Money and Wealth (Part 33) - Pastor Wagner’s Practical Tips on Money Management (Part C); Dave Ramsey's 7 Baby Steps (Part A)

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Money and Wealth (Part 33) - Pastor Wagner’s Practical Tips on Money Management (Part B); Dave Ramsey's 7 Baby Steps (Part A) 6. Rule #6: When you get a raise or your income increases, spend the same and save more. A. When you get a raise, don't change your spending habits, but rather save that extra money proportionally in your different accounts. i. Start this as soon as you get your first job and you will not be a lifelong debt-slave like the rest of the serfs in our society. ii. After you have paid off all your debt, have a fully-funded 3-6 month emergency fund, are giving generously, and are investing 15% of your gross income into retirement accounts, then you can move from being intense to intentional and start to enjoy some of your money. iii. After your house is paid off and you are doing the above-mentioned things, you can enjoy even more of your money. iv. Live like no one else, so that later you can live and give like no one else. B. When fools get a raise, they immediately spend the extra money they have each month.  i. They increase their standard of living, and they save no more than they did previously. ii. They therefore never build wealth and will be broke debt-slaves their entire lives. iii. This the broke-man mindset. C. When wise men get a raise or increase their income, they save the extra money and spend the same amount as before. i. Their standard of living doesn’t change at all (or very little) as they make more money. ii. They therefore build wealth. iii. If their income goes down for some reason, it’s no big deal to them because they have already been living well below their means. iv. This is the millionaire-mindset. 7. Rule #7: Get on the same page with your spouse and manage money together. A. It’s very important for spouses to be on the same page about money. i. If you are not, it will be very difficult or impossible to build wealth. ii. “Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth if one of its members is a hyperconsumer. This is especially true when one or both are trying to build a successful business. Few people can sustain profligate spending habits and simultaneously build wealth.” (Thomas J. Stanley, The Millionaire Next Door, p. 37) iii. “…it is very difficult for a married couple to accumulate wealth if one is a spendthrift. A household divided in its financial orientation is unlikely to accumulate significant wealth.” (Thomas J. Stanley, The Millionaire Next Door, p. 80) B. When looking for a spouse, this should be one of your highest priorities because it is the thing that causes more marital trouble than anything else. C. If you are not like-minded about money, I recommend having a family meeting about money. i. The marriage partner who is more financially responsible should suggest to the other partner that they put together a budget that they both agree to and then stick to it. ii. If the husband is financially responsible and the wife is an uncontrolled spender and will not change her ways, then it is easier because the husband can just tell his wife that they are going to live by a budget, cut up her credit and debit cards, and give her an allotted amount of cash each month for groceries, household items, clothes, etc. This will limit her profligate spending. iii. If the husband is the irresponsible one, God help you! (i) Try your best to meekly and gently persuade him to make a budget with you and live by it. (ii) If things are really bad, ask him to go to Dave Ramsey’s Financial Peace University with you. (iii)You may also need to go to a marriage counselor.  D. Dave Ramsey’s advice on this. i. “So what are you supposed to do? First and foremost, you simply need to talk to your spouse. You didn't marry a mind reader, so don't expect your mate to immediately be on the same page with you if haven't told him or her what page you're on! If they haven't picked up this book or gone to an FPU class with you yet, just sit them down and explain why you're so excited about what you're learning. Share the dreams and hopes you have for your family's money situation. Sometimes, one spouse's passion and excitement is all it takes to get the other spouse excited too. “If that's not enough to move the conversation forward, you're going to need to try a little harder. Take the time to write out exactly what you're concerned about in your current financial plan and how you believe life could be different for your family if both spouses were engaged in the process. Sometimes, the written word will get a spouse's attention more than a conversation. “You could also try the Valentine's approach: ‘Honey, the most romantic thing you could do for me is to sit down and work on the budget with me. On a scale of one to ten, dinner and a movie is a three, but working together to get out of debt is a nine.’ “Or the security approach: ‘Sweetie, what do you think I’d feel like if we had $10,000 in the bank just for emergencies? Can you even imagine that?’ “Just get creative. Your spouse is your partner for life, so make sure he or she knows how important this is to you and how much you need him or her on board with you.” (Dave Ramsey, Dave Ramsey’s Complete Guide to Money, pp. 33-34) ii. “Couples who actually agree on and live according to a written plan will automatically remove many of the money fights that plague so many marriages. Don't get me wrong, though; working on a budget together can actually cause a lot of marriage fights, so don't forget what we talked about in the last chapter! But long term, if you and your spouse work together on this money stuff, you're doing more than managing your income. You're coming together to agree on your goals, dreams, and priorities. I've heard from couples a million times that actually working on their finances saved their marriages. That's because it's not just about money. This is powerful stuff, and it has the power to create unity in your marriage. Don't miss that incredible opportunity.” (Ibid, pp. 64-65) 8. Taking out a 30-year mortgage so that you can write off the interest on your taxes is stupid. A. Only an idiot would spend a dollar to save 30 cents. B. You don't get back all the interest you paid on your mortgage on your tax refund. C. You simply don't pay income tax on the amount that you paid in interest. D. So, if you paid your banker-master $1,000 in interest, you don't have to pay the government 30% of that $1,000 in income tax. E. So, you paid $1,000 in interest to your banker-master and you saved $300 on your taxes, for a net loss of $700. F. If you would have paid $0 in interest to your banker-master and paid $300 to the government, you would only have a net loss of $300. G. It doesn't make financial sense to spend $1000 to save $300. H. If you don't agree, then give me $1000, and I will give you $300 back. I. I will gladly make you this deal as often as you wish.  I. Dave Ramsey’s 7 Baby Steps to get out of debt and become wealthy 1. “If you will live like no one else, later you can live like no one else.” (Dave Ramsey) 2. Baby Step #1: Save $1,000 Fast A. Save $1,000 for a mini-emergency fund as quickly as possible. B. Create a budget, cut out ALL unnecessary spending, and have a garage sale if necessary and sell things you don’t need. C. Make minimum payments on all debts until you have the $1,000 saved. D. This should not take long. E. Do not touch this money, except in the case of an actual emergency. F. Do not charge another penny of debt to a credit card, ever. 3. Baby Step #2: Start the Debt Snowball A. List your debts smallest to largest. i. “The Debt Snowball method requires you to list all your debts in order of smallest payoff balance to largest. List all your debts except your home; we will get to it in another step. List all of your debts―even loans from Mom and Dad or medical debts that have zero interest. I don’t care if there is interest or not. I don’t care if some have 24 percent interest and others 4 percent. List the debts smallest to largest! If you were so fabulous with math, you wouldn’t have debt, so try this my way.” (Dave Ramsey, The Total Money Makeover, p. 114) ii. “The reason we list smallest to largest is to have some quick wins.” (Ibid) B. Apply all extra money each month to the smallest debt while making minimum payments on all other debts. i. You must declare war on your debt and do so with what Ramsey calls “Gazelle Intensity” (running like your life depends on it…because it does). ii. No eating out, no vacations, no unnecessary spending on anything until your debt (except the mortgage) is gone. iii. “The major elements of making the Debt Snowball work are using a budget, getting current before you start, smallest-to-largest payoff (no cheating), sacrifice, and focused intensity. Total, sold-out, focused intensity is possibly the most important. This means saying to yourself and meaning it, To the exclusion of virtually everything else, I am getting out of debt!” (Ibid, pp. 119-120) iv. “If you think this Debt Snowball stuff is cute and you might sort of give it a try, it won’t work. Total, sold-out, focused intensity is required to win. Aiming at the goal and nothing else is the only way to win. You have to know where you are going, and by definition know where you aren’t going, or you will never get there.” (Ibid, p. 120) C. Once you pay off the smallest debt, put all extra money on the next smallest debt, including the money that was being put toward the previously paid debt. D. Continue this process until all debts are paid, except for the mortgage. E. You must stop borrowing, or you will never get out of debt and stay out of it.  i. “An obvious step to working the Debt Snowball is to stop borrowing. Otherwise, you will just be changing the names of the creditors on your debt list. So you must draw a line in the sand and say, “I will never borrow again.” As soon as you make that statement, there will be a test. Trust me. Your transmission will go out. Your kid will need braces. It is almost as if God wants to see if you are really gazelle-intense. At this point, you are ready for a plastectomy―plastic surgery to cut up your credit cards. A permanent change in your view of debt is your only chance. No matter what happens, you have to pursue the opportunity or solve the challenge without debt. It has to stop. If you think you can get out of debt without huge resolve to stop borrowing, you are wrong. You can’t get out of a hole by digging out the bottom.” (Ibid, p. 123) F. If you can’t find the money in your budget to pay all your debts off within 18-20 months (except your house), then get another part-time job or sell things to bring in money. i. “One way to do that is to sell something. You could sell lots of little stuff at a garage sale, sell a seldom-used item on the Internet, or sell a big precious item through the classifieds. Get gazelle-intense and sell so much stuff that the kids are afraid they are next. Sell things that make your broke friends question your sanity. If your budget is stopped-up and your Debt Snowball won’t roll on its own, you are going to have to get radical.” (Ibid, p. 124) ii. Selling possessions to pay off debt is Biblical (2Ki 4:7). iii. This might include selling your precious car, truck, toy, or even your pets to get out of debt. iv. Ramsey recommends selling your car (or anything else besides your house) if you can’t pay it off in 18-20 months. G. While you’re paying off your debts (except your mortgage) using the debt snowball method, postpone retirement savings. i. “While you're working your debt snowball, I suggest you temporarily stop all retirement savings, even a 401(k) that has an employer match. This makes a lot of people nervous, and I understand that. I'm a math nerd, and I know that getting a 100-percent match on your contributions is a sweet deal. That's why I want you to get out of debt as fast as possible, so you can get back to your investments and really do it with style without worrying about debt payments hanging over your head!” (Dave Ramsey, Dave Ramsey’s Complete Guide to Money, p. 101) ii. When you do this, make sure you are putting all the money you were putting toward retirement toward your debt, and then get back to saving for retirement as soon as you finish your emergency fund (Baby Step #3). 4. Baby Step #3: Finish the Emergency Fund A. Put all extra money in your budget toward fully funding your emergency fund. B. A fully funded emergency fund should be able to cover 3-6 months of living expenses, not income. C. I recommend having 6 months of living expenses in your emergency fund. D. This fund should only be used for true emergencies. E. It should be liquid, meaning that it is in a savings or money market account that you have instant access to. F. The emergency fund is often more important to women than men because women desire security and safety. i. Men, act like men and make sure you have a fully funded emergency fund for your wife’s sake, and your own as well. ii. “Men, for example, use money like a scorecard and lose self-esteem when money problems pop up. Women, on the other hand, experience fear―my wife actually says terror―when money problems come up, because money represents security to them. This is why guys usually resist saving up three to six months of expenses as an emergency fund. Just having that much money sitting around doing nothing seems like a waste to men, but their wives will likely tell you it’s the most important key to their financial plan.” (Dave Ramsey, Dave Ramsey’s Complete Guide to Money, p. 28) G. Don’t buy a house until you have a fully funded emergency fund. i. “I love real estate, but do not buy a home until you finish this step. A home is a blessing, but if you move into home ownership with debt and no emergency fund, Murphy will set up residence in the spare bedroom. I believe in the financial and emotional advantages of home ownership, but I have known many stressed-out young couples who rushed to buy something before they were ready. “Saving for a down payment or cash purchase of a home should occur after becoming debt-free in Step Two and after finishing the emergency fund in Step Three. That makes saving for a down payment Baby Step Three (b). You should save for the home if you have the itch before moving on to the next step. Many people are worried about getting a home, but please let it be a blessing rather than a curse. It will be a curse if you buy something while you are still broke. There are all sorts of folks who are eager to “work with you” so you can make it happen sooner, but the definition of “Creative Financing” is “Too Broke to Buy a House.” (Dave Ramsey, The Total Money Makeover, p. 148) ii. “If you don't have $200,000 in the bank to pay cash for a house today, that's okay. You've got time. Even if you never pay cash for a house, you still need to only buy when you're ready. How do we define ready? Let's look at the Baby Steps. If you are not out of debt and don't have a full emergency fund of three to six months' worth of expenses, you aren't ready to buy a house. Buying a house when you can't afford it is one of the best ways to ruin your life. Home ownership brings with it a ton of risk, from faulty water heaters to a bad roof. If you don't have savings to cover this stuff, you'll be running back to credit cards and equity loans when something "unexpected" comes up. “If you're working the debt snowball or haven't finished your emergency fund, you should rent. There is absolutely nothing wrong with renting for a  little while. People will tell you, ‘Rent? No way! That's just flushing money down the toilet! It's always better to own!’ No, it's not. Broke people should not buy houses. That's a recipe for disaster. The money you pay in rent while you're cleaning up your debt and saving up your emergency fund and down payment demonstrates patience. Look, I don't want you renting forever as a way of life; I just want you to be ready before you buy! Make a goal to hit Baby Step 3 and then save up a big down payment as quickly as possible! I love home ownership, but it will kill you if you're not ready for it.” (Dave Ramsey, Dave Ramsey’s Complete Guide to Money, p. 299) H. Don’t ever take out a home equity loan, especially in place of an emergency fund. i. “The home-equity loan is one of the most aggressively marketed loans today. The average American in debt to his eyeballs has exhausted all means of borrowing except the big second mortgage on his home. This is very sad because we now put our homes at risk to go on vacation, open a business, consolidate debt, or just for an emergency fund. Families come to us in dire straits when the home-equity loan is their last bad mistake and the straw that breaks the camel’s back.” (Ibid, p. 197) 5. Baby Step #4: Invest 15% of Your Household Income in Retirement A. Invest 15% of your gross income (before taxes―not your take-home pay) in tax- advantaged retirement accounts like 401(k)s, IRAs, and Roth IRAs. B. See prior section on Investing for the details. C. “Once we have covered these basic steps and laid a foundation, the time has come to build some wealth. Remember, that is why we started a Total Money Makeover. We wanted not just to be out of debt, but to become wealthy enough to give, retire with dignity, leave an inheritance, and some expensive fun.” (Ibid, p. 150) D. “You need to reach the point where your money works harder than you do.” (Ibid, p. 152) E. Most people in this country are not prepared for retirement. i. The following was written in 2007. ii. “USA Today reports that out of one hundred people age sixty-five, ninety- seven of them can’t write a check for $600, fifty-four are still working, and three are financially secure. Bankruptcies among those sixty-five and older have gone up 164 percent in the last eight years. Getting older is going to happen! You must invest now if you want to spend your golden years in dignity. Investing with the long-term goal of security is not a theory to ponder every few years; it is a necessity you must act on now. You must actually fill out the paperwork for your mutual fund. You must actually put money in that thing. According to these statistics, the level of denial the average person has on this subject is alarming.” (Ibid, p. 154) F. Do not rely on Socialist Insecurity for your retirement. i. “By the same token, do not use your potential Social Security benefits in your calculations. I don’t count on an inept government for my dignity at retirement, and you shouldn’t either. A recent survey said more people under age 30 believe in flying saucers than believe they will receive a dime from Social Insecurity. I tend to agree. I’m not taking a political position  (although I’m not above it), but the mathematics of that system spell doom. I’m not Chicken Little predicting the sky is falling; entire books have been written on the Social Security mess. Understand, it is your job to take care of you and yours, so part of your Total Money Makeover is to invest now to make that happen. If Social Security isn’t there when you retire, you’ll be glad you listened to my advice. If by some miracle Social Security is there when you retire, that will mean I was wrong. In that case, you’ll have some extra money to give away. I’m sure you’ll forgive me for that.” (Dave Ramsey, The Total Money Makeover, p. 156) G. Anyone can become wealthy by investing 15 percent of his gross income from a young age. i. “If a young couple really got this message in their twenties and took a few years to get out of debt and save up a full emergency fund, they could start investing 15 percent of their income from age thirty on. Even if they only had a household income of $40,000, they could be looking at more than $5 million at age seventy just by faithfully investing 15 percent every month―and that's if they never got a raise! “I've said it before: there's no excuse for anyone to retire broke in America! These opportunities are available to everyone, no matter when you get started! All it takes is some discipline and attention to a few simple concepts, and anyone can become a millionaire, totally change their family tree, and leave an incredible legacy of generous giving. So go do it!” (Dave Ramsey, Dave Ramsey’s Complete Guide to Money, pp. 240-241)