Debt on Hold? Is that Possible?

Yes, it is.

We are still paying on our debt (of course), but we are not paying extra right now.

As you may or may not know, my family and I have accepted a job in Nashville, Tennessee, and will be moving at the end of March. We have all-but sold our house (it still has be be inspected, but we haven't had any large cracks in the walls or large mice crawling around), and have had an offer accepted on a house near Nashville (Hermitage, Tennessee, if you are keeping score at home).

With all the extras that come up in moving, we have decided to put away money for the move--just to be on the safe side. We have really been blessed in that we will have zero closing costs on either end of the house selling, and the congregation where we are moving is paying for our move (unless we can't get a decent estimate). So we should not have any major costs.

However, there are always little things that pop up in a move, and we know that. So, for the time being, we are saving up cash for "moving costs." We won't spend the money unless we absolutely have to, but we want to have it ready in case it is needed. It is serving almost like a "moving emergency fund."

But then...

whatever we don't spend?

Straight to debt!

2008: The Year That...

When Leah and I got really serious about getting out of debt, we looked at "the numbers" very closely. We added up our debts from Turner's birth and the debts we already had, and looked at our income and any other variables we could think of.

While things change and some numbers change, we are still focused on getting out of debt on our target date. That date?

December 31, 2008.

We are happy to say that, since April of this year, our debts have continued to go down. We have not added a penny to them. While we do not know if we will "hit" that target date, we are going to do our very best.

Hopefully we can keep you up-to-date on this blog as to how we are doing.

In other news...

Where Your Treasure Is has been added to pfblogs.org. This site is a reader--much like an RSS feed--of scores of personal finance blogs. However, to be added, a site has to be reviewed and approved. I am proud to announce that we were approved yesterday and added late yesterday. Check out the site for literally hundreds of great articles from dozens of blogs and watch for articles from Where Your Treasure Is!

A GREAT Month!

Usually, December is a hard month in which to really "pay down" debt. With Christmas shopping (which, for us, includes driving = $ for gas) and the electric bill starting to rise, this just usually isn't a very fun month.

But December 2007 will go down as a great one in the Faughn house!

We budgeted for Christmas throughout the year and are going to be right at the budget. We still have a couple more gifts to purchase, but we still have money left, too. So that came in right on schedule. Our family helped very much. We all set a limit (that was equal for everyone) on what we would spend on Christmas presents. We set a limit where we could get each person something he/she wanted, without feeling the pressure to buy anything huge. It took some savvy shopping, and some online work, but we met that goal.

Also, our electric bill (for November; paid in early December) was low for this time of year. We have been staying around 50 degrees and have actually been up in the 70s for a few days in late November, so our heater didn't have to run all that much. Also, when we went out of town for Thanksgiving, we turned the unit way down, so it would hardly run. While our water bill was a bit high, it was more than covered by the lower electric bill.

We have had two negatives this month, though. First, we have had to travel a bit more than expected, so we are going to barely make our gasoline budget (if we make it). Gas prices have come down just a bit, which is helping, but we are still paying quite a bit (about $2.85 on average). Also, our DirecTV bill had a mistake on it and the mistake was ours. We had been paying it, but we had been unintentionally late a couple of times. We just did not realize that our payment was due on the 1st of the month, and we had been waiting until the 2nd week of the month, because we pay all our bills out of that one paycheck. We had to pay the extra money, but we also had DirecTV move our "due" date back so we can continue paying without the late charge. We also went ahead and paid January's bill early.

Now, for the big "upside" factor. For the past 3 months, I have been teaching a class for Faulkner University, one night each week, on the Book of Acts. I finished last week and quickly graded all papers and sent in the necessary paperwork on the night of the final. I was hoping to get my paycheck before Christmas (kind of a "special" holiday treat). They were good to me, and we got the paycheck yesterday.

Add all these up, and December became a banner month for us:

1. First, we got cash to pay for our entire trip to the Freed-Hardeman University lectures in February. The trip is already taken care of, which will be a big help in January's budget.

2. Second, we are up to date on all bills (since we got our mistake taken care of with DirecTV). We have never been behind before--and still haven't intentionally--so this is a great relief.

3. Finally, and most exciting for us, is the fact that we paid off...are you ready for this?...over $1100 in debt this month! We did that while going Christmas shopping and taking another 2 trips out of town! By sticking to out budget and using the extra money from my class, we were able to attack our debt.

When you have good news, you just have to share it. And this was great news to us. We're not debt free, yet. But we are working on it, and this month really pumped us up to work even harder in 2008 to finish our journey out of debt!

"The Automatic Millionaire" (Chapter Seven)

In this, the shortest "action" chapter of David Bach's book, the author simply gives some tips on how to use your new automatic system to get out of debt and then stay that way. Getting and/or staying out of debt is a major step in becoming a millionaire. As you know, if you don't have to pay Mastercard, Visa, and other cards, you have freed up money each month, and you are not paying interest.

How do I get out of debt? Bach offers five steps, but, before doing that, he reminds us all of how bad credit card debt really is. If you are like the typical American family, you have $8,400 in credit card debt (and only credit card debt!). If you pay just the minimum and never charge another thing, you will pay over $20,000, and you will be paying it off for over 30 years! (pages 195-196)

With those things, in mind, how do I pay off those cards quickly? Here are Bach's five steps:

1. Stop Digging. It's pretty simple when you think about it. If you don't have credit cards, you won't build up debt on them! Dave Ramsey recommends cutting up your cards (which I did a long time ago). Bach never makes a statement quite that bold, but he does recommend that you never go shopping with a credit card in your pocket.

2. Renegotiate the Interest on Your Debt. A lot of people don't even realize you can do this. Check the fine print to find out how much interest you are really paying, then simply call the company and ask for a lower rate. If they act like they won't do it, tell them you will be closing the account and moving (transferring) the money elsewhere. If they won't go lower, ask to speak to a supervisor. If that person won't go lower, transfer the money. Another way to accomplish this, is to move all your debt to one card (or account, since, hopefully you'll get rid of the actual card). Many companies will take a higher amount and give you a lower rate.

3. Pay for the Past; Pay for the Future. Here is where I disagree with Bach. He says that you should continue to put money into retirement and pay off the debt. He says that you will see progress in both areas and that will be a great motivating factor. I disagree. I would rather get rid of the debt as quickly as I possibly can. Either way works, as long as you stay focused.

4. DOLP Your Debt Our of Existence. "DOLP" stands for "Dead on Last Payment." This is basically the same idea as Ramsey's Debt Snowball, but is a much more math-intensive way of doing it. Here are the steps (quoted from page 206):

• Make a list of the current outstanding balances on each of your credit card accounts.


• Divide each balance by the minimum payments that particular card company wants from you. The result is that account's DOLP number. For example, say your outstanding Visa balance is $500 and the minimum payment is $50. Dividing the total debt ($500) by the minimum payment ($50) gives you a DOLP number of 10.


• Once you've figured out the DOLP number for each account, rank them in reverse order, putting the account with the lowest DOLP number first, the one with the second lowest number second, and so on. [Page 206 has a table that shows you small example; using three credit/charge cards.]

5. Now Make It Automatic! You knew this was coming, didn't you? Automatically pay your debts from your paycheck (or checking account) until the debt is gone. When it is gone, call that company and close the account completely, then automatically pay off the next debt, paying all you can each month to get it gone (including the money you were sending into the first debt).

Now, you are debt free, your house is being paid off quickly and you have money going into retirement. There is still one more step, though.

"The Automatic Millionaire" (Chapter 5)

NOTE: I'm sorry it's been so long since our last update in this series. I really don't have any excuse for the delay, and I apologize.

Chapter five of David Bach's book is entitled "Automate for a Rainy Day." As you might expect, this chapter deals with building an emergency--or "rainy day"--fund. The chapter even contains a purpose statement: "This chapter answers two basic questions: How much money should you put aside in order to protect yourself from the proverbial 'rainy day,' and where should you put it?" (pages 135-136).

Nearly every financial planning book contains this step, because, no matter how much planning we do, things go wrong. There are emergencies. Sadly, these emergencies often sidetrack people's financial goals and lead them back into, or further into, debt. If we have a plan, though, we can avoid such a serious setback.

Bach, as Dave Ramsey does, uses "months" instead of "dollars" to figure out a rainy day fund. On page 136, he writes a short "sleep well at night" test. Here it is:

My monthly expenses currently total $_________.
I currently have $___________ saved in a money market or checking account.
This equals _______ [insert number] months' worth of expenses.

The numbers can be estimated, because most of us have a pretty good idea how much those are. Tragically, for many of us, the second number is $0!!!

The next step, after realizing that you need money to handle emergencies is to follow Bach's "Three Rules of Emergency Money."

1. Decide how big a cushion you need. Bach sets the minimum bar at 3 months' worth of expenses. He goes beyond Dave Ramsey by suggesting that some people may even need as much as two years' worth! The main thing is that it is enough (1) to cover a certain number of months, and (2) to help you sleep at night.

2. Don't touch it. Bach mentions that many people start saving their fund, only to have an "emergency" all the time! Notice what Bach says, which is worthy of reading and remembering:

What's a real emergency? Be honest with yourself. You know what a real emergency is. A real emergency is something that threatens your survival, not just your desire to be comfortable. (140)

3. Put it in the right place. While Bach doesn't think we should put the money in something like stocks or bonds (because it has to be liquid), he also points out (with a GREAT story, I might add) that we don't need to bury it in our backyard or stuff it under our mattress. You should earn at least some interest on this fund, because you need at least a small hedge against inflation.

Bach's suggestion is to "shop for a rate like you'd shop for a car" (143). His primary location for a rainy day fund is in a money market account, but some pay terrible interest and others have a lot of fees. If you are frugal, you will shop for a car very carefully, trying to get the best deal. The same should be true of a money market fund. Just a small percentage difference, over time, can pay off in a large way.

Over the next several pages, Bach walks the reader through the process of setting up an account and answers several important questions which are worthy of your reading. He even lists several places that have money market accounts that are fairly easy to use.

He then mentions using US Savings Bonds as a possibility. I disagree with him here. While buying bonds has become easier (you can do it online), they have a terrible rate of return and, in my mind, you are helping the government use debt!

Finally, Bach mentions the question, "What if I'm in debt?" In other words, if you aren't debt free, do you need to build up an emergency fund. Bach differs from Dave Ramsey here slightly, bu the principle is the same. Whereas Ramsey says you should start off with $1000 in your emergency fund, Bach says you should work toward building up one months' worth of expenses, then go back to paying off debt aggressively. To me, either is acceptable and both are reasonable.

Of course, Bach says over and over that you should automate the savings into this account. In other words, when you set up your rainy day account, make sure you set it up to automatically come out of your paycheck (or your checking account) at a specific time each month.

With these steps out of the way, Bach has you paying off your debt and building up your emergency fund at the same time. While that's not my favorite way of doing it, the benefits are there, if you can stick with the program.

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?

Debt: Sacrificially Speaking...

It is a simple fact that every single person (or family) lives off of a specific percentage of his or her (or their) total income. Some are able to live comfortably off 60-80% of their income, while many spend every dime--100%--just in time to get their next paycheck. Unfortunately, many Americans have begun living off more than 100% of their income. The ease of obtaining credit and the pressure to "have it now" have suckered us into buying what we want, even if we can't afford it...we can just swipe it and pay for it later (and for even more money because of outrageous interest).

Debt should be on the mind of Christians for many reasons. Notice just one as we think about living off of a certain percentage:

As Christians, we are expected to give regularly (1 Cor. 16:2) and proportionally (2 Cor. 8:3). Additionally, we should be willing to serve the Lord with our financial blessings (e.g., helping the needy, giving to reputable charities, etc.) (Mt. 25:31-46).

We must ask ourselves a tough question when we consider these financial responsibilities in light of debt (especially irresponsible debt like unpaid-off credit cards, payday loans, etc.): "Am I able to give sacrificially to the Lord if I'm living off more than 100% of my income?"

I don't think it's possible. Notice a little hypothetical math: If I make 10,000 dollars annually, and give $1,000 of it to the church (roughly $20 weekly), I technically give 10% of my income. If, over the course of the year, I put $1,000 on a high-interest credit card without paying it all off, I've just raised the ceiling of my living expenses without raising the level of income. Therefore, I've not really made any sacrifices in order to give that $20 a week to the local church. Theoretically, I could give $5,000 a year--and it would seem as though I was giving an amazing 50%--and turn to a credit card instead of adjusting my spending habits. I get almost anything I want and still give to the church. But that's not the point.

God knows we could use the percentage we give for additional things at our disposal, yet he wants us to trust him (and our elders) to use it in much better ways than we would personally. What if we read that the widow gave all she had--those two mites--but then went and borrowed two more from a Pharisee so that she could buy some more clothes or living amenities? It wouldn't be giving all she had if she kept going back for more beyond her affluence.

May we always consider our financial decisions in light of our relationship to the Lord.

"Be not one of those who give pledges, who put up security for debts." Proverbs 22:26

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!

WYTI Links: 08.30.2007 (PtP Edition)

I've been at the BJCC in Birmingham all week for Polishing the Pulpit. If you've never attended, you need to seriously look into it for 2008. It should be the last week of August, and they are thinking it will likely be in Sevierville, TN. If you are able to get away for a week or two devoted to a lectureship of some sort, this should be toward the top of your list.

Here are some links to suffice for the week...consider it an "emotional" edition:

• The Emotional Impact of Debt (via One Million and Beyond)

• Personal Finance Isn't Rocket Science, It's Personal Motivation (via SavingAdvice.com)

• Money Mistakes to Avoid: Procrastination (via Money $mart Life) This is huge for me...I'm a big procastina

• It's Okay to Spend Money (via Five Cent Nickel)

• The Weight of Stolen Money (via Money, Matter, and More Musings)

• Considering the Cost of Things I Took For Granted (via I've Paid For This Twice Already...)

• Getting Over the "Taboo" of Generics and Store Brand Names (via The Simple Dollar)
  

WYTI Links: 08.21.2007

• Top 10 Wealth Building Ways of Ordinary People (via The Digerati Life) I like how the list separated the types by "main assets." It's important to know our inner strengths that will help us make strides toward our goals...
  

• 5 Key Strategies for Getting Out of Debt (via The Happy Rock) These basics are not new to anyone who has read much about personal finance...yet our nation still abounds in debt...

• 7 Costly Retirement Savings Mistakes to Avoid (via Moolanomy)
  

• Envelope System Video Tutorial (via No Credit Needed) Adam has mentioned the importance of the envelope system in their lives...here is a video tutorial about it...
  

WYTI Article Featured

This is a week old now, but James' article about Credit Card Protector Plans was featured in last week's 100th Edition of the Carnival of Debt Reduction (hosted last week at No Credit Needed).

The article even produced a playful comment from NCN...

WYTI Links: 08.20.2007

• The Double Tithe (via Ancient Words [Jeremiah Tatum]) Very interesting comparison...need to check our consistency when the plate comes around...
  

• Ridiculous Money Saving Ideas (via Blueprint for Financial Prosperity) Don't miss the sarcasm ;)
  

• Sammy the Rabbit Teaches Kids to Save (via Get Rich Slowly) From what I've seen about this, it sounds cool...and I don't have kids.
  

• Want What You Have, Not What They Have (via My Two Dollars)

• Classifying Your Debt: the Good, the Bad, and the Ugly (via Clever Dude)
  

WYTI Links: 08.16.07

• The Frugality Cheat Sheet: 147 Tiny Tips to Live Healthier, Happier, Greener, and Better (via Frugalist)

• Building a Personal Finance Library: 25 of the Best Books About Money (via Get Rich Slowly)

• Like Those 100 Calorie Packs? You're Paying Twice As Much (via Consumerist)

• Why I Keep My Emergency Fund at the Low Interest Bank (via Chief Family Officer)

• Look at Debt in the Context of Your Life, Not Everyone Else's (via Mighty Bargain Hunter)

• Starbucks @ Target: Buy 1 Get 1 Free (via Money, Matter, and More Musings)
  

WYTI Links: 08.15.07

I'm feeling very "foundational" this week for some reason...so here are some current links that reinforce sound--and basic--financial principles:

• The 11 Principles (via Money Crashers) One sentence summaries of MC's basics.
  

• 24 Signs That You Could Be in Financial Trouble (via Generation X Finance) Foundational Principle: You have to honestly evaluate yourself and your financial standing.

• A Maxed Out Roth IRA = $11 A Day (via My Money Blog) Foundational Principle: A little done a lot is more than a lot done a little.

• The Top 3 Mental Blocks to Personal Finance [And How to Get Past Them] (via Get Rich Slowly) Foundational Principle: There is an emotional aspect to finances that must be addressed.
  

• Getting Rid of Debt Without Worrying About the Latte Factor (via Money, Matter, and More Musings) Foundational Principle: There is more than one way to do things and still be financially healthy.
  

• How to Balance Your Checkbook in the Era of the Debit Card (via The Simple Dollar) Foundational Principle: You have to know what's coming in and what's going out.
  

"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 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)

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.

"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!

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!)