Dave is VERY big on budgets. Why? "A budget is telling your money what to do; not letting your money tell you what to do." Aka- not getting to the end of the month and wondering what happened to all of your money. Dave's preferred budgeting tool is a "zero-based cash flow plan." This means that you should write out where every dollar of your paycheck goes before you spend a penny of it. This way, you control your money. You have then allocated every dollar to where it should go, leaving a zero balance at the end.
As I'm typing this I am watching the Today Show, and a segment just reported that nearly 70% of Americans live paycheck-to-paycheck (even with annual income figures up to $100,000)! Newsflash: we are not managing our money, our money is managing us!!!
Now, a cash-flow plan will not work if you leave things out (don't forget, and don't hide things from your budget!), you make it over-complicated (too many categories on your budget sheet!), you don't do it, or you don't actually live on it (duh).
To begin, fill out Dave's Quick-Start Budget HERE to get an idea of where your money is going.
Then work on your cash-flow plan with these forms HERE.
Your budget may (and likely should) change from month-to-month. Dave realizes this, and expects you to do a new budget at the beginning of each month, especially as you get started and learn where and how to tweak your budget to suite your needs better. And, if there is any money left over at the end of each month, it should go towards your emergency fund (or other investments that come later).
How do you abide by your budget? use the cash envelope system. This is it's own lecture from Dave, but I'll be brief. For each category of your budget you have an envelope with the allocated amount of cash. If you run out of money in that category/envelope you are DONE for that month in that category. Do not move money from one envelope to another. Whatever you have leftover in any category goes into saving/emergency fund. Plain and simple.
What I got from this lesson: Budgeting is very important, and we were not doing enough of it. This was a very straight-forward lesson, and you really just follow the forms to set up a budget.
Week 4 - Dumping Debt
How do you manifest peace in your finances? Get rid of all of your debt! Imagine how wonderful it would be to alleviate that burden, and to owe nothing to no one.
Here are several myths Dave delivered for us to consider:
- Playing the lottery (or gambling) will make me rich.
False: Gambling preys on the poor. The lottery is not filled with rich people. Those without high school diplomas spend ~$173/month gambling, while those with high-school diplomas spend ~$49/mo. This money is likely to all go to waste, when you could have invested it and let it grow over time. - Car payments are a way of life, and you will always have one.
False: Stay away from car payments by buying used, reliable cars. Never buy new! Ideally, save for a used car, pay in full with cash. Then take the money you would use for a car payment each month and invest that. The average car payment is $464/mo - at age 30, if invested with a 12% interest rate can result in $5.5 million by age 70! - You'll take out a 30-yr mortgage and pay extra.
False: Life happens, and you will likely not pay extra. Dave recommends only taking out 15-yr mortgages, and keeping your mortgage payment below 25% of your take-home pay. - You need a credit card, especially to do things like rent a car or buy things online.
False: You can do everything you need with a debit card, these days. One of Dave's favorite things to do is cut up credit cards so you will stop using them. Those that use credit cards spend ~16% more than those that pay with cash (even if you pay off your balance in full each month).
How to get out of debt: Stop borrowing; Learn to save; and work hard to remove the debt, even if that means taking on a (temporary) extra job!
Dave's guide to getting rid of debt is the "Debt Snowball." You list all of your debts from smallest to largest. Pay the minimum on all debts, except the smallest one which you should work the hardest to pay on. Once the smallest debt has been tackled, apply what you were paying to add to the next debt's payments so that you are tackling those harder now too. And so on. HERE is that form. Doing it this way is motivating as you pay off smaller debts, and then even larger ones!
What I got from this lesson: Becoming and staying debt free is the key to wealth-building. Dave's steps seem like a great plan to tackle debts one step at a time. Again, this takes effort, but it's all worth it in the end! Plus, paying off your debts and avoiding future debts allow you more freedom with your money - you can give more and enjoy vacations or other memorable activities.
Week 5 - Credit Sharks in Suits (Understanding Credit Bureaus & Collection Practices)
Dave hates the "credit score" or FICO score - a faulty standard that is based on debt, not wealth; based 35% on your debt.
You cannot repair your credit; only inaccuracies can be removed. And 79% of credit reports contain mistakes of some kind. Beware of credit "clean-up" scams - it is illegal to remove accurate data.
He discussed identity theft and what to do if that happens. You can read his advice HERE.
If you are in a bad situation and have debt that is being collected (Dave has been there himself), he gave the following advice:
- Debt collectors are not your friends. Their job is to get the money you owe them, however they will use many emotional tactics to do so.
- Know about the Federal Fair Debt Collection Practices Act (1977), which basically protects you from unfair collectors (you can demand they only call between 8am and 9pm, and not at work). Also no creditor or collector can take your bank account or garnish wages without proper and lengthy court action (except in cases of delinquent IRS or student loan debt) - other threats such as these are bluffs. A "cease and desist" order allows you to insist the creditor stop all contact except to notify of lawsuit proceedings - but do NOT do this unless your situation is horrible because all negotiations will stop and a lawsuit is likely.
- So what do you do if you're in over your head? Your plan should include as much prompt repayment of debt as possible, but you must set your priorities (food, shelter, clothing, transportation).
What I learned from this lesson: Even if you feel like you have dug yourself into a big hole of debt, there is still hope and a way out. The point of this lesson was just this, and not to find ways to avoid creditors or paying your debts. I hope to never have to deal with this, but I enjoyed getting this bit of knowledge about this situation.
You cannot repair your credit; only inaccuracies can be removed. And 79% of credit reports contain mistakes of some kind. Beware of credit "clean-up" scams - it is illegal to remove accurate data.
He discussed identity theft and what to do if that happens. You can read his advice HERE.
If you are in a bad situation and have debt that is being collected (Dave has been there himself), he gave the following advice:
- Debt collectors are not your friends. Their job is to get the money you owe them, however they will use many emotional tactics to do so.
- Know about the Federal Fair Debt Collection Practices Act (1977), which basically protects you from unfair collectors (you can demand they only call between 8am and 9pm, and not at work). Also no creditor or collector can take your bank account or garnish wages without proper and lengthy court action (except in cases of delinquent IRS or student loan debt) - other threats such as these are bluffs. A "cease and desist" order allows you to insist the creditor stop all contact except to notify of lawsuit proceedings - but do NOT do this unless your situation is horrible because all negotiations will stop and a lawsuit is likely.
- So what do you do if you're in over your head? Your plan should include as much prompt repayment of debt as possible, but you must set your priorities (food, shelter, clothing, transportation).
What I learned from this lesson: Even if you feel like you have dug yourself into a big hole of debt, there is still hope and a way out. The point of this lesson was just this, and not to find ways to avoid creditors or paying your debts. I hope to never have to deal with this, but I enjoyed getting this bit of knowledge about this situation.
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