Financial Peace

I’ve really wrestled with whether to write this blog post or not. Finances tend to be such a mind-your-own-business kind of thing; most folks don’t like to be told what to do with money. And I also realize full well that what works perfect for us might not work at all for others. Plus, in past experience, talking about controversial subjects tends to get me in “hot water” –well-meaning folks misunderstand what I’m trying to say and let me know. So, then why bother? I’m not real sure. Richard’s accident has made me do some serious thinking about finances, and where I’d be if he was no longer here. That and I’ve been reading some books that provoke an itch to write on the subject.

Awhile back we took the Financial Peace University classes. We’re not in a financial bind, but we’re always open to learning more tips on money management. After the first class, we realized that we have been practicing the Ramsey approach to finances all of our married life -without even knowing it! J 

The Ramsey program teaches 7 baby steps to Financial Peace are:

     1.    Save $1000 in a beginner emergency fund.

2         2.    Pay off all debt (except the house) using the debt snowball.
     3.    Put 3-6 months of expenses in savings.
     4.       Invest 15% of your household income into Roth IRAs and pre-tax retirement plans.
     5.       Save for your children’s college education using tax-favored plans.
     6.       Pay off the house early.
     7.       Build wealth and give!

Since we’ve already done these, we didn’t learn earth-shattering new ideas in the class, but it did help us become more intentional with some things. We can testify that the program works, even though we didn’t know we were doing it and didn’t necessarily do them in the “right” order.

We have our parents to thank for teaching us well in the ways of managing money. Even though their methods were polar opposites. Personally I’m not a fan of the “coming of age” method. It seems to me a fool-hardy method of throwing 21 year olds off the deep end to sink or swim, without prior swimming lessons. Some take to it naturally but others don’t. In my observation, it sometimes produces a disaster that isn’t necessary, could be avoided with a little teaching.  But I have to concede that my husband is proof that the method can work, at least sometimes. 

We didn’t have much money when we got married because Richard didn’t get to keep his money until he was 21 and then he went into voluntary service for a year. I got to keep all my money right from the beginning -when I earned a whopping $1/hr. babysitting, but I was only 20 when we got married and had also been in VS a year. When we got married, Richard was earning $8/hr. That’s not even minimum wage these days! Makes me feel a wee bit old. But we got where we are by staying out of debt, paying our mortgage off in 7 years, and gradually building up an emergency fund while raising our family.  

      

One thing we disagree with Dave Ramsey on is cutting up credit cards. We would be the very first to say that if you are up to your eyeballs in debt [like most of the people that come to Ramsey for help] by all means get rid of your cards. But if you use cards responsibly, if you really do make them work for you, we don’t see any reason to get rid of cards. We pay ours off in full every month; I can count on one hand the number of times we’ve ever paid a credit card company any kind of fees or interest. On the other hand, the credit card company has paid our way on trips too many times to remember. We flew our whole family to FL for winter break multiple times, and sometimes got a rental car on their dime, too. They contributed to our western trip, paid our way to Africa, and most recently we went on a cruise, all compliments of Capital One. Since we’re not paying interest, they really are giving us free travel. Our advice is to charge things you would have to buy anyway, never impulse purchases you can’t afford. Use your cards smart, make them work for you, not against you.

What blows my mind is when people charge purchases in order to rack up points, rewards or cash back without paying off their balance in full every month. The 5% cash back is more than cancelled out by the 20% interest they are paying on their credit card debt.  Last time I checked 5 vs. 20 is still adding an extra 15% to whatever you bought. And if they continue to carry credit debt for additional months it only gets worse… SMH   

Ramsey teaches you must assign every dollar a place to go; a budget is telling your money where to go instead of wondering where it went. We have been living on a budget almost all of our married life. What happened for us is we bought a house just before we got married –neither of us had been a homeowner before, obviously. Like typical newlyweds with no money… just when you thought you had everything paid up, along comes a bill for real estate tax or some such big ticket item that we had never had to pay before, catching us off guard. I am a plan-ahead, likes-to-know-what-to-expect kind of person, so this kind of surprise didn’t sit well with me. It’s so much easier to scrape together $25 out of every paycheck than come up with $400 suddenly. So we came up with a list of all the major expenses over a year’s time, divided each by the number of paychecks per year, arriving at the amount needed to be set aside from each paycheck in order to have the funds when the bills came due. And viola, we started budgeting. Nothing complicated or fancy. I’m not quite regimented enough to tell every dollar where to go, but I do allocate most of them. 

I’m not suggesting everyone needs to do what we’re doing. I’m just saying it works very well for us.  Slightly more than 1/3 of every check gets deposited into our savings account, awaiting those big bills. I have a post-it note in our savings bank book, where I keep a running tally of how much is in there for our various categories- IRAs, real estate tax, vehicle insurance, dental, etc. Written in pencil so it can be updated easily every payday.

The categories have changed some over the years. For example, when we finished paying school tuition my initial thought was “cool! We’re going to have some extra money now.” But then I remembered how nice it was to be able to completely pay for our western trip in cash, something that was only possible by plugging away, setting aside $25 out of every check over 20 years’ time. Then I thought about how impressive it was when our son was getting married and his in-laws sent the girls in the bridal party [including our daughter] on a bachelorette party -we’re talking a stay in an executive suite. This, on top of paying for a wedding. It made me realize if we want to have stress-free funds to pay for a wedding someday plus pay for the fun extras, it’s not too early to start saving. Even with no wedding on the horizon. So, tuition fund became wedding fund in our savings account.

Ok, for inquiring minds that want to know- “what happens if she doesn’t get married?” I suppose she gets to go on an all-expenses paid trip-of-a-lifetime with that money if it’s never needed for a wedding. Either that or a down payment on a house of her own. The reverse psychology of the whole thing is that any young man that comes along has to be worth giving up a trip to Paris or wherever.

Apparently saving money out of every paycheck is a novel idea. I have to explain to the tellers at the bank over and over that I’m doing a split deposit. Someday I just might say “This is a recording. Some goes in checking, some goes in savings, and a little cash back.” Seriously, do most people not save money? I guess if you read the statistics about Americans and debt, obviously not.   

My funny story about the bank is: I go in every week with a stack of banking –between our personal accounts, our business, and the kids accounts- we have a lot of transactions. (I'm a little too old school for the virtual banking thing.) Richard rarely goes into the bank. But one day he went into the bank for a cashiers check. The branch manager greeting him with “You’re Cheryl’s husband, aren’t you?” LOL! Everywhere we go, it’s “you’re Richard’s wife, aren’t you?” So it delighted me to no end that someone recognized him as my husband for a change. And how the manager figured that out is a mystery. Richard was not driving “my” van that day, nor had he given his name yet. Apparently we just individually look like we belong together.

Coming up next- a couple reviews on financial books I’ve read recently. Maybe. Someday. Eventually. If I don't get too much flack for this post. 

I'd love to hear what works for you and your views on finances, if you care to share, though.