Dave Ramsey says...

[platedlizard]

This summer my parents made me and my sister go with them to Dave Ramsey's 13 week "Financial Peace University" course. I was reluctant, I'm pretty leary of get rich quick schemes, and I thought thats what this was. As it turned out, not so much. More like Pay Off All Your Debts (Including the Mortgage), and Get Rich Eventually by Investing in Mutual Funds and Living Debt Free. I actually like the program very much, despite the Christian stuff. Anyways, I skipped about four weeks, didn't do the homework (because I'm going to Dental Assisting School and part of the financial course was right in the middle of Radiology) and in general didn't pay too much attention.

What I did do, though was get his audiobook off of iTunes a couple weeks ago, and start listening to it.

Anyways, the cornerstones of his plan are pretty simple.

Step 1, develop an emergency fund. Save $1000 dollars in a bank account for emergencies, like the car dieing, someone breaks a leg, etc. Do this step quickly. (if you make less then $1200/year save $500 so you can get this done quickly). This shouldn't take you more then a couple months. Sell things if you have to. The emergency fund is so that you have money lying around to spend on emergencies, rather then relying on a credit card to take care of things.

Step 2, pay off your debt. Thanks to an inheritance I don't have any debts so I'm skipping this one. He's got a method to deal with massive credit card debt (pay off the necessities first, then start with the smallest debt. Sell things and work extra hours/jobs if you have to pay off the debts, etc.) He says don't buy cars on payment plans, use cash only. Buy used cars (1-2 years used, this is what most millionaires do) Don't use credit cards.

Also, finish your emergency fund, once you've paid off your debts your emergency fund should be able to cover all of your expenses for 3-6 months. I can't remember if this is a separate step or not.

Step 3, save for retirement. This is basically where I'm at, once I get a job. At least 15% of your income should go into a 401K or IRA for retirement. I'm adding 'save for a house' to this step as well. I calculated that if I earn about $15/hr, 40hrs/week I can save about 30% of my take home pay, IF I'm careful about spending. I want to save for a downpayment, which I think is about 20%?

Step 4 is save for the kids' college, no kids so I'm skipping this one.

Step 5 is invest (I think). Basically, take any extra income and put it in growth stock mutual funds. I have a mutual fund right now, but I don't think it's grow stock. He recommends looking for mutual funds that have been around for awhile (there's 70-80 year old funds) that have a good rate of return over long term, ie a 11-12% average. The fund I'm in is lower, about 9%, which is still better then the rate of inflation+taxes. But when it's up for renewal or whatever I'll look for a better one.

Step 6 is Pay Off the House. I don't have a house, but I want one (who doesn't?) Dave Ramsey says that a mortgage shouldn't be more then 25% of your gross pay (or was it take-home?) and you should get a 15 year mortgage because the monthly rate is only going to be slightly higher then a 30 year, but you end up paying far less in interest.

After that you'll be able to invest your extra money (that would have been going to your mortgage and cc debts etc), making you more and more money. Step 7 Have Fun At Retirement and Give the Rest Away.


Anyways, given all of that, I finally sat down and set a budget. I have a fully funded emergency fund thanks to Great-Grandma. I have no debt whatsoever. I have a mutual fund. What I need to do is get an IRA or 401K when I get a job (I was living off of Grandma's money last year and therefore can't get an IRA until I have a job, oops!). I want to put 15% in that. I also want to try to save another 15% for a house, and, possibly, Dental Hygiene School. (Hygienists make $35-50/hr. Nice money. But they need at least an Associates degree, and there's only two schools in Oregon that give an Associates for Dental Hygiene, and they're hard to get into). I broke down all my numbers, (monthly expenses, presumed income tax, plus that 30% I want to save) and it comes out that I need to earn $15/hr, 40hrs/week. $13-15 is the average starting wage for an Expanded Function Dental Assistant (which I will be when I graduate). Even if I get the lower end of this I'll probably be earning that in a year. Or, probably, more.

Only problem is, most dental offices are only open 4 days a week. So I'll probably have to get a part time job, possibly at a temp agency. Oh well. If I want to meet my goals, I'll have to do that. Work my ass off for a couple years until I get enough raises that it won't matter as much. I'm looking forward to it.