Financial Peace University

This past week I had the opportunity to sit in on my first Financial Peace University (FPU). What is FPU? It is the financial seminar series of Dave Ramsey, that debt free financial guru, heard on radio stations accross the country, everyday between 1-4 CT. The class played the first of what I believe is 12 DVD's and will play another one each of the next 11 weeks.

In the first DVD, Dave had some interesting things that he brought out.

First and foremost he tried to squash the question that many ask:

Q: Am I to old to start saving?

A: Not if you are still sucking air!

Of course the younger you are, the better off you will be, but start where you are. After all you can't go back and do it over.

He also address what he called Baby steps. Each step, which I will list in a few sentances, will help guide you to your financial freedom. Baby Step one (1) was his primary focus in this particular DVD. I will discuss that more, when I list out the "baby steps."

Like John Cummuta, he also encourages you to pay cash for everything. DO NOT get caught up with the 90 days same as cash scams. Do NOT think that you are going to beat them. What will end up happening is something will come up, you will be on vacation and you will forget and then they will backdate all that interest at 24%. A better way is to save $211/month and in 18 months you will have $3800. According to Dave, that will get you that $4000 dinning room set. Just walk in to the furniture place and pull out some $100 bills, and as you are counting them, say "I want a deal." They will get you a deal. Point is 90 days is not the same as cash.

And now for those "baby steps"

Baby Steps:
1) $1000 in Savings - unexpected events WILL happen and you need to be able to address them with cash when they do. This is your Emergency Funds, and is not to be touche for anything else. One person that Dave talked about called this fund her GOK Fund. What's GOK? "God Only Knows."

2) Pay Off Debt

3) Debt Free/3-6 months of expenses in bank

4) invest 15% into 401-k or Roth

5) College Savings (529 accounts)

6) Pay off home early


7) invest into mutual funds/real estate

The Debt Free Diet

Normally I plan to only post once a week, but after finding a link on Oprah.com for a couple of shows that I missed, due to my work schedule. I thought I would post the link and comment on some of the things.
1st, the people on her show promoted the idea of good and bad debt. From what I have heard from both John Cummuta and Dave Ramsey, I know there is no such thing as "good credit." The so called good credit are such things as school loans and mortgages, because they improve yourself, however, as we have discussed in lessons learned from John Cummuta's CD's, if you go the entire 30 years paying the mortgage with the minimum payments, then you will have paid for the house nearly three times (2.9 times to be exact). That is money that could be put towards your savings and bettering off your future.

However there was some very good points, for example:

you need to find out where your money is going! David Bach's Latte Factor® is a simple concept that can help you get out of debt. If you put just $10 a day towards your debt rather than spending it on fancy cups of coffee, cigarettes, bottled water or fast food, in one year you could put $3600 towards your debt!

Every day, you may be needlessly spending money on little things that you could be using to pay down your debt. Take David Bach's Latte Factor® Challenge form with you everywhere you go tomorrow and write down every penny you spend.

Even if you only have one $3 coffee a day, then that's still just over $1000/year.

Ok, so one other key point that I wanted to extract from Oprah's show is:
Prioritize Your Debts and Raise Your Credit Score

You've already been given a plan for paying back your credit cards. Sometimes though, those cards should not be your top priority. Here's why: You have two types of debts. Secured debts are those that have assets backing them up—they can be repossessed or taken back. They include your home and your cars. Unsecured debts are those with no assets backing them up. If you don't make a payment on your credit card, the bank is not going to come and take back the blue jeans you bought at the mall. It might make your life miserable to have a collector call you at all hours, but the credit card company is not going to take away your place to sleep or your transportation to work.

Your secured debts need to be at the top of your priority list.

Debts for which your wages can be garnished. These include your student loans and any child support payments. If you don't satisfy these, your paycheck is at risk.

Any services you need to continue using. If you are not paying your doctor bills, that particular doctor is not going to be willing to see you again, right? That's a problem if you're relying on that doctor for care for a chronic condition.

Unsecured debts, like credit cards. Once you've satisfied all of these urgent debts, you can begin to really focus on making headway with your credit cards. Use Step 3 to get them paid off as fast as possible.

Family and friends. Hopefully your family and friends are the most understanding of your creditors. Confirm your commitment to repay the debts, but make them a lower priority and choose accounts that can improve your credit score first.

Why should you worry about your credit score, if you are going to pay cash for everything?

Well as John Cummuta explains there is a list of reasons:

Insurance companies look at credit ratings, in part, when determining your insurance rates. There is some thought out there, that poor credit scores are more likely to be poor drivers.

Landlords look at your credit report to make sure you will pay your rent and on time.

Employers, especially the government and those that contract with the Government, will look at your report before offering you a job.

Why do all these people look at your report? Because your credit score is kind of a character score. People with poor scores tend to be poorer employees, drivers and less likely to pay their rent or at least on time. There are always exceptions of course, but in general, and more often then not, that is the way it works out.

Closer to Debt Free

I paid off my biggest mortgage this week. The process for paying it off has been a series of good fortune and in the case of the last payment misfortune. Good fortune, because I received a windfall of stock in Alltel, from a privately held company. All though my bad planning there put me in debt to the IRS. I also took my $2000 in the 401-k and applied it to the debt, earlier this year when my company merged with another. The misfortune, was an insurance check due to being the victim of an arsonist, that set a storage shed on fire. Most people don't get these kind of checks to what I did. I have just been extremely blessed by God to do so. Allowing me to pay off the mortgage (which was a consolidation loan) off 3 years early.

Most people would add a little extra to their regular payments, so that they can pay it off earlier. The next thing to do (and what I am describing is what Dave Ramsey calls the debt snowball), once one debt is paid off is to add that entire payment to the next debt. So for me, and I have been over extended on my monthly bills, I am taking that $400 a month and putting it towards my next mortgage (a home improvement loan). So instead of $75/month, I will instead pay them $400/month, however to keep the interest to a minimum and get more to go the principle, I will pay it at $100/week for the next 19 weeks.

After that I will then start doubling up on my car loan so that I can get that paid off earlier. I have put my credit card away and am not using it, while sending them $200/month I expect to have them paid off in 2-3 months and will then keep the card only for emergencies while I working to build my savings.

Also please note for those that carry a cash balance, but carry a balance from month to month, but think they are taking advantage of the 30 day 0% grace period. That grace period only exists if their is no balance left. Anotherwords, it has to paid off 100% every month.

What Kind Of Cunsumer Are You Quiz

This weeks post, I thought I would ask you all few questions to see what kind of consumer you are. Post your answers, if you wish, in the comments. Later in the week, I will post a link to the answers. (answers are now linked at bottom of post)

1. It's usually more expensive to lease rather than to buy a new car.

2. Car-insurance companies charge about the same premiums to drivers who own the same make and model cars.

3. Lowering collision and comprehensive deductibles will lower auto premiums.

4. For consumers who want life insurance protection for less than 10 years, it is usually wisest to purchase a whole life insurance policy rather then term life.

5. All savings and investment products sold by banks are federally insured.

6. If credit card users make a late payment, most credit card issuers can hike credit card interest rates to well over

7. The least expensive mortgage is the one with the lowest monthly payments.

8. Most renters do not need renter's insurance because their landlords are insured.

9. Unit pricing on shelf labels at food stores allows comparison of prices between large and small packages - and brands.

10. Different pharmacies charge about the same price for a particular name brand prescription drug.

Answers (according to "66 Ways to save money")

Hooper: Saving is about a lot more than the money

Michael Hooper, columnist for the Topeka Capital Journal makes some very good points in Sunday (4/9/06) column. I have included it in its entirerity below:

I was standing in line at a local bank recently when I noticed some certificates of deposit were paying 4.5 percent. I told the person standing behind me, "I am going to save $5,000 and buy a CD."

He said, "I just wish my wife and I could spend less than we earn."

He articulated a huge problem in America. This country is the economic powerhouse of the world, but we have one of the worst savings rates.

Last year, our collective household savings rate was minus 0.2 percent. That compares with 8 percent in Switzerland, 6.7 percent in Japan and 10 percent in Sweden, according to Patrick Woodall, senior researcher with the Consumer Federation of America.

When I give talks in schools, students often ask me, "How much do you earn?"

My response is, "It's not how much you earn, it's how much you save and what you do with it that counts. I've met couples who earn $65,000 a year but can't save a dime."

In 1989-90, when I set a goal of saving money to travel the world, I paid off $2,000 in credit card debt and saved $5,000 in 14 months on a $16,000 annual income. At the time I was single and had a cat to take care of.

I realized the credit card companies were charging me 20 percent interest -- costing me $400 per year.

Paying the minimum wasn't getting me anywhere. I paid $200 per month until the credit cards were paid off and never let myself get into that situation again. Now, I pay off the balance when the credit card bill comes.

You can achieve your financial dream if you contemplate what you really want, decide what really matters to you, write down a feasible plan to get there and work the plan daily. Meditate on and internalize your goal, and you will walk in the direction of your dreams.

Live below your income, pay off your credit cards and save every month. Buy used automobiles, take care of them and drive them into the ground.

Buy clothing on the cheap at second-hand stores. Rarely eat out. You save $3 to $5 for each meal you eat at home or bring with you to work.

I recently talked with Tawra Kellam, a frugal Wichita mother who paid off $20,000 in debt from moving and medical expenses in five years on an income of $22,000 a year.

Kellam and her husband and three children learned to live on the cheap. Reaching their goal was a daily struggle, but their kids didn't suffer.

She said parents often spend $100 to have birthday parties at bowling alleys or pizza places. She said she had a birthday party for her son for $25 by creating a treasure hunt in her backyard. She cut her food budget by hundreds of dollars by eliminating pop and others drinks. Her kids drink water when they are dehydrated.

When I took my family to Disney World a few years ago, the place was crowded, and we could only manage to get in 10 rides in 11 hours. I figured I paid $35 per ride for my family of four -- and each ride lasted about 3 minutes. The irony was that my kids' favorite activity was going to Tom Sawyer island and exploring in the trees -- something we do for free behind the governor's mansion in Topeka.

I believe the best things in life are free. A walk through the park is good for you. You'll save money and probably live better, too.

Please feel free on any of my posts to share your thoughts. How have they helped you? Any thing you would like to add? This blog, isn't just me poting, but the entire readership sharing their ideas.