And Now You Are One

Matt and I have been reading up a lot on personal finances and marriage. One of the top reasons for divorce in America is money problems and fights. I think it's an area of concern for couples. It's something they should talk about and, most definitely, agree on. Honestly, my relationship with Matt has been great. We've always been communicators about most things in our marriage, except for finances.

Whithin the first year of our marriage, we had medical bills, student loans, credit card and car payments and we just didn't want to talk about it. I was content with him handling the money because I could ignore it. It didn't create a lot of tension between us, but I could see that it bothered him whenever we went to the grocery store or had to buy things we actually needed. I hated seeing that look on his face. It was a look of frustration and disappointment. I used to feel guilty about spending a dime.

Fast-forward to today, the story is completely different. Matt and I sit down every month and do our budget. It's something we rather enjoy because we tell our money where to go and it's a liberating thing. His frustration and disappointment is gone. And my feelings of guilt are gone as well. All of our expenses are planned now.

We're scheduled to talk at a marriage class at our church next Monday, so Matt and I have been talking about our past emotions and experiences and where we are now. How can we better help others that were in the same or similar situation in their marriage? How can they avoid the pitfalls of debt that we have climbed out of?

In the process of preparing for our talk, I came across an article on The News Leader called Financial Partners: 10 helpful tips on avoiding money problems in your new marriage. I started reading it because the 10 tips actually came from Dave Ramsey and I love the guy for what he is doing for people. A lot of the tips were helpful but didn't go into much detail. Probably to keep her article within her requirements, and partly because she hasn't followed Dave so she's not aware of the nuances within his principles.

So, here are the 10 tips to help you avoid money problems in your new marriage, or not new for that matter:

1. 100% Disclosure.
"You must tell your spouse everything about your debt, income, financial strengths and weaknesses," Ramsey said. "No secrets allowed." This is not poker. You've got to lay all your cards out on the table or you will lose.

2. Joint Agreement.
"Be in agreement on major money issues, like debt, savings and budgeting," Ramsey said. You are a team and can't win unless you have a common goal.

3. Practice Makes Perfect.
"Pretend like you're married on paper so you can get some of the money fights out of the way," he suggested. Make a practice budget.

4. Zero Down Payment.
Don't pay bills for people you're not married to. "This causes undue strain on the relationship before you're married," Ramsey said.

5. American Dream On Hold.
Wait at least a year before you buy a house. "..you don't know each other well enough when you're first starting out. Give yourselves a year to find your financial equilibrium and come to a point where financially you're functioning as one."

6. Share and Share Alike.
None of this you and me, it's we. Open a joint checking account. "This forces you to convert 'her bills' and 'his bills' into 'our bills' and encourages unity and communication in the marriage," Ramsey said. "I know very few financially successful people who have separate lives and separate checking accounts. If you want a life of your own, you shouldn't get married."

7. Another Meeting.
When you get married, have a monthly budget committee meeting. "Spend your money on paper on purpose and in agreement," he said.

8. Saving for A Rainy Day.
Remember that your first step in planning your financial future is to have an emergency fund. If you have debt, start a baby emergency fund of $1,000.

9. The Big Pay Off.
When the debt is gone, build up the fund to cover 3 to 6 months of living expenses.

10. Play the Percentages.
If your emergency fund is fully funded, "set aside 15 percent of your income toward retirement," Ramsey said. If you have kids, start a college fund when they are born.

Teaching Your Kids About Money

In today's culture, I think it is important for parents to teach kids about money. I know most parents don't have a clue how to reach their kids when it comes to drugs, sex, and most especially, money. Still, for those of us that have even an inkling of good financial habits and behavior, take the time and make the effort to teach your kids. They're not going to learn how to do it school, on television or on the Internet. Well, at least not the right way, anyway. So, if you're wondering where to start, here are four things that kids need to learn about money.

1. They need to learn where money comes from.
Money comes from work. Our little girl earns commission for doing her chores. She does not get an allowance just because she exists. We set up a dry erase board with a list of chores for her. When she does her chores, they get checked off and at the end of the week, she gets her commission. Give your kids some chores and attach a money figure to them.

2. They need to learn how to save.
Now that your child has the money they earned in their little hands, disperse it into three envelopes: saving, giving, and spending. With that chore list, our daughter's maximum commission (weekly) is $5. In these envelopes, she places $2 into saving, $2 into spending, and $1 into giving.

One thing we look forward to doing when our daughter is old enough, is the 401MD (mom and dad). We will tell her that she will have to buy her own car. Whatever she saves, we will match it. But, here's a tip, set a limit on the amount that your child saves or be prepared.

3. They need to know how to give.
Whether you attend church or are involved in charitable organizations or events, it's important to teach your kids to give. Not to make them feel better, but to build their character. As a Christian, we give a tithe (tenth of our income) to our church. We'd like our daughter to learn that it is important to give a little of what we have been given to help others minister to those in need.

4. Let them spend their money.
Well, this one's easy, if they're anything like us, right? The point of teaching them the first 3 things is so they appreciate where money comes from and can be smarter about how they spend. They can spend their money, guilt-free. That's what it's for after all.

It's been great to see our daughter learn good money management skills. It is our responsibility to teach them the skills they need in life, and money is no exception. We had to learn the hard way, but, God-willing, she'll be prepared.

What Is a Healthy Financial Plan?

You've heard me talking about the importance of financial planning and management. Without planning and good money management, you won't fair well come retirement. I for one am not depending on the government to take care of me when I'm older. So, in this post I'm going to go through the major components of a healthy financial plan to help you get on track with your money.

There are 10 elements or components to a healthy financial plan:

1. Written Cash Flow Plan (Budget)
2. Will and/or Estate Plan
3. Debt Reduction Plan
4. Tax Reduction Plan
5. Emergency Funding
6. Retirement Funding
7. College Funding
8. Charitable Giving
9. Teach Your Children
10. Insurance (5 Types)

Written Cash Flow Plan
I will go more in depth with this component than any other because I believe that a cash flow plan or spending plan or budget, whatever you want to call it, is crucial to financial planning. If you don't know your inflow and outflow, you can't properly save and spend and reduce debt. It's just not possible.

There are many reasons people don't have a cash flow plan: 1) people assume they won't be able to buy things they want, 2) people, in marriage relationships, have been abused by them, emotionally, 3) the plan they made didn't work, and 4) fear, people don't want to see where they're at.

Sure, sometimes a cash flow plan doesn't work. This is due to 4 factors: 1) we leave things out, 2) we overcomplicate them, 3) we don't actually do it, and 4) we like the idea of it but don't actually live it.

I've included a link to a pdf of the cash flow plan that we have been using for the last year or so to give you a solid foundation. You can adjust it to fit your specific situation, but please, do it.

Cash Flow Plan

Will and/or Estate Plan
Over 70% of Americans die without a will. If you have a spouse or kids, you need to have and should have a will. An estate plan would be needed if your net worth is near $1 million.

Debt Reduction Plan
Being a Dave Ramsey listener, our debt reduction plan consists of the debt snowball. How does the debt snowball work? Easy. Make a list of your all of your debts, excluding you house, and list them from smallest to largest. You'll hear about various plans that list debts by interest rate or from highest to lowest. All of these plans work, mathematically, but the debt snowball includes the element of human emotion.

After you list your debts, from smallest to largest, include the minimum payments beside them. Once they are all their, focus on that debt at the top of your list and put as much of your money into that one, while making the minimum payment on the others. Once that first debt is crossed off, roll over that money to the next debt, and so on. By the time you reach the last debt, you'll be hacking away at it with more momentum. The idea is for that snowball to get bigger and bigger as it roles on and eventually, it will become an avalanche.

Tax Reduction Plan
Okay, so you might think this one will deal with some tricks and maneuvers to reducing your taxes. It doesn't. If you want to have control over your taxes, vote.

Emergency Funding
A good emergency consists of 3 to 6 months of living expenses. It is your guard for those Murphy moments in life. Back in the day, this was known as the rainy day fund. In the Dave Ramsey plan, he has what he calls baby steps to financial freedom and peace. The first step is to save $1000 as a starter emergency fund. The second step is to do the debt snowball. The third step is to then fully fund your emergency fund. If you don't have that fund, you will be more likely rely on Visa or Mastercard for emergencies. You know what? They're banking on it.

Retirement Funding
If you have the ability to participate in a retirement program like a 401k, 403b or 457 at work, do it, regardless of a match. Don't forget about IRAs and SEPP, if you are self-employed. If you have debt, do the minimum investing and tear down that debt. Baby step four, once all the debt is gone and you have a fully funded emergency fund, max out your retirement with 15% of your household income.

College Funding
This is baby step 5 and should initially be done with an ESA (educational savings account) and is sometimes known as the Educational IRA. Currently, you can save up to $2000 per year, per child after tax, and it grows tax free.

Above the ESA you can invest in an UTMA or UGMA (Uniform Transfer (Gift) to Minors Act) with good mutual funds. 529s are also available in most states, but only use those that allow you to freeze your investment in mutual funds with long track records. 529 plans that are age-based have a low return.

Charitable Giving
As a Christian, we tithe to our church. A tithe is a tenth of your income. There is no such thing as a 5% or 15% tithe. If you tithe, any amount less or more than a tenth is an offering. There is a difference.

Aside from the tithe, consider giving to non-profits and other charitable organizations that you believe in and would like to support.

Teach Your Children
Make it a point to teach your children good money habits. Remember, kids do what they see not what they hear, so be a good example for them and teach them along the way.

Our daughter is young, only 3 years old, but she, unlike most kids, gets commission for chores. She does not get an allowance. It's important for us that she understands that money does not grow on trees. Work equals money. No work equals no money.

Insurance
I'm gonna talk about 5 types of insurance that every household should have: 1) Life Insurance, 2) Health Insurance, 3) Disability Insurance, 4) Auto Insurance, and 5) Homeowners Insurance. All of these types of insurance serve one purpose, to transfer risk.

Life Insurance
Life insurance serves to replace income due to death. There are two types of life insurance: Term and Cash Value (this consists of whole, universal, or variable). For most people, term-life is the best option. Rarely is a cash value policy a good option. Why?

With term-life you can get a policy worth up to $250,000 and pay only $12 per month. For a similar cash value policy, you'd pay around $150 per month and only receive the face value of the policy. The insurance company keeps the cash value. It is a bad idea to mix your life insurance with some type of investment plan. Insurance is not an investment.

Recommendations for a term-life policy are about 7 to 10 times your income, if you are the main income source. Also, don't fall for the gimmick child life insurance. Those policies are cash value plans that do no good. Children only need enough for burial expenses.

Health Insurance
If you have health insurance through an employer, great. For those that don't, get it. Get a policy that has a high deductible so that your monthly premiums will be as low as possible. Open a HSA (Health Savings Account) to cover the cost of the high-deductible as well as any other medical related expenses like co-pay, medicine, doctor fees, etc. If you are self-employed, you are also elegible for an MSA (Medical Savings Account).

Don't believe the myth that life insurance is a permanent need. It's not. If you have a healthy financial plan, twenty years from now when your kids are grown, your mortgage is paid off (baby step 6) , and you have substantial investments, you have become self insured.

Disability Insurance
The purpose of disability insurance is to replace lost income due to short term or permanent disability. If you become disabled and can't perform the jop you were educated or trained to do, this is a must. You can buy coverage to age 65 or for life. But, if you have a fully funded emergency fund, you don't need short-term disability.

Auto Insurance
Here, it's important to remember that a fully funded emergency fund creates options. You will be able to increase your deductible and reduce monthly premiums (like the health insurance policy). Carry adequate liability and consider dropping your collision coverage on older cars.

Homeowners Insurance
The big thing to remember here is to make sure you have replacement cost insurance. I think that one is self explanatory. If your house is destroyed, you receive the full replacement cost of your home. Make sure you keep that updated. If your house increases in value, increase the replacement cost.

"Don't Buy Stuff You Cannot Afford"

I saw this clip at church a couple of weeks ago to emphasize the service topic: The Good Life-Financially. SNL was definitely having some fun with current consumer trends.

Take a peek and let me know what you think of it. I think they have something there.

I Don't Agree with the Dave Ramsey Philosphy, I Use My Credit Cards Responsibly

Okay, so you know I am a fellow Ramsinian. I believe in what Dave teaches and I love his Dave-isms. I also love that I no longer have any credit cards and I feel more financially free than back when I was living my parents and they paid for everything. But, every once in a while, I'll run into someone who doesn't think that credit cards are bad because they use them responsibly. They pay the balance off every month and they get airline miles, cash rebates for vehicles, as well as the cash rebates at the year's end. So what's so bad about that? Well, let's get down to it.

What is responsible? Dictionary.com has several definitions for responsible, one of which is the characterization of good judgement or sound thinking. I feel that the issue begins with income, or the money you have. Good judgement and sound thinking begin there. Why are credit cards needed if you have the money in the first place. You're obviously able to pay off the balance monthly, why not use your own money? At least then there is no possibility of late payments, annual fees for paying off your balances, or a statement being lost in the mail. It hasn't happened to you yet? Well, I suppose it could never happen right?

Now, I posed the question: Why do you use a credit card if you have the money in the first place? I can't get airline miles otherwise. Or cash rebates. Okay, I'll give you that. Those are seemingly nice perks to using plastic. But, now, let's do the math.

General Motors offers a 5% rebate, so let's say you're getting a $4,000 rebate. In order to get that $4,000 rebate, you had to spend $80,000 to buy a vehicle that will lose $3,000 of its' value the minute you drive off the lot. Does that equation present good judgement or sound thinking? Far from it.

Dunn & Bradstreet conducted a study that showed that consumers spend, on average, 12% to 18% more money when using credit cards. Those annual cash rebates come in at a 1% to 5% return. That's pretty dismal and again, not characteristic of good judgement or sound thinking.

While folks think they are taking advantage of the perks these cards offer, there are people like me that don't like to play games where we don't make the rules. These credit card companies know what they are doing. Unfortunately, there are a lot of people who are buying it, hook, line, and sinker. Are you one of them?

Developing the Leader Within You

After listening to Dave Ramsey's radio show the other day, I decided to pick up a book he highly recommended. The book is called Developing the Leader Within You by John C. Maxwell. I figured, since Matt and I will be leading the FPU courses at our church, this would be a good precursor to the whole leadership thing. However, having heard of the book at work prior to this, I was rather excited about it.

While I'm not finished with the book yet, I decided to write a bit as I go. Currently, I'm on the third chapter, and while there is no true groundbreaking content, yet, the information is quite simple and applicable.

To begin with, Maxwell examines prior definitions of leadership so we can better understand his approach. Although many have concluded that leadership is attributed to a position, rank or title, he determines that leadership is quite simply influence, or the ability to obtain followers. "He who thinketh he leadeth and hath no one following him is only taking a walk." I think that's one of the funniest yet accurate statements regarding leadership I have ever heard.

Some of the greatest leaders of all time consist of Adolph Hitler, Jim Jones, Jesus of Nazareth, Martin Luther King, Jr., Winston Churchill and John F. Kennedy. Although their value systems differed, one thing remained, they had followers.

Maxwell, in the first chapter, states that once people accept that leadership is influence, they can better understand how to develop their leadership abilities. How do we do this? By expanding our level of influence.

Maxwell introduces five levels of influence or leadership:

1. Position: This level relies on title or position, but true leadership is more than having authority, technical training or following protocols. It's about having others gladly and confidently follow you.
   
2. Permission: This level relies on interrelationships. Time, energy, and focus is placed on the needs and desires of others.
   
3. Production: This level relies on results, whether it be profit, morale, goal-setting, problem-solving, and growth. People come together to accomplish a purpose.
   
4. People Development: This relies on the the leader's ability to empower others. People perform at high levels.
   
5. Personhood: This level is not discussed in depth as most people have not arrived at this status nor do so for quite some time.
   

In conclusion, everyone is a leader in one form or another. Everyone has some level of influence with someone. The question is how can someone become a better leader and unleash their leadership potential? This book tries to help. We'll see if it does.

"There have been meetings of only a moment which have left impressions for life, for eternity. No one can understand that mysterious thing we call influence...yet...everyone of us continually exerts influence, either to heal, to bless, to leave marks of beauty; or to wound, to hurt, to poison, to stain other lives."
--J.R. Miller

American Express--Turn Purchases Into Savings. Give Me A Break!

American Express, apparently concerned with current savings trends in America, now offers a credit card that "turns purchases into savings." This "new kind of card" transfers a whole 1% of your purchases into a high-yield savings account. They are "giving" you $25 to jump start your new savings program and have also eliminated your annual fees, actually, only for the first year. Okay, so you're probably saying "Hey, that's great! Maybe I'll get that card and start saving some cash."

Let me be the first to tell you that you have fallen for it! For what? Please, stop. Think. In order for you to "save" money you need to spend money on this card that you probably won't pay off on a monthly basis. After the first year, you end up paying more than you spent, when they apply your new annual percentage rate that just so happens to be tied to the prime rate. Yeah, that's shocking. The annual fee after the first year also ends up being $35.

Please read the fine print. This high yield savings account is only 3.80%. That is a pitiful annual percentage yield when compared to the 6% to 12% you get from good growth stock mutual funds.

So before you leave home without it, stop and think. How can you save money while your spending it, with interest?

Dave Ramsey's Financial Peace University

I am so excited about this. We recently went through the FPU course, which consists of 2 hour classes, once a week, for 13 weeks, and finally made sense of our finances. Heck, not only did we make sense of our money, we're actually in control of it. And that is an awesome feeling.

Yesterday, I met with a lady from our church about ministry possibilities and couldn't stop talking about Dave Ramsey and his material. I talked about his radio show, The Total Money Makeover book, envelope system, and, of course, Financial Peace University. She got really excited about the possibility of introducing Ramsey's material at our church and asked me if i'd be interested in getting that going. To that, I gave her an emphatic yes!

Shortly after arriving home, I opened up Outlook to check my email. Lo and behold, there was an email waiting for me about FPU. I have a meeting scheduled for next Tuesday to discuss it and I am hopeful that the church will support the program. There is definitely a need and, although I'm no financial expert, my story can help others make sense of their money.

Our current financial course at church only scratches the surface and has no follow-up and no accountability. FPU is the perfect fit.

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Update:
I had my meeting and it went extremely well. We have decided to start a small FPU session, consisting of 10 to 15 people, and launch it to the congregation in the Fall. This initial group will consist of those individuals or couples interested in leading small groups later on.

I can't tell you how excited Matt and I are about this. FPU has been such a crucial aspect of our financial journey that we tell everybody about it. We first got started with the Total Money Makeover and were lead to FPU. I bought the Starter Special (the Total Money Makeover book, the Financial Peace Revisited book, Dumping Debt-DVD, Cashflow Planning-DVD, and Financial Peace Software) for my parents, brother and his girlfriend, and my sister and her husband. Why? Because we believe in the program and what it teaches.