Lesson 1 Recap
Most of you will find this boring, but i find writing or typing a recap of a lesson often helps me retain information... So.
Financial Peace University. Lesson 1 Recap.
"The Seven Baby Steps"
There is a process for getting out of the mess we've created without feeling overwhelmed. (<- Still working on that)
Getting out of debt will NOT happen overnight; it takes time.
The baby steps that will help get you started are:
1. Have a $1000 emergency fund in the bank
2. Pay off all debt except the house utilizing the "debt snowball" (<- i haven't learned about this yet)
3. Increase your emergency fund to 3-6 months expenses.
4. Invest 15% of your household income into Roth IRAs and pre-tax retirement plans (I'm half-way there)
5. College Funding
6. Pay off your home early
7. Build Wealth and Give
Lesson 1 basically focuses on Baby Step #1 (1,000 in the bank), Purchases and Wealth Building.
Savings
Saving must become a PRIORITY
-side note: (58% of American Worker have NEVER calculated what it will take for them to retire comfortably, yet 59% say they hope to have a standard of living equal or better than their working years.)
You must learn to pay yourself FIRST
Give/Tithe, Save, THEN pay bills.
You should save for 3 basic reasons: Emergency Fund, Purchases, and Wealth Building.
It's crucial to have an emergency fund because unexpected events WILL occur. This fund is NOT for purchases. It is NOT to be touched unless there is an emergency!
-A great place to keep your emergency fund is in a money market account, because there is no penalty for taking money out. It isn't glamorous, there isn't a great return but this is NOT an investment. This money is not for Wealth Building, it's basically Insurance. If/When something unexpected happens, you're covered.
-The Emergency fund should be FIRST Priority, get 1000 in the bank and do it fast. Baby step three is upping that amount to 3-6 months of expenses.
Purchases
As a rule to live by, NEVER BUY ANYTHING YOU CAN'T PAY FOR WITH CASH.
-Instead of borrowing to purchase, pay cash by using a "sinking fund" approach.
For Example:
Rooms to Go has a 4000 dining room set, you finance this purchase.
This means you will have borrowed at approx. 24% with payments of 211.00 a month for 24 months.
So, in total you'll end up paying $5,064, plus insurance, for that set.
The "Sinking Fund" - Instead of financing, save the same $211.00 per month for 18 months and you can go in with cash ($3,800) and pay cash. When you pay cash you can almost ALWAYS negotiate a discount.
Since i've pledged to borrow no more, this is the only way to make a purchase.
If i want to buy a 5000 car, i'll put up 500 a month (the average car payment in North America) for 10 months and i can own that car free and clear.
(First i have to pay off my Explorer... in 8 months, thank you very much)
If you can understand this lesson early and NEVER have a car payment, putting the money you'd be paying for a car every month into savings or investments can make you very wealthy.
Wealth Building
(Retirement and College Funding, Etc.)
-DISCIPLINE is a key ingredient.
-building wealth is a MARATHON, not a SPRINT.
-Just $100 per month every month from age 25-65 at 12% will build over 1,176,000. (that's a lot of money)
I also learned about Compound Interest... this is super important with wealth building... you make tons more money. I'm not going to bother explaining it because it took me long enough to understand it myself. It's basically making interest off of your interest. Ok, i guess i'll give an example.
Say you invest 2000 a year into an IRA with a 12% return. By the end of that year you'll have made 2,240 dollars. The next year you'll make 12 off of your 2,240 dollars instead of just your 2000. It becomes what Dave Ramsey calls a "Mathematical Explosion" Which is pretty true.
Okay, i think i've learned all i'm going to learn from this lesson, and sufficiently bored you.
Until next time. :)
Financial Peace University. Lesson 1 Recap.
"The Seven Baby Steps"
There is a process for getting out of the mess we've created without feeling overwhelmed. (<- Still working on that)
Getting out of debt will NOT happen overnight; it takes time.
The baby steps that will help get you started are:
1. Have a $1000 emergency fund in the bank
2. Pay off all debt except the house utilizing the "debt snowball" (<- i haven't learned about this yet)
3. Increase your emergency fund to 3-6 months expenses.
4. Invest 15% of your household income into Roth IRAs and pre-tax retirement plans (I'm half-way there)
5. College Funding
6. Pay off your home early
7. Build Wealth and Give
Lesson 1 basically focuses on Baby Step #1 (1,000 in the bank), Purchases and Wealth Building.
Savings
Saving must become a PRIORITY
-side note: (58% of American Worker have NEVER calculated what it will take for them to retire comfortably, yet 59% say they hope to have a standard of living equal or better than their working years.)
You must learn to pay yourself FIRST
Give/Tithe, Save, THEN pay bills.
You should save for 3 basic reasons: Emergency Fund, Purchases, and Wealth Building.
It's crucial to have an emergency fund because unexpected events WILL occur. This fund is NOT for purchases. It is NOT to be touched unless there is an emergency!
-A great place to keep your emergency fund is in a money market account, because there is no penalty for taking money out. It isn't glamorous, there isn't a great return but this is NOT an investment. This money is not for Wealth Building, it's basically Insurance. If/When something unexpected happens, you're covered.
-The Emergency fund should be FIRST Priority, get 1000 in the bank and do it fast. Baby step three is upping that amount to 3-6 months of expenses.
Purchases
As a rule to live by, NEVER BUY ANYTHING YOU CAN'T PAY FOR WITH CASH.
-Instead of borrowing to purchase, pay cash by using a "sinking fund" approach.
For Example:
Rooms to Go has a 4000 dining room set, you finance this purchase.
This means you will have borrowed at approx. 24% with payments of 211.00 a month for 24 months.
So, in total you'll end up paying $5,064, plus insurance, for that set.
The "Sinking Fund" - Instead of financing, save the same $211.00 per month for 18 months and you can go in with cash ($3,800) and pay cash. When you pay cash you can almost ALWAYS negotiate a discount.
Since i've pledged to borrow no more, this is the only way to make a purchase.
If i want to buy a 5000 car, i'll put up 500 a month (the average car payment in North America) for 10 months and i can own that car free and clear.
(First i have to pay off my Explorer... in 8 months, thank you very much)
If you can understand this lesson early and NEVER have a car payment, putting the money you'd be paying for a car every month into savings or investments can make you very wealthy.
Wealth Building
(Retirement and College Funding, Etc.)
-DISCIPLINE is a key ingredient.
-building wealth is a MARATHON, not a SPRINT.
-Just $100 per month every month from age 25-65 at 12% will build over 1,176,000. (that's a lot of money)
I also learned about Compound Interest... this is super important with wealth building... you make tons more money. I'm not going to bother explaining it because it took me long enough to understand it myself. It's basically making interest off of your interest. Ok, i guess i'll give an example.
Say you invest 2000 a year into an IRA with a 12% return. By the end of that year you'll have made 2,240 dollars. The next year you'll make 12 off of your 2,240 dollars instead of just your 2000. It becomes what Dave Ramsey calls a "Mathematical Explosion" Which is pretty true.
Okay, i think i've learned all i'm going to learn from this lesson, and sufficiently bored you.
Until next time. :)