Reading: Personal Finances part 2 (Slides)

Personal Finances

Professor Steve Elzinga

The 7 Baby steps of Dave Ramsey

Baby Step 1 -Emergency Fund

Proverbs 10:5 (TLB)  A wise youth makes hay while the sun shines, but what a shame to see a lad who sleeps away his hour of opportunity.

The 7 Baby steps of Dave Ramsey

Baby Step 2 - Pay off all debt using the Debt Snowball

Let's say you have the following debts:

$500 medical bill (payment of $50 a month)

$2,500 credit card debt ($63 payment)

$7,000 car loan ($135 payment)

$10,000 student loan ($96 payment)

The 7 Baby steps of Dave Ramsey

In the debt snowball, we would list the debts in that order (remember, ignore the interest rates). Start by making the minimum payments on everything but the medical bill. For this example, let's say you find an extra $500 each month to go toward that debt by getting an extra job, slashing your lifestyle to nothing, and going crazy. That's very doable.

The 7 Baby steps of Dave Ramsey

Since you are paying $550 a month on the medical bill (the $50 payment plus the $500 extra), that medical bill won't even last a month. 

The 7 Baby steps of Dave Ramsey

Now, take that $550 and attack the credit card debt. When that happens, you'll be paying $613 on the plastic (the freed up $550 plus the $63 minimum payment). In about four months, wave bye-bye to the credit card. You've paid it off!

The 7 Baby steps of Dave Ramsey

Now we're at the car debt. Start paying off the car note to the tune of $748 a month (the freed-up $613 plus the $135 monthly payment). In 10 months you will be done.

The 7 Baby steps of Dave Ramsey

Once you've gotten to the student loan, you will be putting $844 a month on it. It will only last about 12 months.

Because of hard work and sacrifice, you have paid off $20,000 in debt in only 27 months using the debt snowball! Congratulations!

The 7 Baby steps of Dave Ramsey

Baby Step 3 - Save 3 to 6 Months of Expenses in Savings

The 7 Baby steps of Dave Ramsey

Baby Step 4 - Invest 15% of Income into Roth IRAs or pre-tax retirement

The 7 Baby steps of Dave Ramsey

Baby Step 5 - Fund College Savings for Children

The 7 Baby steps of Dave Ramsey

Baby Step 6 - Pay Off Your House Early

Loan - $100,000

Monthly payment $477.42

Principle - $144.08

Interest - $333.33

Loan amount left - $99,855.92

Pay an extra $144 and save an extra payment

The 7 Baby steps of Dave Ramsey

Baby Step 7 - Build Wealth and Give

What about a Budget?

Problem ...

Challenge ...

Where to begin with a budget?

Start the budgeting process by keeping track of all your income and all your expenses for two or three months.

Income

Job pay

Tax credit

Gifts

Side jobs

Other

Expenses

Housing (mortgage, property tax, repairs, rent)

Utilities (gas, electric, water and sewer, trash)

Insurance (house, life, car, health)

Food (groceries, restaurant)

Clothes

Transportation (taxi, bus, car payments, gas, 

Expenses

Transportation (taxi, bus, car payments, gas, repairs)

Phone

Internet

Haircut

TV

Education

Entertainment

Expenses

Giving 

Saving

Hobbies

Stuff

Miscellaneous 

Next:

Try to anticipate your income for each month of the coming year (12 months)

Next:

Try to anticipate your expenses for each month based on your anticipated income (Your anticipated expenses cannot exceed your anticipated income). Then write out your anticipated budget for the coming year in monthly installments.

Next:

Now keep track of our actual income and expenses for each month. Compare to your anticipated (budgeted) income and expenses for each month.

Why most people fail at this.

Lack of discipline

Lack of tools

Lack of motivation

Why you should be one of those people that actually succeeds at this? 

Making a budget and sticking with it is the most successful strategy in getting on top of your finances.

If you cannot follow a budget in your personal life you will never be able to follow a budget in your enterprise (business) life.

Why you should be one of those people that actually succeeds at this? 

You know that you are  a steward

Genesis 2:15 The Lord God took the man and put him in the Garden of Eden to work it and take care of it.

1 Corinthians 4: (NLT) For what gives you the right to make such a judgment? What do you have that God hasn't given you? And if everything you have is from God, why boast as though it were not a gift?

Why you should be one of those people that actually succeeds at this? 

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Deuteronomy 8:17-18 (NET) Be careful not to say, "My own ability and skill have gotten me this wealth.” 18 You must remember the Lord your God, for he is the one who gives ability to get wealth; if you do this he will confirm his covenant that he made by oath to your ancestors, even as he has to this day.