25 Personal Finance Myths (via Ask the Advisor)

The Best Time to Buy Everything (via Smartmoney)

8 Ways to Save for a Short-Term Emergency Fund (via Getting Finances Done)

Earn $1 Million by Not Watching TV (via Free Money Finance)

Handle Your Online Life After Your Death (via Lifehacker)

5 Great Ways to Leave a Tip (via Personal Finance Advice)

Friday, July 20, 2007

WYTI Links for July 20

Some good stuff for a good weekend!

  1. Forbes (via Yahoo! autos) provides an interesting perspective on why the Toyota Prius outsells other hybrid models by a wide margin. Read "The Hybrid Dilemma" to discover this compelling argument.
  2. If your town is anything like the one in which I live, the weekend is yard sale time. Every weekend, all over this community, there are yard sales. Get Rich Slowly has a great guest article written by The Yardsale Queen, Chris Heiska. You may read "Thrifty Tips from the Yardsale Queen" and follow the link in the article to her personal website, filled with great tips.
  3. USAToday gives some tips on how to save money when expecting a child in "You and Me and Baby Makes $197,700." Many of these tips are common money tips, but seeing them all together--with the perspective of having a baby--is powerful.
  4. While I hate debt (I mean, I really hate it!), student loans are not awful (especially if you use them to attend Freed-Hardeman University in Henderson, Tennessee). If you, or someone you know, is nearing the time to go to college, or is nearing their final semester(s), you will want to check out's "2007 College Financing & Career Guide."

Most importantly, don't forget where your tresure truly is this Lord's day.

"The Total Money Makeover" (chapter 8)

Much of what is said in chapter 8 is similar to chapter 6, and for good reason. The eighth chapter of The Total Money Makeover discusses the third baby step.

Remember, if you are going to follow Dave Ramsey's baby step system exactly, you must have steps one ($1000 emergency fund) and two (out of debt except the mortgage) completely finished. Ramsey is a firm believer in total focus, so you must have these two steps completely finished before moving on to step 3.

Step 3 is "Finish the Emergency Fund."

Now, what is meant by "finish"? For most people, especially with families, Ramsey recommends having 3 to 6 months of essential expenses in that emergency fund. If you are single, or if you don't own your home, you might only need 2-3 months, but, personally, I like the idea of having at least 3 months no matter what your life situation.

A couple of points about this baby step:

1. As we said in baby step 1, put your money in a place where you can get to it in an emergency, but only in an emergency. Obviously, if you are pleased with where your $1000 starter fund is, you can just build that account.

2. To get an idea of how much money you will need, you need to go through your budget and figure out what you have to pay each month in essential payments. Obviously, the house payment or rent is essential. You will also need to eat in an emergency, but you won't need to eat out! You'll need enough for the electric bill, but not the cable bill--you'll turn off your cable in an emergency (won't you?).

3. Finally, why is this such a big part of a financial plan? It is simply because emergencies are what, many times, wreck the financial plans of those who are really trying to "get ahead." They pay off their debt, but then they start spending the extra money they have. Then a child has to go to the hospital. Or dad is laid off. Or mom finds out she has to have some serious medical tests run. Or the car absolutely falls apart. And what do we pay those expenses with? If there is no emergency fund, we go back into debt. With a fully-funded emergency fund, we can handle even large emergencies without going back into debt.

For many people, this baby step is as important as any other. With several thousand dollars lying around for emergencies, we can sleep at night. Even if Murphy's Law comes into effect in our house, we can pay her to leave!

Thursday, July 19, 2007

WYTI Links for July 19

Today's links are a true "mish-mash," but all the articles are helpful.

1. Christian PF (for Personal Finance) has a brief article discussing one way you can build up your emergency fund more quickly. This same system could be used for other parts of your finances, as well.

2. An amazing story (with links) dealing with a family that paid off (are you sitting down?) over $70,000 in just 19 months! This article comes from No Credit Needed.

3. Get Rich Slowly offers us this article, written from his wife's perspective, on a company that still has good customer service. Please read "Good Customer Service Still Exists." (Just an additional thought: today I had to contact DirecTV about our bill. This is the 2nd time I have had to do so in just a few months. Both times I have been promised a certain amount "off" the bill, but then had to call back and actually get the credit. I wish they had the same ethic as the people mentioned in the article above!)

The Total Money Makeover (chapter 7)

This 7th chapter is the one that contains the principles which have made Dave Ramsey as famous as he is. His disdain for debt is probably the number one reason why people listen to his show and read his books. Simply put, people are in debt, so they listen to Ramsey for help.

Chapter seven, "The Debt Snowball: Lose Weight Fast, Really," outlines how to finally pay off all those nagging debts that continue to strain your budget and, in turn, your life.

One of the key words in the chapter title is "fast." Ramsey, over and over, suggests doing anything legal and moral to get out of debt. Paying interest is a killer, financially, so the faster one is out of making payments, the better off he or she is in the long run. If it takes selling stuff, do that. If it means cutting way back on certain "extras" (like cable or internet), do it. If it means taking a 2nd or even a 3rd job, take that step. The idea is that, if you are willing to make those sacrifices now so you can remove the debt quickly, you can then begin to enjoy more things. It doesn't mean you don't still sacrifice (especially when it comes to paying off the mortgate); it just means you don't have to cut back to nothing once you are out of debt.

How long this step takes is really dependant upon two factors: (1) how much debt you have, and (2) how disciplined you are to pay off those debts.

So, baby step #2 is Start the Debt Snowball. Before giving the facts of how it works, let's define what we are paying off.

Anything and everything that we owe, except the mortgage. That means those medical bills with 0% interest. It means the $75 we owe to our sister. It means the car payment. It means the home equity loan and the 2nd mortgage. It means credit cards, store/charge cards and bills that are overdue. Everything that is not your regular mortgage (if you have one) goes on this list. Then, you start paying them off. How?

  1. List everything (as we just mentioned) that is debt.

  2. Organize those debts from the smallest amount you owe to the largest. We are not worried about interest rates unless they are totally outrageous (like from a PayDay loan).

  3. Make and stick to a budget that, simply put, has almost no "extras." Your focus should not be on what movie is playing this weekend, it should be on getting out of debt!

  4. Stay current on bills in your budget. Cut up credit cards. In other words, don't add any more debt!

  5. Using your budget, put every extra penny on your smallest debt, while paying minimums on everything else. Here's a brief example of what a list might look like: ($75 owed to sister--pay $75 this month; $450 owed to hospital--minimum payment of $65; $875 owed to MasterCard--minimum payment of $35; $9875 owed to GMC--payment of $278/month; $35000 for home equity line of credit--payment of $410/month).

  6. Once you have a debt paid off, cancel the account (if necessary). Make sure you get something in writing saying that the amount owed is $0 and the account is closed.

  7. Take what you were paying on that smallest debt, and add it to the next smallest debt. In our example from above, the smallest debt would be eliminated in the first month, so that $75 would now be added to the $65 (for a total of $140) to be paid to the hospital. When that is paid, take the $140 (from both debts) and add it to the $35 for Mastercard. From this small example, it is easy to see how the "snowball effect" works!

  8. Repeat this process until all debts are eliminated.

This step may take you a long time to finish, but the feeling is amazing. We are getting closer every day to being debt free, and it is a joy to watch those "amount owed" lines keep getting smaller!

Wednesday, July 18, 2007

WYTI Links for July 18

I tried to find some articles today that were informative, but also fun to read. Hope you enjoy these:

1. Since the next "baby step" to be discussed in our series on The Total Money Makeover is paying off debt, this article by We're in Debt is a good, albeit brief, read. It is entitled, "The Emotional High of Paying Off a Debt...Any Debt."

2. The Simple Dollar has a cool article for those of us who were big into baseball cards around 1990. The article is "Dealing with Those Piles of Old Baseball Cards in Your Closet." I don't agree with everything in the article, but it is a good and thought-provoking read.

3. Matthew at Finance is has a good article that will help us think about where our money goes when it comes to entertainment. It is called, "Six Ways to Trim Back on Your Entertainment Budget." Personally, I think that many who live without a budget would be shocked to figure up how much they spend each month on entertainment.

Monday, July 16, 2007

The Total Money Makeover (Chapter 6)

Having finished with the "attitudes" section of The Total Money Makeover, Dave Ramsey now turns our attention to his famous "baby steps." For the next several chapters, Ramsey will teach us how to follow these not-so-simple (by his admission) steps to wealth.

Chapter 6 is entitled Save $1,000 Fast: Walk Before You Run. It is actually the subtitle to this chapter that underlies the entire theory behind the Total Money Makeover. So many try to retire wealthy while they are still deeply in debt. We have to walk first, so we can, eventually, begin to build wealth more quickly--and safely.

The reason Ramsey wants us to save $1000 is to begin a small emergency fund. Many people begin their "run" to wealth--and begin making progress--but, then, as Ramsey would put it, "life happens."

Before even starting the savings process, though, Ramsey preaches that we must (must, must) live on a budget. While we may not like it, it is absolutely necessary. We need to know where every penny is going to go for the month, so we can put every possibly dollar toward building up this $1000.

Some of you may have $1000 laying around in a CD (or a savings account). If you do, then you simply need to put that money in an account (such as a money-market account, savings account, or online savings account) where you can get to it--BUT ONLY IN AN EMERGENCY. (Page 104 has a humerous paragraph discusses what is and is not an emergency.)

If you don't have $1000, you need to get that amount of money as fast as you can. Sell something. Get another job. Do whatever it takes to put a barrier up between you and "life."

For most, this step won't take that long. For others, it may take a month or more. But, do whatever it takes to get that barrier up! Then.....

....well, wait for baby step 2.

WYTI Links for July 16

Joey is away at Indian Creek Youth Camp, so I thought I'd pass along a few links this week. Hope you enjoy them!

Friday, July 13, 2007

Nitrogen FYI

In our series on Gas $$ Savings Tips, I mentioned putting nitrogen in your tires.

To put my money where my mouth was, I decided to do this on one of our vehicles. It cost me $21, but it is going to be worth it. I put the nitrogen in a vehicle (a 2005 Chrysler Pacifica) that usually got about 18.5 - 19 miles per gallon (and we made sure the tires were inflated). On our first tank with nitrogen, I got right at 20 miles per gallon.

That may not be a huge difference, but, over the course of the next few months, we will easily see a difference in our mileage and gas cost.

Some with smaller vehicles are getting much better differences (percentage-wise) when they make the change. And, keep in mind, nitrogen keeps your tires inflated longer, which makes a big difference on a long trip.

The Total Money Makeover (Chapter 5)

In the final chapter dealing with attitudes, Ramsey discusses Two More Hurdles.

Hurdle #1 is Ignorance. Dave is not saying that people are stupid. What he tries to get across is that not many of us are financially gifted. On page 78 he puts it this way: "No one is born financially smart."

After saying that, Ramsey spends the next couple of pages reinforcing the idea that we live in a consumer-mad society and we are taught wrong simply by those we are around. We all make financial mistakes, but some never even realize they are mistakes!

After discussing the problem, Ramsey gives this solution on pages 79-80:

Overcoming ignorance is easy. First, with no shame, admit that you are not a financial expert because you were never taught. Second, finish this book. Third, go on a lifetime quest to learn more about money. You don't need to apply to Harvard to get an MBA with a specialization in finance; you don't have to watch the financial channel instead of a great movie. You do need to read something about money at least once a year. You should occasionally attend a seminar about money. Your actions should show that you care about money by learning something about it.

The second hurdle in this chapter is Keeping Up with the Joneses. Why is this a hurdle? Ramsey says it is because "the Joneses cant' do math." In other words, why are we trying to compete with our neighbors when they are miles deep in debt?

Ramsey spends several pages talking about this problem...and it is a problem. We think that certain "things" are status symbols. That's bologna: but most of us still eat it! We need to see those things for what they are: things.

Finally in this chapter, Dave tells his own story of dealing with keeping up with the Joneses. I don't want to retell the story, because I would just end up quoting about 4 pages of the book. You really should read the story. It helps me remember that Ramsey was a guy who had many of the same problems I did (and sometimes still do), but he was able to "climb the mountain" (to use his phrase).

Starting with the next chapter, Ramsey will move from our attitudes to the actions we need to take to have our Total Money Makeover. Get ready for "the baby steps."

Tuesday, July 10, 2007

WYTI Links: 07.10.07

My computer caught a nasty spyware/malware bug a couple of weeks ago, so it's been fun getting rid of that, and next week, I'll be down at ICYC for Clark Sims' week, so the updates may not be regular next week either...

Have fun with the links:

Monday, July 9, 2007

A Quick Apology

I'm writing this post at almost 10:30 on Monday night. In case you haven't noticed, I haven't posted anything for a few days (including my review of The Total Money Makeover.

The reason is very simple. I'm on vacation (without credit cards, of course)!

We will return on Wednesday, so I will pick up either Wednesday or Thursday.

Sorry for the interruption in the series, and also for the lack of warning before taking this break. I have posted some things on my blog while on vacation, but not many. I'm trying to really take a "brain break" for a few days.

To Be Patient is To Be Frugal

Many times the way to frugality is PATIENCE. Many times if we are patient, we can purchase items at a discount or avoid extra fees by being patient. At these times, to be patient is to be frugal. Remember that frugality is a mindset, and as we become more and more frugal in our mindset or attitude, we will save more money in a variety of ways.

One of my hobbies is video games, though I'm not a serious gamer by any means. My favorite game on the Xbox is Halo 2, though I don't play very regularly. About a month ago, I started playing Halo 2 on live again more frequently. For those of you unfamiliar with Xbox Live services, one function of the service is to make content available for download. With Halo 2, new maps become available for download periodically. These new maps generally cost $4 for a set of two. Until you download the new maps, you can only play about half of the game types, excluding my favorites. Last month I was really tempted to pay the $4 and just have the maps so I could play whatever I wanted. I withheld though, knowing that the Halo website promised they would be free for download in early July, as the former map releases had become free a couple of months after release. Patiently I waited, and last night my patience paid off! I downloaded the two maps for free! Just $4? I know. But frugality is a mindset.

When your cellphone plan comes up for renewal, what do you do? Do you run out and buy the latest phone that you've been watching on TV? Do you buy whatever your phone provider has on sale? Or, do you look around, see what's out there, and use some patience. Cingular/AT&T has different phones on sale all of the time. To buy whatever you want as soon as you are eligible for an upgrade is not frugal, for if you wait the phone you want will be on sale at some time in the next few months, saving you sometimes as much as $50 or more. The new Apple iPhone is $499 or $599 right now (4GB, 8GB, resp.). As history is a good indication, in a year it will be much cheaper. The LG Chocolate dropped 52% in its first year, the Samsung SGH-D520 31% in a year. To be patient is to be frugal.

High school students, when you take the ACT, you can get your scores online in just about 2 1/2 weeks instead of waiting the 4-8 weeks it will take to get them in the mail. But it will cost you an extra $8. That's 27% of what it cost to take the test!!!

When you order checks, or other items, do you select "Rush" Delivery and a quicker shipping method? On 2 boxes of checks through Checks Unlimited, I can choose standard delivery for $5.30 and receive my checks in 10-14 business days, OR I can choose to Rush the order for $5.95 and cut 2 business days off that time in plant, and then choose overnight delivery so that I get my checks in 3 business days for a total of $31.20, an extra $25.90 to save 7 days! That's a lot when the checks themselves cost $27.90. To be patient is to be frugal.

Frugality is a mindset, and one part of that mindset is patience. To be patient is to be frugal.

Saturday, July 7, 2007

Saving Stamps

Free Image Hosting at www.ImageShack.usPostage rates consistently go up, time after time. When I was born (not so long ago, I know), stamps were 20 cents, now they're over twice as much at 41 cents each (though according to a Wikipedia chart, the rate has consistently stayed the same when inflation is considered). While a 41 cent stamp really isn't at all costly, they add up quickly - a booklet of 20 is $8.20. How can we save stamps to in turn save money? Frugality should cause us to look for ways to save stamps. While one way to save stamps would be through utilizing e-mail as much as possible, I encourage you to consider a way to frugally cut your stamp usage and take advantage of a beneficial tool in today's world.

Pay as many bills as possible electronically. If you are looking at this blog, you have at least limited access to the internet. Thus, this is a tool available to you. Each month, I pay as many bills as possible electronically. I login each month to pay my DirecTV bill, a student loan bill, my Cingular cell phone bill, and my Credit Card bill. Additionally, each month another student loan payment, the XM Radio payment, 2 life insurance payments, the car insurance payment, and the phone bill are automatically debited from my credit card or bank account. Making electronic payments is frugal in several ways:
  • I save stamps! 10 bills are payed electronically each month, saving $4.10 per month, or $49.20 per year! That's not huge, but remember frugality is all about saving in little ways which adds up huge over time. Each bill you begin paying online will save you $4.92 per year!
  • It is more difficult to steal financial information shared over a secure encrypted internet connection than out of an unsecured and unencrypted mail box in front of an empty home.
  • If you keep enough funds in your account to set up the payments to go through automatically (and hopefully you do!), you will save by not having to pay late fees because you forgot to send in a bill. I have paid late fees on water, gas, or electric probably 5 times in 2 years, simply because I forgot to mail off the payment in time. That wouldn't happen if those bills were paid electronically automatically.
A final word of advice, don't pay to pay electronically. I could pay my gas or electric bills electronically, but it costs $2.95 each, each time! That definitely isn't a way to save money.

Tuesday, July 3, 2007

The Total Money Makeover (Chapter 4)

Continuing the "myth versus truth" theme from chapter 3, Dave Ramsey spends more time in this chapter dealing with ideas people have about riches, retirement and bankruptcy, among other things. This chapter is called Money Myths: The (Non)Secrets of the Rich. Ramsey uses the phrase "(non)secrets" because, if you really stop and think about some of the "myths" in this chapter, they simply don't add up to real wealth.

Here are the myths, and truths, in chapter 4:

  1. Myth: "Everything will be fine with I retire. I know I'm not saving yet, but it will be okay." Truth: "Ed McMahon isn't coming." (Love it!!)

  2. Myth: "Gold is a good investment and will cover me if the economy collapses." Truth: "Gold has a poor track record and isn't used when an economy collapses." In fact, gold is one of the last things "used." In a true collapse, services and bartering become the norm.

  3. Myth: "I can get rich quickly and easily if I join these groups, buy this tape set, and work three hours a week." Truth: "No one develops and makes a six-figure income on three hours a week." Sadly, I fallen for this one before. Not again! Oh, yeah, and this section also briefly describes the "real estate at no money down" commercials.

  4. Myth: "Cash value life insurance, like Whole Life, will help me retire wealthy." Truth: "Cash Value life insurance is one of the worst financial products available." If you listen to Dave's radio show, he talks about this nearly every day. He is so right about this, too.

  5. Myth: "Playing the Lotto and other forms of gambling will make you rich." Truth: "Lotto and Power Ball are a tax on the poor and people who can't do math." Not to mention, they are immoral!!!

  6. Myth: "Mobile homes, or trailers, will allow me to own something instead of renting, and that will help me become wealthy." Truth: "Trailers go down in value rapidly, making your chances for wealth building less than if you had rented." This short section (just three paragraphs) is worth the price of the book if this thought has ever crossed your mind.

  7. Myth: "Prepaying my funeral or my kids' college expenses is a good way to invest and protect myself against inflation." Truth: "Plans for prepaid funerals and college expenses give low rates of return and put money in the other guy's pocket." To be honest, this is one area where I disagree with Ramsey. I know the math, but there is also something to be said for peace of mind.

  8. One of my favorites in the entire book--Myth: "I don't have time to work on a budget, retirement plan, or estate plan." Truth: "You don't have time not to." Well said!

  9. Myth: "The debt-management companies on TV, like AmeriDebt, will save me." Truth: "You may get out of debt, but only with your credit trashed." If you are deeply in debt and have ever considered using one of these companies, buy this book and read (and re-read) this section.

  10. I'm skipping a few myths in this chapter, and will only mention a couple more. Myth: "I'll just file bankruptcy and start over; it seems so easy." Truth: "Bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage."

  11. Myth: "I can't afford insurance." Truth: "Some insurance you can't afford to be without." Shameless plug for other articles on this blog: make sure you scroll through the archives and read James's articles on insurance. They are well-done and thorough in looking at different types of insurance.

  12. Finally, myth: "If I do a will, I might die." Okay, men, how many of us have thought that? (My hand is in the air.) Here's the truth: "You are going to die--so do it with a will."

This chapter may be the most practical in the "attitudes" section of the book, and it is worth reading several times. Again, in this first section, Ramsey is trying to get you to see money in a different way. If you've ever thought any of these myths, you need to read Ramsey's ideas.

Monday, July 2, 2007

The Total Money Makover (Chapter 3)

Debt Myths: Debt Is (Not) a Tool

We are often told that OPM (other people's money) is the way to wealth. While there may be some truth to that statement, most of us do not understand how to use OPM. In this chapter of The Total Money Makeover, Dave begins to list some very common myths about money and then give his answer to them.

Here are a couple of my favorite "myths vs. truths":

  1. Myth: "If I loan money to friends or relatives, I am helping them." Truth: "If I loan money to a friend or relative, the relationship will be strained or destroyed. The only relationship that would be enhanced is the kind resulting from one party's being the master and the other party a servant." I have had this happen. We borrowed some money from relatives. They never held it over our heads in any way, but I knew. I couldn't wait to get it paid off. When we wrote the check it was one of the best feelings!

  2. I like this one just because of the way Dave writes the "truth" part. Myth: "Cash Advance, Payday Loans, Rent-to-Own, Title Pawning, and Tote-the Note Car Lots are needed to help lower-income people get ahead." Truth: "These rip-off examples of predatory lending are designed to take advantage of lower-income people and benefit only the owners of the companies making the loans." How do you really feel, Dave? Seriously, if you ever get a chance to see how much the annual percentage of the interest is at Payday loan stores, you would be shocked. Some are as high as 900%!

  3. Myth: "'Ninety days same as cash' equals using other people's money for free." Truth: "Ninety days is not the same as cash." When we agree to pay for something in this way, we add a great amount of risk. Also, if we don't pay off the item in those 90 days (or one year, or whatever), the interest is staggering (usually around 30%), and is added to the original price of the item, even if you've paid off almost all the price! Finally, if you walk in with cash, you might be able to get that same item cheaper anyway.

  4. Myth: "Car payments are a way of life; you'll always have one." Okay, how many of you think this way? Most of us. But notice the Truth part: "Staying away from car payments by driving reliable used cars is what the average millionaire does; that is how he or she became a millionaire." To be perfectly honest, this one section is worth the price of the book if it will change your mind about car payments. I know I have one right now, but my goal is to make this my last one!

Most of the remaining part of the chapter deals with credit cards. We will have a ton to say on this site about those, so I won't list anymore "myths." This chapter continues to deal with our attitudes about money and debt, and it really gets the reader to think. When we are honest, most of us have said similar things to some of the myths listed in this chapter. When we face the truth, though, we see money working in a different way.