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Getting Started
Saving and Investing
Credit, Consolidation, and Financing
Marriage
Student Loans
Real Estate
General
Getting Started
What are the Baby Steps?
View the 7 proven steps to financial peace here.
What is an emergency fund?
It is a rainy-day fund, an umbrella. An emergency fund is for those unexpected events that are not regularly planned for happening in life - you lose your job, there's an unexpected pregnancy, the car's transmission goes out, or, or, or. This is NOT an investment or Bahamas fund! Before attacking Baby Step 2 (the Debt Snowball), save $1,000 as a baby emergency fund. A fully funded emergency fund is 3-6 months of your personal expenses set aside in a savings or money market account; build this up in Baby Step 3. The Baby Steps
How does Dave feel about using a debit card?
A debit card is used just like a credit card; however, the funds come directly out of your checking account. Therefore, you are not spending money you don't have. Debit cards can still get you into trouble. Research tells us that you spend more when using plastic; you register no emotional pain when you spend with plastic. Keep the use of your debit card to a minimum (hotel reservations, car rental, air travel, online purchases, etc).
Why should I pay off my smallest debt first?
This question refers to the Debt Snowball - paying off your debts smallest to largest, according to the balance and irrelevant of the interest rate. Why is this? Well, getting out of debt is very much like losing weight. It is an emotional decision. You get out of debt when you get MAD! If it took you 6 months to lose the first pound, would you stick to that diet? No. Paying off the smallest debt first allows you to get some immediate, positive feedback and encourages you to keep going. Once the debts start getting paid off, it is addicting, and you will stick with it.
How do I get started managing my money?
Get on a written game plan. John Maxwell says, “A budget is telling your money where to go instead of wondering where it went.” You don’t have to start with a perfect month. Just start where you are. Write down what you have today – income and expenses – and spend your income on paper before the month begins. Get free, downloadable budgeting forms
Also try using Dave’s envelope system to help you spend cash where you’ve budgeted it to be spent. Take some envelopes, write the budget categories on the envelopes, and use only the allotted money to purchase specific things. When an envelope is empty, don’t buy anything else in that budget category.
Do it all on purpose, all on paper, and all with your spouse. Then you’ll have a game plan, and you’ll start to understand what I mean when I talk about having financial peace. Read more
Dave walks you through setting up a budget and sticking to it in the Cash Flow Planning DVD.
What is the Debt Snowball?
The Debt Snowball is the process Dave suggests using to pay off debt. Here’s how it works: list your debts in descending order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs. In this case, list the higher interest rate debt first.
Pay the minimum payments on all of your debts. After you’ve paid the necessities and minimum payments for the month, put any and all money left over onto the smallest debt. Attack the smallest debt and get that thing paid off as quickly as possible. Once that smallest debt is paid off, move on to the next smallest debt and start making extra payments on that one. You now have more dispensable income because you have one less debt. Just like a snowball gets bigger as it rolls downhill, that’s what is going to happen to your Debt Snowball when you use this method!
What are some tips for sticking to a budget?
- Make sure you write it down. Give every dollar a name on paper. Spend your income on paper before you spend it for real. Get free, downloadable budgeting forms
- Stay away from places that tempt you to spend. If you are having trouble with spending money on things that you didn’t budget for and it isn’t an emergency, you have to crack down on yourself and get serious. It’s a sign of maturity when you delay pleasure today so that you can ensure a better tomorrow.
- Try using Dave’s envelope system to help you spend cash and to spend that cash where you’ve budgeted it to be spent. Take some envelopes, write the budget categories on the envelopes, and use only the allotted money to purchase specific things. When an envelope is empty, don’t buy anything else in that budget category.
- Stay motivated! Don’t give up! A budget is a tool because it gives you hope that your money situation can and will get better. One thing that can steal your hope is dwelling on the failures of the past or the fear that you will never get to the end. To avoid this, break your plan down into smaller goals. You can change your financial picture. You can change your life.
Saving and Investing
What’s the difference between saving and investing?
Saving
Saving is necessary because its ability to stabilize your money is remarkable. Savings should be boring. It’s best kept in money market accounts, savings accounts, or even plain old cookie jars. That’s because the money you put into savings isn’t meant to stay there long-term. It is the money you plan to use for something within the next 5 years. Money you plan to use in the near future doesn’t need to be subjected to risk; it needs to be safe, so that it is still there when you want it, regardless of how the stock markets are performing that day.
For instance, if you were saving for a car, use a money market account with a mutual fund company. Don't put money into a mutual fund unless you're going to leave it alone for at least 5 years. Your savings is not an investment. More on saving
Investing
Investing is a subject that can generate very diverse reactions from many people. Some people get excited and the juices start flowing when the topic is introduced. Others start to get nervous and break out in sweat. Somewhere in the middle is where you’ll find Dave. His first principle when it comes to investing is not to mess with investing until you’ve completed your first 3 Baby Steps. Once you’ve done that, then you are ready to invest 15% of your income. The second major principle is to never invest in anything you don’t understand. Don’t invest in something because your brother-in-law says, “You gotta do this!” (This includes online trading.) A mutual fund that spends $54 million in research understands a whole lot more about stocks than you do. More on investing
Why should I wait to start investing?
We have to remember that we are emotional beings. If we don’t see quick results in any particular process, we are likely to quit and move on to something else. That’s why Dave has the Baby Steps and the Debt Snowball.
These processes play off our human emotions. By taking small steps, we see quicker results, thus we stay focused and motivated to stay on track. By paying off the smaller debts first, we see quick results and more income available to fight our debts and stay enthusiastic about our progress.
Another reason that investing is further down the line is because until you free your income from being spent on payments, you cannot fully utilize its power. So there again lies the importance to be debt-free before worrying about investing. Your income is the most powerful wealth-building tool you will ever have, and you have to free it from payments so that you can take full advantage of this tool!
It is still important to start investing as soon as possible. The average time it takes people to get through Baby Step 2 is 18 months to two years. But that is only done when you get "gazelle intense" and truly focus your efforts on getting debt free. Use your desire to start investing for your future as motivation to get debt free!
Don't get caught up in the numbers games. Focus on tasks one at a time. This process yields the quickest and best results, and Dave has used these principles for over 15 years. More on investing
While paying off debt, should I stop investing?
Dave recommends that you should stop your contribution to retirement plans and investments in general for as long as it takes to get rid of your debt (excluding mortgage payment). Do not withdraw from your retirement plans; just let it sit while you conquer your debt. Then, after everything is paid off, start contributing toward your retirement plans again. More on investing
Credit, Consolidation, and Financing
How does Dave feel about "90 days same as cash" deals?
When you have saved up enough to pay cash for an item, then buy it. Period. Finance plans like "90 days same as cash" or "one year, no interest" are designed to get you to buy more than you would normally buy if you were paying right then. Also, 78% of those "special" deals are not paid off during the 90 days. Then a very high interest rate is tacked on from the original date of purchase. You don't need or deserve it unless you have saved up cash to pay for it. Remember, you can also negotiate with cash and get a far better deal. When this happens, 90 days is NOT the same as cash, now is it?
Should I call the credit card company when I cut up my cards?
Yes. Call them and do the following:
- Close the account to further charges.
- Ask them to send you written verification that the account is closed to further charges.
- Tell them to keep their hands to themselves!
Why doesn’t debt consolidation work?
Debt consolidation doesn’t work because you end up paying about the same amount. The truth is that you cannot borrow your way out of debt.
The way to get out of debt is to change your habits. You need to commit to get on a written game plan – a budget – and stick to it. Get an extra job and start paying off the debt. Live on less than you make. Getting debt free is not rocket science; it’s common sense and self-discipline.
You may be tempted by the companies that claim to be able to clean up your credit for you. Don’t go there. There are two basic problems with them. First, for purposes of getting a mortgage, going through companies that take your money and pay your bills will reflect on your credit as if you filed a Chapter 13 bankruptcy. Secondly, only transactions 7 years or older, or a mistake, may be taken off your credit report. A company that says otherwise is either lying or operating illegally. More
Here are two suggestions. First, sit down with a counselor and work out a plan to get out of debt. Find counselors in your area who have been trained by Dave. Secondly, we encourage you to attend Financial Peace University. FPU is a 13-week program that will teach you how to make the right money decisions to achieve your financial goals. Find a class in your area
Are consumer finance companies good?
The most expensive money comes from consumer finance companies. They specialize in higher-risk loans and charge very high interest rates. The best option is to save for purchasing the item or service you are seeking. Just set aside money and budget. Buying stuff can be fun…just don’t go into debt because you want something now. Delaying pleasure is a sign of maturity yet goes against today’s society.
How do I handle my creditors?
Collectors know that logical people will pay the house payment first. They have discovered that the only way people will pay an unsecured creditor first is if they are not being logical. Collectors are taught to evoke strong emotions. By being emotional, you tend to pay them before the utilities or house payment, so they try for emotions like anger, fear, hate and even friendship. The approach they find that gets the best results will be stored in their computer and used again and again until you no longer respond.
You have to remain logical and make sure that you leave your emotions out of these conversations. If you start to feel emotional, politely end the conversation and ask them to call you back later when they can speak to you like a normal human being. Speak with them once every two weeks. Inform the creditors of this rule and explain that if they call too often inside the two-week window that you’ll simply thank them for their call and hang up and await their next call in the next two-week window.
The Federal Fair Debt Collection Practices Act is a federal act that outlines the consumer rights as well as the restrictions of creditor calls.
In the meantime, here are a few regulations that are addressed in that particular act:
- No harassing calls can be made.
- Calls must be between 8:00 a.m.- 9:00 p.m.
- Repeated calling and name-calling are prohibited.
- If a collector is harassing you, put them on notice that you are taping the calls to ensure that he is within the realm of The Act.
- Unwanted calls at the workplace can be stopped by sending a certified letter (return receipt requested) to the collector in question requesting that they must stop.
- You are even allowed to send a cease-and-desist letter requesting that they no longer contact you in any way except to inform you of legal proceedings. Use this only in extreme circumstances.
- No collector may garnishee wages or attach bank accounts without first suing and winning. (The only exception is student loans that are in default.)
95% of the unreasonable conversations you will have with bill collectors are bluffs and are based on ignorance. More
You do have to make some kind of payment to them on a monthly basis. To find out how to get on a budget and to pay these creditors the way Dave has counseled thousands of families to pay, get Financial Peace Revisited or The Total Money Makeover.
Marriage
I'm married. Should my spouse and I have separate checking accounts?
No. When you get married, you become one, and money is a key area that helps bring together that oneness. When you handle your money together, you are agreeing on your hopes, dreams, goals, etc. After counseling over 10,000 families at our firm, I can assure you that more marriages have been saved over this one issue than any other. Agree on how you spend your money, and you will begin to feel a oneness in your marriage that is powerful.
What are some tips on getting my spouse to do a budget with me?
What are their objections to living on a plan? Do they feel controlled? Do they feel like they will lose their freedom? Talk about those issues. You may be surprised what you hear. After listening to their concerns, it is now your turn to tell them your concerns. Tell your spouse how you feel. Why do you want to budget together? How will it make you feel to plan together? Security? Unity? Strength? By telling your spouse how you feel and not how they should feel, often will get you on the right track together.
Is it wrong for my spouse to keep shoving the phrase "Dave Ramsey says..." down my throat about every single thing? It just makes me not want to work together with our money.
Absolutely. Your spouse does not care what Dave thinks. They only care about what you think and why you feel they should get on a plan. Take the advice you hear on the show, read Dave's books, and apply it to your life... but take it as your own.
Student Loans
How do I consolidate my student loans?
We used to endorse College Loan Corporation, but they no longer offer student loan consolidation. We currently don't have a relationship with another company that we can recommend to you.
If you do choose to consolidate your student loans, you can only do this one time. Get a locked-in, fixed rate and don't extend the terms. Nothing else.
How can I avoid student loans?
Start with grants and scholarships, which means it would be a great idea if your GPA was much higher than average. Good grades are an investment. Students in the top 10% of their classes have many more options.
Work part-time if you need the money. This idea isn’t widely accepted, but if you need the income, WORK! You could also try attending an affordable local college to get your first few years of required classes done. Then transfer to the school of your dreams if you can pay cash.
Other alternatives:
- Internships with commitment to hire after graduation
- Church gifts and scholarships
- Private scholarships and grants
- Working prior to college admittance
- Working on campus or while in college
How do I find scholarships and grants?
Dave suggests getting a hold of one or all of these books to help find financial support for college:
- The Scholarship Book by Daniel Cassidy
- Free Money from Colleges and Universities by Laurie Blum
- Winning Scholarships for College by Marianne Ragins
You might also approach your local church where you are an active member. If you're a student that has been active within the church, you may be eligible for some assistance. Also, depending on your field of study, you may be able to find a business to sponsor an internship. Dave says, "I also worked two campus jobs and a work-study program to pay my way through college. I also worked with 'gazelle intensity' during the summers." You might want to try some of these unorthodox ideas to increase those gifts and grants. Gearing Up For College
Real Estate
What is a reverse mortgage?
Reverse mortgages are normally offered to the elderly. This mortgage plan is disgusting. Older people working hard their entire lives only to finish up being in debt with their home on the line is an awful concept. The problem is not only are you going into debt with this kind of mortgage, but also the value of your home decreases in value. How much sense does this make?! This concept goes against all principles of building wealth and smart asset management. Dave's Real Estate Resource Center
What is a home equity loan?
A home equity loan is where you borrow money against your home. If you get a home equity loan, you are risking the roof over your family. This is your home, your shelter! It is a stupid practice to borrow more than your home is worth. Many publications have said home equity loans are the next big downfall of the consumer.
The truth is that you cannot borrow your way out of debt! The way you get out of debt is by changing your habits. You need to commit to get on a written game plan and stick to it. Maybe even getting an extra job and start paying off the debt would be a good idea for your situation. Living on less than you make is a key factor. It is not rocket science; it’s just basic common sense mixed with disciplined behavior. Get started now!
General
How much life insurance should someone have?
A general rule of thumb is that you should have 8-10 times your income in guaranteed renewable term life insurance. Life insurance is designed to replace you, financially speaking. Let's say that you earn $50,000/year, and you have $500,000 in term life. If something happens to you, your spouse should take the money and invest it in a solid mutual fund. If the living spouse simply pulled 10% interest out each year, he/she would receive $50,000, never touching the principle. You have been replaced.
How can I find a Financial Peace University (FPU) class in my area?
Type in your zip code here. You will then be taken to a page with a listing of all the classes in your area in order of start date.You can even view a streaming video preview of FPU. Learn more about FPU
What do I do when I’m “upside-down” on my vehicle?
You need to try selling it yourself. If you are upside-down on your vehicle and can't pay it off within 18 months, then sell it. You can start it off at your loan amount. If there are no “bites” on it, then knock off a couple hundred. Continue to pay it down as you sell it. Do not go any lower on the selling amount than the Kelly Blue Book value.
In order to turn over the title, you will either have to get intense and pay out of pocket for the difference or get a small loan to make up the difference between the loan amount and the Blue Book value amount. In this case, you should try to borrow enough from your credit union to pay your vehicle off and get an extra $1-2,000. That extra money goes toward the purchase of a used, yet reliable, vehicle until you clean up some of your debt. (This is one of the ONLY times that Dave would recommend borrowing money to get out of debt. This is because you are normally reducing the amount of debt by a drastic amount in just a very short period of time.)
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