This class seems to be fairly widely known among Christians in the south (Ramsey has a radio show and his class is often offered through churches.) I know it has generated a lot of discussion locally. Those of us in the class this time around (it will be offered again) are really excited with how much we learned and what we accomplished in just a short time. The class is very empowering, and it has measurable results in a fairly short amount of time.
In this post, I will briefly present some major points from the class. In a following post, I will add some additional comments.
Ramsey has created a step-by-step method for achieving financial peace. These "baby steps to financial peace" are listed below. Without the class or the material, they won't be fully explained, but I think they have value and are worth presenting.
The numbered list (in bold) is verbatim from Ramsey's website. The text following the hyphens are my interpretations based on what was presented in class.
1. $1,000 to start an Emergency Fund--this should only be touched for necessities that come up unexpectedly--car trouble, medical issues, etc.
2. Pay off all debt using the Debt Snowball--The Dave Ramsey method for this is to list all your debts in order with the smallest balance first. Pay the minimum on all balances except the first one on your list. All extra money goes to this balance. When it is paid off, move to the next balance and do the same thing. The "snowball" effect comes in here because since you no longer have a payment due for the first balance that you paid off, you now have more money going to the next balance. Things move more quickly as you get closer to paying off all open balances.
3. 3 to 6 months of expenses in savings--this protects against things that threaten to undo all the work you did in step 2.
4. Invest 15% of household income into Roth IRAs and pre-tax retirement--If your company has any type of match, invest the % of your income that they will match into your 401k--free money is a great return on your investment! After that, invest in Roth IRAs. Roth IRA contributions are made with money that you have already paid the tax on--you don't deduct these contributions on your tax returns. When you withdraw the money at retirement, you don't pay any tax on it--your initial contributions nor the growth.
5. College funding for children--Ramsey purposefully puts this one after your own retirement planning. Loans, scholarships, and sometimes grants are available for students to get through school. Those are not available to a retiree needing money to live on.
6. Pay off home early--The earlier in your loan that you make extra payments, the bigger impact it has because the interest is calculated on the balance of your loan, usually each month. If you make an extra payment now, next month your calculated interest is lower, resulting in a greater portion of your payment going to principal. This compounds over the life of the loan.
7. Build wealth and give! Invest in mutual funds and real estate--Building wealth is somewhat self-explanatory. I think the giving should be greatly emphasized. Ramsey talks earlier in his program how giving should come off the top of your budget--before you allocate anything else. Otherwise, it is too easily pushed off the bottom or reduced as you try to balance your budget. The giving in this step is more than the giving that you budget each month. As you build wealth, it becomes increasingly important to remember that what we have on this earth belongs to God. Giving unselfishly allows us to become more like Jesus. If you have reached this step, you have no house payment or debt payments. For most people, that means having a lot of disposable income. Think of the good you could do if you purposefully decide not to consume all of the extra income you have been blessed with!
I've got other ideas I plan to write about in a following post. For now, though, here are the most important things I took from the class:
1. Tell your money what to do--don't just let things happen. You must be deliberate.
2. Don't sign up for anything or invest in anything you don't understand fully.
3. It's all God's money.
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