Debt Consolidation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

20 Quips from Famed Financial Guru Dave Ramsey

1. Dave Ramsey on financial advisers - “They advise, you to make decisions. This is very important. You are paying them for advice and the ability to teach you enough to make smart decisions about your investments. You are not handing over this responsibility because they are a professional…”

dave ramseyThink about it - The job of a financial adviser is not to take over your finances, but rather to accelerate your financial education. And just like any other professionally educated guesser (aka doctors, lawyers, and other so-called “experts“), with major decisions you should get a second opinion.

2. On co-signing - “When you co-sign for a loan, you are playing Russian roulette with your financial life. If the person you sign with defaults, you'll blow your money brains out.… Debt is the most aggressively marketed product in our entire…culture! If the bank wants you to co-sign, it's because they know that signer won't pay. So don't be shocked when this comes back to bite you.”

Lenders have just one objective - make money. The business of lending, as we know it, has been in existence for over two hundred years. With all due respect, do you, in all your wisdom, truly believe you know better than two hundred years of accumulated data on who is and is not a good borrower? You may blind yourself with statements like “he wouldn’t do it to me,” or “they’re just such a nice person,” but the bank knows better.

3. On new cars - “I'm not against people having new cars. I'm against them having you. We spend a tremendous amount impressing somebody at the stoplight who we'll never meet. It makes you broke and keeps you broke.”

Remember that a car is not an investment or asset - it is a liability. You lose several thousand dollars on the value of a car the moment you drive it off the lot. Over the course of the next year you may sink a few hundred dollars into the car for repairs, seasonally appropriate tires and wiper blades, and that oh-so-you matching set of seat and steering wheel covers. Then next year’s model comes out, you drool with envy - for what? A status symbol? Get over society’s brainwashing and buy a car that suits your needs.
 
4. On debt prevention - “For a period of time, you can win financially and later buy whatever you want.”

One of Dave Ramsey’s primary pillars of financial management is buying everything with savings instead of debt. According to his philosophy, you should live well below your means, save for large purchases, and never incur debt unless it is advantageous. In other words, the debt is offset because the purchase is an asset which grows in value without further investment, such as real estate. By saving and investing early in life, instead of buying and indebting yourself, your buying power will grow to proportions far exceeding anything you could have attained otherwise.
 
5. On being financially responsible - “This is not a game, ... Debt has become a part of who we are. It's become that spoiled child in the grocery store with their lip stuck out: 'I want it. I want it. I deserve it because I breathe air.' And, well, that's an uphill climb in our culture right now, to go against that and say, 'Hey, let's be grownups here. Let's be mature, learn to delay pleasure, save up and pay for things.'”

American culture and society is dripping with a sense of entitlement. Here’s a news flash - the rich are rich because they earned it, not because they borrowed every rung in the ladder to the top. There is no easy way to the high road, and if you choose to see credit cards and loans as your “shortcut” or “break” to that high road, it will bite you.

Video: Goals Are Critical to Financial Management

6. On honesty in relationships - “You must tell your spouse everything about your debt, income, financial strengths and weaknesses. No secrets allowed.”

Money is the number 1 reason why marriages fall apart. Hopefully by being completely open and honest about your financial situation, including weaknesses, you can avoid becoming a statistic. Ideally, the best time for this conversation is before walking down the aisle - but it is definitely better late than never.

7. On joint accounts - “This forces you to convert 'her bills' and 'his bills' into 'our bills' and encourages unity and communication in the marriage. 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.”

If you can’t trust your spouse enough to give them access to your financial accounts, then you probably shouldn’t be married to them. Relationships are all about trust, and marriage is supposed to be the highest form of intimacy. They get half of it if you should ever separate anyways, and if they’re irresponsible now, that just means they get less later - right?

8. On new beginnings - “Too many people try to do the new job, new spouse, new house, new car thing in 18 months. That's a good way to end up broke. We've got to resist the temptation to catch up with our parents in 18 months. Slow down. You have the rest of your life to play catch up. After all, it's just stuff.”
 
Don’t try to compare yourself to others, whether they are your age with your level of education or not. Instead, compare yourself to yourself, and strive to out-do only your own previous achievements. By using your own life as your only benchmark, you are not as likely to end up with disproportionate dreams and aspirations.
 
9. On financial peace - “Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this.”

When you look at your typical “pack rat,” do they seem happy? Most people chase after that next neat new gadget their entire lives, and end up forgetting what they really wanted out of life, and why. Remember your core, remember what you really hope to do with your life, and do everything in your power to move toward it with each step.

10. On weddings - “Too often, couples anxiously await the wedding day and don't put any thought into what comes after the wedding- the marriage! Plan ahead by getting on the same page with money and setting financial goals together. The wedding is great, but that's only the beginning.”

You don’t want to start on the wrong foot - that is, several thousand dollars in debt. If you are at all superstitious, some believe how you begin is how you will live the rest of your life together. Don’t let your wedding and first months together become a skeleton in the closet waiting to be thrown at your spouse.

11. On marriage and major purchases - “It may seem obvious, but couples too often make big financial decisions without talking first. It's important to agree about major purchases, even if they're in your budget.”

Let’s say you have budgeted to purchase a new-to-you used car this year. In your mind, this wasn’t going to happen until the last few months of the year (since that is when all the sales happen), and it was intended to be used as a fuel efficient winter beater for going to work. Your spouse, thinking about the family vacation, buys a minivan in March. Wrong type of car, wrong timing - “but it was in the budget,” says your spouse. A few thousand dollars down the drain just because you didn’t open your mouth.

12. On the Love Drawer - “A Love Drawer is a drawer in your house with all the important papers that your family needs if something happens to you. It contains everything: your last will and testament, insurance policies, funeral instructions, mutual fund statements, passports, budgets - everything that your spouse and family would need to know if you weren't around. It is also organized in such a way that a 9-year-old could open it up and find any given document in 30 seconds.”

The “love drawer” is a potentially estate-saving idea for your family. Stricken with grief, your family won’t exactly have a clear enough head to sort out all of your finances easily. You purchase life insurance to ensure they can survive in the event of your passing, why not put together all of your financial documents to make that transition a little easier?

13. On the way men and women think - “When it comes to money, men tend to take more risks and don't save for emergencies. Men use money as a scorecard and can struggle with self-esteem when there are financial problems. Women tend to see money more as a security issue, so they will gravitate toward the rainy-day fund. Because of their need for security, ladies can have a level of fear - my wife, Sharon, calls it terror - when there are financial problems.”

More often than not, women can be found reminding their male counterparts to conserve their resources - “that soda has to last all week,” for example. Left to their own devices, men will consume what they want to consume, when they want to consume it. If that means having seconds or thirds at dinner and leaving no leftovers, then so be it. However, this isn’t to say a woman isn’t capable of shopping the family into debt either.

14. On baby steps; the $1,000 emergency fund - “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. Something like this WILL happen.”

Before you can even think about paying down your debts or saving for retirement, you have to make sure nothing gets in the way of your well-laid plans. You can’t expect to continue making payments on your car if you blow the engine and can’t get to work, now can you? Having a bit of cash put away in a money market or other not-so-easily accessible account will keep everything going according to plan - or at least, as close to planned as possible.

15. On baby steps; repaying debt with the Debt Snowball - “The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted.”

Generally you’re advised to pay the highest interest rate debts first, but Dave Ramsey suggests a different approach. Take an inventory of your debts and list them according to how much you owe - from smallest to biggest, excluding your home. Then make only the minimum payments on everything but the smallest debt, and throw everything you have at that one debt until it is completely paid off. Repeat until you’re debt free.

Video: The Debt Snowball Method to Getting Out of Debt

16. On baby steps; 3 to 6 months of expenses in savings - “Remember, this stash of money is NOT an investment; it is insurance you’re paying to yourself, a buffer between you and life.”

Once you have paid down all of your debts, and before you begin investing, it’s time to flesh out your emergency fund. Instead of that measly $1,000, now you have to think about what you would need to survive without any income for 3 to 6 months. Then, put that into a money market account and forget it even exists.

17. On baby steps; investing 15% in tax-advantaged retirement accounts - “I don’t suggest investing more than 15% because the extra money will help you complete the next two steps, but why not less than 15%? Some people want to invest less or none so they can get a child through school or pay off the home super-fast. I hate to tell you, but the kids’ degrees won’t feed you at retirement, and if you throw all your money into your house, you’ll end up having to sell it to eat and buy the book 72 Ways to Prepare Alpo and Love It. Bad plan.”

Dave recommends a Roth IRA, or if your employer offers a match on a 401(k), invest in it up to the match, and the remainder in your Roth IRA. However, don’t count the match as part of your 15%. If the match goes away for whatever reason you want to make sure you’re investing the right amount.

18. On baby steps; college funding for children - “In order to have enough money saved for college, you must aim at something. Your assignment is to determine how much per month you should be saving at 12% interest in order to have enough for college. If you save at 12% and inflation is at 4%, then you are moving ahead of inflation at a net of 8% per year!”

It isn’t recommended to “save” for college using insurance, savings bonds, zero-coupon bonds, or any kind of pre-paid college tuition, since none of them grow faster than 8%. Instead, Dave suggests an Education Savings Account (ESA) or a 529 plan < http://www.sec.gov/investor/pubs/intro529.htm >- and to only move ahead on saving for college after you have started saving for your own retirement.

19. On baby steps; early mortgage repayment - “Can you imagine what life would be like if you had absolutely no payments – not even a house payment?!”

The 30-year mortgage is perhaps the only plan you have ever seen pushed across a desk - but Dave recommends never going with a mortgage that is longer than 15 years. It may sound preposterous to you now, but consider what your financial situation would be if you refused to buy a home until you could make that 15-year mortgage a reality. It just makes more sense to walk into a bank as a master, instead of a beggar.

20. On baby steps; build wealth and give - “Vow to never have a fistful of dollars held so tightly that those precious dollars never get away. Some people think if they clutch those dollars tightly enough, never giving, they are on the path to wealth. The real world teaches that the opposite is true.”

Once your house is completely paid off, it’s time to put all that extra money toward investing and charity. However, don’t ever forget that money can’t replace everything. On occasion, your time may be the most valuable commodity you can offer - and with all of your ducks in a row from the last baby steps, time should be something you can definitely afford to give.

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