What I'm Thinking

As I continue to think about the car situation (scroll down to the last article if you don't know what's going on), I keep thinking about the decision my wife and I made quite a while ago.

We are paying for a car right now, and we really don't ever want to do that again. We know that there is a chance we might have to, but we really hate doing it.

I'm a guy. I get car fever every so often. Yeah, I'm one of those who likes to go to the lots after they close and look around; you know, when the sales persons aren't flocking to you like sharks to blood. I know I've bought my last new car (the car we are paying on is used, in fact), but I still enjoy looking.

So, what are we going to do about our car situation? We're still deciding, but I found a short presentation that makes it harder to even consider a payment. Here it is. Enjoy.

Let's see...live with one car for a while and have over a million dollars, or go more deeply into debt...

We may decide to buy a car, but we are doing our best to avoid a payment.

Just as an update, my wife and I--yes, together--sat down last night with our budget, our bills, etc., and talked about this situation. We feel like Step One is complete: just getting "the numbers" in front of us will help us decide.

Is It an Emergency?

Part of having an emergency fund is knowing what is, and what is not, an emergency. For those who are following Dave Ramsey's "Baby Steps," you know that step #1 is to put $1000 (or $500 if you are single and living alone) in the bank as a "beginner emergency fund."

After you are debt free, the third step is to "finish" the emergency fund; fully funding it to have 3- to 6-months worth of household expenses.

The reason a solid financial plan includes an emergency fund is because there are rainy days. While we don't like to think about it, we will have an emergency at some point. Having the money available is such a help.

I am now faced with the family dilemma of whether we are really in an "emergency" or not. We have our $1000 fund (it's actually nearly $1100), and we are now working the debt snowball. While we have quite a way to go (almost $20000), we are really making good progress.

And then...

The engine blows on our second car.

Here is what makes this a dilemma: we already have one car, and it is really good. While we think we need two vehicles, we might be able to make it on one for awhile. And, we really don't want to go deeper into debt just to have a second car! Add to that the fact that $1000 would not buy much of a car, and we don't want to completely deplete our emergency fund for this purpose.

Such are the times that make our heads spin!

What would you suggest?

Ramsey's First Show a Success

I love DVR! Our young people were involved in our Area-Wide Bible Bowl last night, so I was going to miss Dave Ramsey's first show on the new Fox Business Network. However, due to DVR, I was able to record the show and watch it later with my wife.

The first show, which Ramsey admitted was a little different from the way the format will regularly be, featured more of Dave giving his usual opening speech (middle-class roots, quickly became a millionaire, lost it all, learned more about how money really works, etc.). He also took one entire segment to outline the 7 Baby Steps that serve as the basis of his advice.

There were several phone calls and emails throughout the show, and these will form the major portion of the show on most nights. The only drawback, in my mind, is that the show is only one hour in length. The reason that is a drawback is because Ramsey seemed to hurry through the phone calls to cover more ground. Maybe that will change when the show is almost entirely phone calls and emails.

Overall, I enjoyed the show. If you like Ramsey's radio show, you will like the TV show. The graphics are well-done and easy to read, and the premise is simple: Dave behind a desk answering questions.

Catch the show each weekday at 8 Eastern/7 Central on Fox Business. If you are on DirecTV, the channel is 359.

5 Days Until Dave on TV

Dave Ramsey, whose "Baby Steps" have helped thousands get out of debt (and are helping many more--me included!)--will soon be on television.

For a long time, a local Nashville station has aired some of the Dave Ramsey radio show on its local market, but that failed to reach many people. So, in just five days, Dave will be on a new network, Fox Business Network, in a primetime slot.

It is worth checking with your local cable network to see if the network will be on in you area. GREAT NEWS: If you have DirecTV, you will be getting the network (channel 359). I enjoy hearing Ramsey's radio program, but don't get to hear it much (since I'm usually at work when he is on). A prime-time TV slot would let me see him (or record via DVR) the program and get a little "help" each day.

Click here for the link from Dave's website, which also features a short video about the move.

Here is the new network's website.

Need Some Motivation?

Recently, we completed a book review of Dave Ramsey's The Total Money Makeover. Ramsey's principles have helped thousands upon thousands reach financial freedom.

Often, when reading books, it is easy to forget that real people have become debt free. Leah and I are working hard toward that end, and getting closer every day. I truly believe that we will be debt free by the end of 2008, and hopefully sooner than that.

Sometimes it can be easy to lose motivation, though. This is a long process, and there are defeats. So how do you stay motivated? You realize that others have done it!

If you need a little motivation, watch (or listen to) the following video. I hope it helps you get going...or get going again!

"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:

An Overview

Chapters on "Attitude"

Chapter 1 (The Total Money Makeover Challenge)

Chapter 2 (Denial: I'm Not That Out of Shape)

Chapter 3 (Debt Myths: Debt is [Not] a Tool)

Chapter 4 (Money Myths: The [Non]Secrets of the Rich)

Chapter 5 (Two More Hurdles: Ignorance and Keeping Up with the Joneses)

Chapters on "Action" (the Baby Steps)

Chapter 6 (Save $1,000 Fast: Walk Before You Run)

Chapter 7 (The Debt Snowball: Lose Weight Fast, Really)

Chapter 8 (Finish the Emergency Fund: Kick Murphy Out)

Chapter 9 (Maximize Retirement Investing: Be Financially Healthy for Life)

Chapter 10 (College Funding: Make Sure the Kids are Fit Too)

Chapter 11 (Pay Off the Home Mortgage: Be Ultrafit)

Chapter 12 (Build Wealth Like Crazy: Arnold Schwarzedollar, Mr. Universe of Money)

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.

"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.

"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???

ABSOLUTELY NO MORE PAYMENTS!!!

"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.

"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)

"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!

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!

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.

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."

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.

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.

"The Total Money Makeover" (Chapter 2)

Continuing the theme of attitudes, Dave Ramsey's 2nd chapter is entitled, "Denial: I'm Not That out of Shape."

For many, this is the major attitude that must be overcome. I know it was for me, before Leah and I got serious about money.

People with this attitude can look at someone in their family or neighborhood who is worse off than they are and say, "See, we've got more stuff than they do." To ask a simple question: why are you worried about stuff???

Many people are leveraged to the hilt! They are paying on a mortgage, 2 cars, 5 or 6 credit cards, student loans and 2 or 3 personal loans. They are, literally, one bad day away from total financial disaster. We need to stop using thoughts like, "I only have $5000 in credit card debt," or "It's student loan debt, so it's not that bad."

We need to learn to see debt as a problem, but a problem that can be overcome. Overcoming debt takes change, though, and change is hard for many people. Quoting page 15 of the book:

Change is painful. Few people have the courage to seek out change. Most people won't change until the pain of where they are exceeds the pain of change.

It is when we look at the person in the mirror and are able to say, "I have a money problem," that we are able to begin attacking that problem.

Look in the mirror...then continue with the book!

The Total Money Makeover: An Overview

For those trying to get out of debt, books by Dave Rasmey are often recommended. I listen to his radio show about once a month (we can't get it where I live, so I have to listen via internet), and I have seen him at a live event in Birmingham.

He is probably best known, though, for his books. The Total Money Makeover simply walks readers through two major sections.

• The first part of the book (chapters 1-5) deals with how to view money. Myths about money are discussed as are attitudes.


• The second part (chapters 6-13) deals with Ramsey's "baby steps" to wealth.

In these reviews, I will simply give my impression of each chapter of the book. I own the book and have read it cover-to-cover three times. While I don't follow everything in it, I see the wisdom behind the book.

Overall, the book is helpful, and I hope you will see the value of picking it up as we discuss each chapter, starting tomorrow.

If you wish to order the book, you may click on the ad below.

The Envelope System: A Brief Introduction

Tomorrow I plan on posting our family's list of items we pay for out of our envelope system. I would ask that you please be ready to comment on that article with additions or subtractions from your family.

Some of you, however, may not be familiar with this system. It is very basic and the name basically implies exactly what it is. However, if you are not familiar with this system, please take a moment and read this link from Dave Ramsey's website.

When done properly, this system really works. It may not be a perfect solution, but, if you budget well, it is a great addition to your financial lifestyle.

Every Paycheck Counts for Something

I hate to budget, but I know it is necessary to keep me on track. My wife could, most likely, stay on course without a written budget, but I could not.

We are trying a system this month for the first time, and it is working beautifully. We have our budget, but we have added another side to the plan that my wife especially loves.

Each paycheck serves a specific purpose. While we already know we are going to have to tweak the system a little, here is what we have each check earmarked for:

• Week 1: Giving to the Lord, saving for estimated taxes, envelope money for the entire month, our loan at the bank for our adoption (has to be paid by the 10th of each month)


• Week 2: Giving to the Lord, saving for estimated taxes, car payment (due by the 16th), electric bill, water bill, pest control bill, DirecTV bill


• Week 3: Giving to the Lord, saving for estimated taxes, debt reduction


• Week 4: Giving to the Lord, saving for estimated taxes, house payment for the next month (due on the 1st)

Notice a couple of things.

First, notice that "giving" is the first thing from each paycheck. Wes is writing articles with that theme on this blog and will have more in the future, but we, as Christians, understand that God and His work come first!

Next, notice that our envelope money all comes out at the very beginning. I am planning on writing another article specifying what we use our envelopes for by the end of the week. But, just here, notice that we have all our money for the month right from the start.

Finally, notice that nearly an entire paycheck is spent to get out of debt. Instead of paying what's left over at the end of each week, we have a huge amount earmarked for that purpose.

Now, a couple of points as we close:

• What if I don't get paid weekly? To be honest, that is an advantage with this system. However, many get paid every other week, or can choose to do so. If you do, you can still follow this system, you will just have to be a little more disciplined and make each check do more.


• What about savings for things other than taxes? We are still reducing debt. We have some savings for emergencies, but we are not worried about building up a huge retirement account yet. You'll learn more about the reasons why when I begin to review Dave Ramsey's The Total Money Makeover in the next couple of days.


• What if there is another paycheck? I get paid every Wednesday (making today "payday," yeah!!!), and some months have 5 Wednesdays (August will be the next month where this happens). In those months, weeks 3 AND 4 are both used for giving, saving and debt reduction, and week 5 becomes our house payment for the following month.

As I mentioned, the plan still needs some tweaking, and our "order" would not work for everyone, but we both love this plan and it makes budgeting much easier.