My fiancé and I completed Dave Ramsey’s Financial Peace University this week! It was a great class and well worth attending. We chose to do the nine-week class in person at our church but you can also sign up at Financial Peace University online. The schedule is well laid out with an introduction, video, group discussions, and homework. The classes were about an hour and a half long. If you are not yet familiar with Dave Ramsey, he is someone you should definitely check out. He is well-known for his stance against debt and for teaching millions of people how to win with money. He is a Christian and his lessons are based on biblical principles. If you go through the baby steps and decide that being debt free is not for you, there are many institutions that would be glad to hold your debt.
Lesson 1 – Super Savings
The first week of FPU started strong. As the class began, we were introduced to our coaches and others in the class. We jumped in quickly to the first lesson. Dave explained the seven baby steps:
- Save $1000 in a beginner emergency fund.
- Pay off all debt except the house using the debt snowball.
- Increase your emergency fund to include three to six months of expenses.
- Invest 15% of your household income into retirement.
- Start saving for college.
- Pay off your home early.
- Build wealth and give generously!
He continues the lesson by explaining three basic reasons you should save and why you NEED an emergency fund. Many examples are provided for why it is better to pay with cash over credit for items including having a better ability to negotiate the price. The lesson wraps up with one of the best laid out examples I’ve seen of the power of compound interest which can also be found on his blog post How Teens Can Become Millionaires.
Lesson 2 – Relating With Money
In lesson two, Dave shows couples to work together with their money. For singles, he recommends that they have a financial accountability partner. He states that the flow of money in a household represents the value system under which that household operates. As the lesson progresses, he discusses the relationship between men and women with money, marriage and money, and how to teach kids to handle money. Dave also provides tips for singles and warnings such as avoiding the “I owe it to myself” syndrome. The class ends with a quiz on whether you are a “nerd” or “free spirit” when it comes to money. I think we were both surprised by the results of that one.
Lesson 3 – Cash Flow Planning
Lesson three brings up the dreaded “B” word – Budget. In this lesson, Dave discusses the many reason most people don’t have a budget as well as why it is important to have a written plan. He recommends a zero based budget. Whether it is to be spent on bills, food, entertainment, or saving, “every dollar must have a name.” The lesson also includes examples of a monthly cash flow plan, allocated spending plan for managing money week to week, and irregular income planning. If you have read Dave’s bestselling book “The Total Money Makeover” or regularly listen to his show, the first two are fairly simple. One that I found of interest that isn’t discussed quite as much is the irregular income planning form. This is great for people work on commission or business owners who may not always earn the same income every month. The class worked through a few examples budgets before the lesson concluded.
Lesson 4 – Dumping Debt
The fourth lesson in FPU is all about breaking the chains of debt. This is perhaps the most discussed topic anytime Dave Ramsey’s name is mentioned. To say that he hates debt is an understatement. This lesson discusses the myths behind several types of debt. He explains that a FICO score is an “I love debt” score rather than a measure of winning financially and advises that you should get out of debt with gazelle intensity. Dave’s method of accomplishing this task is the debt snowball. The debt snowball involves listing your debts smallest to largest, paying off the smallest one first, using the money freed from paying that debt to help pay the next in line faster, and repeating until you are debt free. This is a great method that has worked for many people and one that we are currently using as we work our way through baby step two.
The rich rule over the poor, and the borrower is slave to the lender.
Lesson 5 – Buyer Beware
If the fifth lesson doesn’t make you angry about debt, I’m not sure this course is for you. This lesson is all about marketing strategies that not only get stuck in your head, but also get into the minds of kids at an early age as well through toys. Dave discusses why 90 days same as cash is not really the same as cash. He talks about how convenient the stores are making it to get into debt. You are asked to define what a major purchase is to you. Dave also provides strategies for wise buying decisions as well as negotiation tips. After leaving the class this week, we were hyper aware of the surrounding advertising, especially the subtle marketing to kids.
Lesson 6 – The Role Of Insurance
One of the lessons we got the most immediate benefit out of was lesson six. Dave starts by explaining that the purpose of insurance is to transfer risk. He recommends having seven basic types of insurance:
- Long-Term Care (Over 60)
- Identity Theft Protection
Dave breaks down each of those types of insurance and why you need them. He spends time explaining exactly which parts of the policies to look at when trying to lower your premiums and which parts you should not touch. This is the most thorough explanation of various types of insurance I’ve had and I left with a plan on re-evaluating my insurance policies. I found over $600 in savings just from this one lesson!
Lesson 7 – Retirement And College Planning
Lesson seven starts out strong with an example of a 30-year-old couple making $48,000 a year and saving 15% of their income retiring as millionaires. This is a great example to help break the mindset many have that you can’t do it on the average household income in the US. This is actually below average according to the U.S. Census Bureau’s report showing the median household income in 2016 was $59,039. The example also assumes that they never get any raises, bonuses, or any extra income whatsoever. Dave then explains his recommended investment methods for both retirement and college funds. These are simple investment methods that anyone can do.
Lesson 8 – Real Estate And Mortgages
Home ownership – the American dream. For many, it can become the American nightmare if they go about it the wrong way. In lesson eight, Dave talks about the when, what, why, and how of home buying. Many are rushed into buying homes as a great investment but sometimes it’s not the best move. He tells us that there is nothing wrong with renting as a short term solution until you are truly ready to buy a house. Dave also debunks many myths about home buying with real numbers and shows you that sometimes it is best to wait. Home buying can be an emotional process and it is easy to get caught up in house fever. He recommends paying 100% down – that’s right, no mortgage at all. If you do choose to get a mortgage, he still recommends 20% down on a 15-year fixed-rate loan where the payments are no more than 25% of your take-home pay. The idea of no mortgage is crazy to many people but, as Dave likes to say, 100% of houses in foreclosure have mortgages.
Lesson 9 – The Great Misunderstanding
The final lesson of FPU is a great one focused on building wealth and giving generously. This is primarily aimed at baby step 7 although some parts of this lesson apply to all the baby steps. Dave explains tithing and how we are just asset managers for God. He also explains that giving is an important key to reaching financial peace and that giving in many ways leads to you becoming more prosperous as well. In my experience, I have seen wealthy people that hold on to their money tightly with the fear of losing it and they do alright but it’s the ones who give and help others that have truly prosperous lives.
Financial Peace University is a great class and I definitely recommend it to anyone who wants to win with money. At Life Over Money, we realize that having a big pile of cash lying around is not the key to a prosperous life but being debt free makes achieving it much easier.