Monday, July 13, 2009

Any thing worth having is worth working hard to get!

One of the things that turn a lot of people off to Dave Ramsey is his no-nonsense talking. He's pretty blunt and usually doesn't accept any excuses. This is hard for people because most people don't really want to take a hard honest look at themselves and their situation. We didn't. We thought we were doing okay. We had nice things. We were managing and making all our payments. So what if we have a car loan and school loan payment. It's not like we're racking up a bunch of debt on credit cards. We've already cut those up and canceled those accounts. So, what's the big deal?

I think one of the reasons Dave isn't interested in excuses is because he's heard them all, and they probably aren't any thing he hasn't thought/said/used at one time in his life. I'm not claiming to be any where near the level of Dave, but I understand that a lot more now that we have successfully completed Baby Step #2. When we first started, I was very skeptical. I had more excuses than any person needed.

Reasons NOT to start or follow FPU...
We're fine. We make all our payments on time. Our credit is excellent. We don't need a "plan". - This was us. The truth is doing "okay" with your money isn't good enough. When we were "fine", our plan involved paying off my school loan before the kids got in to college. I'll gladly admit we were wrong here! I love that we now how 15 years to save for the college instead of taking the next 15 to pay off mine and letting them make the same mistake. I could give 101 other examples of how doing "okay" isn't enough, but I might save that for another post.

We pay off our credit card each month. Besides, we've got a really low interest rate. - We hear this one a LOT! Some people claim they keep them for the rewards. Others think it's good to have credit (see below for my comment on that). Dave talks about the statistics that say you're more likely to spend 10-15% more on a credit card than if you use cash. For us, it was a matter of simply buying more than we need. Yes, we could pay it off at the end of the month, but that doesn't address the issue as to whether it was a good purchase to start with. Did you get the best deal? What it really a need? Is it some thing you needed now? Did you need that much? The past year has shown why relying on credit isn't always the best method. If an emergency comes up and you don't actually have all the money to pay it off, or worse yet, you miss a deadline and your a day late on a payment... you're stuck with a high interest rate on food you ate (and expelled) 6 months ago. Is it really worth it. As far as the rewards. We get fabulous rewards from our bank every time we choose 'credit' when we check out. We get back any where from $300-$800 for just our normal every day purchases. I don't need DISCOVER to pay me back.

There is another advantage to throwing away your credit card. I've heard it referred to as a "cooling off" period. When you don't have a credit card you can whip out of your pocket to pay for some thing, you have a tendency to put a little more thought in to your purchase. This is especially true for larger purchases. When you have to save up for an item, it gives you more time to think about your purchase. Is this the really a need, or is it a want? Is this the best value for the money?

I also just heard Dave give a good reason not to leave your paid off cards open - you open yourself up to fraud and identity theft. Don't use a little piece of plastic as your security blanket. Use cash instead.

We need to keep our card to maintain our good credit. - Dave's answer to this is the best. Why do you need good credit if you pay in cash?

It's too hard to track every penny. That's just not realistic. - I'd make a bet that if you don't track every penny, you're probably "wasting" a LOT more money than you realize. It's real easy to spend a dollar here, forget to record your cup of coffee from yesterday, etc. Tracking every penny and assigning every dollar a name is what I think is the most critical aspect of FPU. I used to think I knew where my money went until I actually started writing it down. Then I was horrified and how far off we really were. It's impossible to set a realistic budget if you don't know where your money is going. Dave has a lot of great budget forms or you could easily create your own.

I think we should be paying off the debt with the highest rate interest rate first. It's just logical. - This may be logical, but it's not logic that is the problem. It's our behaviors. I know that the psychological part of all this was huge for me. When I actually started seeing some of the debts being crossed off, I felt like it was actually making a difference. I felt accomplished. This is why Dave says to go smallest to largest. It's a mind game. You'd be surprised how much "angrier" you get at those larger debts once you've crossed some of the smaller ones off. Some of our larger debts had the higher interest rates too. I think we'd still be working on paying off debt if we had taken that approach because I would still be in the mindset that "We'll never pay that off. It's too much." Dave gave a good analogy we can probably all relate to... if you're dieting and don't lose any weight in the first couple weeks, you'll probably give up. We need to see progress to stay motivated. Paying off debt is the same way. We need to see progress and paying your smallest debt first will allow you to do this.

I can't sell this ***. I owe more than it's worth - or - I'd rather have the *** than to take a short sale on it. - Dave takes calls all the time where people owe more than it's worth, especially with cars. If you owe more than it's worth, you probably shouldn't have purchased it in the first place. Sell it! You might have to pay on some thing you know longer own, but consider that your stupid tax. Learn your lesson and don't do it again. It's a lot easier to pay off a smaller personal loan than it is it pay off a large car loan. Any thing you can do to reduce your debt is a good idea.

I'd rather have the emergency fund than payoff debt. - This is the one I probably hear the most often. "I'd feel so much better if I had a larger (than $1000) emergency fund in place." Okay. Think about it in a slightly different way. If you've been paying on your debt snowball and you've eliminated a couple payments, that gives you flexibility in the case that an emergency (greater than $1000) does come up. Here's an example. Your minimum payment on your credit card was $200. You rolled that over with the $250 you used to pay on your card. That's $450 you are paying on your debt snowball. You find out the car needs engine repair that is going to cost $1200. Not only do you have your $1000 emergency fund, but you also have $450 you don't have to pay toward some one else. It's also a lot easier to replace your small emergency fund when you have debt snowball funds you can manipulate. If you still HAVE that credit card payment and car payment due each month, you have a lot less "extra" money to work with.

There are some reasons to have a larger "emergency" fund. If you are in a job at risk of being laid off, if you've already lost your job, if you are anticipating large medical bills, etc. As soon as that event is over, though, you should drop that back down to the $1000 and put the rest on debt. It's about a mindset too. You have to make your money work for you. It's not doing much sitting in a bank account some where collecting dust. Get rid of those debts and change your life.

We don't have any "extra" money to put on debt. - Then you are doing some thing wrong! There is 2 side of the equation - incoming and outgoing. The easiest thing to change is your outgoing side of the equation. Its not always easy to make the cuts we should. Admit it. Our pride gets in the way. No one wants to give up cable (certainly don't want other people to know we've done that). Every one wants nice things. We all want to be able to go out to dinner or join friends when they are going out for drinks. I think what kept us focused was asking - Is that really need, or is it a want? It's hard to be honest with those answers, but you need to ask the hard questions. There isn't much in life we really "need".

Now, there are some people who have cut out every thing they can and still can't find any extra money to pay down debt. Dave would tell them it's time to start working on the incoming side of the equation. I doubt Dave believes in finding the "perfect" job unless you are already debt free. I hear him tell people all the time to get off their butt and get a job - mow lawns, deliver pizza, what ever it takes. I can't tell you how many times I wanted to quit my job... and if I had we wouldn't be where we are now. It all depends on how badly you hate your debt. Tim even considered a second job so we could knock out our debt. In the end, I just kept mine and found ways to make it work a little better for us (like enrolling the kids in daycare 2 days a week). Get creative and get going. Every little bit helps.

Okay. That last one is harsh. Again, any thing worth having is worth working hard to get. The questions is... do you feel financial peace is worth having. I do!

Have an excuse I forgot... give it to me!

1 comment:

Kara said...

You have certainly got me thinking today ... and you make a lot of good points.

I'm really thinking about the $1k EF, as you know. It seems sort of scary to me to move forward with "just" that as our savings, but then again, the idea of getting out of debt FAST and being able to roll over that snowball $, well, that makes a lot more sense than just not doing something because of fear alone, you know?

Great post!

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