Watching Your Wallet: "Ramsey Review"

Published on the Utah Statesman website March 23, 2010.

As I've mentioned before, I am most definitely a ridiculous product of my frugal parents. It is simply a part of who they are, and they have taught me to follow in their footsteps. The most recent reminder of this was when I was home for Spring Break. After discussing at length what kind of face wash I should buy with my mom (and if there would be a cheap brand of the kind I wanted available), I went to the store and decided to go with a well-known, name-brand cleanser that was a little more on the pricey side. It is important to note, however, that a brand can still never pay full price for an item, and I was armed with a coupon I had dug up online, which I was quite proud of. I came home and showed my mom my purchases, and I watched her face fall and slight disappointment set in when she realized what I had paid "just to have a name brand plastered on the front of a soap dispenser." Oh well. Can't please everyone.

Aside from the (sometimes silly) frugalities my parents are constantly bombarding me with, they do have genuinely good financial advice. They have been very wise with their money and taught my siblings and I to stay far out of debt and save for the future. Their most recent finance educational endeavor has been taking "Financial Peace University" courses – a program by a popular consumer finance extraordinaire, Dave Ramsey. Now, I must admit, it sounds a little hokey, but after some encouragement from my parents, I decided to look into it and share what I learned with you.

As an easy and simple introduction, Ramsey is a regular old guy who made lots of money selling real estate but squandered much of it in his youth on short-term debt. He and his wife decided to get out of debt and learn the best way to handle money and be successful. He learned everything he could to get out of debt and started counseling people who were dealing with financial stress, wrote a book, started a radio show, and now he's pretty famous. He even seems like a pretty nice guy! As I perused around his Web site, www.daveramsey.com, I realized it was chuck full of information, links, articles and worksheets to get your money in order at any stage of life. In fact, I found myself enjoying reading past radio show discussions, browsing his easy budgeting worksheets and looking through his recommended links. I would certainly suggest looking through it to learn a thing or two about getting your finances in order.

All of Ramsey's advice and suggestions are based on what he calls "The Seven Baby Steps," ways to become and live debt free one step at a time. Once these steps are mastered, one can really reach financial peace and security – and who doesn't want that. Some things obviously don't pertain to college students or are even realistic things to work toward at this point in life, but that's why they're called baby steps. Work on one thing at a time and move toward mastery in all the steps, which will take time. But here they are, folks:

1. Save $1,000 for an emergency fund. It's not a matter of if, but when something unexpected will happen that will require a chunk of change. Broken down car, injuries, loss of a job and the list goes on. Plan now for these events so your bank account doesn't get shocked when they unavoidably occur.

2. Pay off all debt using the Debt Snowball. List all your debts and pay off the smallest ones first.

3. Three to six months of expenses in savings. This goes along with the emergency fund idea – life happens, and it's usually expensive. This money is only used for real emergencies. As Ramsey says, it's a buffer between you and life.

4. Invest 15 percent of household income in Roth IRAs and pretax retirement. Once you've reached baby-step four, you've eliminated all debt except for a house payment, which ideally would leave you some money to invest.

5. College funding for children. And this is where I somewhat disagree. My parents haven't paid a dime for my college education, and although I sure would have appreciated help, I will pass the bitterness on and let them struggle and ... grow! Yeah, grow. But, if you have a heart and would like to help support your children, invest a little in the hopes they someday attend Harvard, become wealthy doctors and send you on cruises in your old age.

6. Pay off mortgage early. The sooner you can pay off your house, the sooner you will reach financial peace.

7. Build wealth and give. This concept is found throughout all financial advice. Once you've reached financial success and peace, share it with others.

As I said, these are lofty goals for a college kid making $8 an hour, is renting out the biggest dump in Logan and doesn't understand investing. However, the earlier you begin setting and working toward financial goals, the more likely you are to succeed. Even if you simply establish an attitude of eliminating debt and saving, you'll be set for a road of financial success – and peace, as our new friend Ramsey says.