Financial Peace University

Several weeks now, Drew and I have been hosting a study group at our place about personal finance with other newly wed couples. We learned about Financial Peace University from my sister who attended classes through their church in the States. She encouraged us to get into it so when my brother was in the US, he bought a home study kit for us.

daveramsey

Baby Step 1:
An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen.

Drew and I just converted this value to peso and had this immediately tucked away. We liked that the value is something that’s easy to put together and set aside so step 1 is ticked off right away! It’s a happy feeling – this sense of already achieving something.

Baby Step 2: List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first.

Thankfully, the debts we incurred recently are the 0% interest payment plans for some household items we purchased when we moved into our house. The last one will be finished end of this year. I just realized though that some credit cards charge a finance fee even on their supposed 0% interest schemes. Lesson for us here is to move away from the credit card and start using our debit card instead. It has the convenience of a credit card without the dangers of using a credit card since the charges will be incurred real time. Instead of availing of 0% interest payment terms, we should just start putting aside money and save up for the things we know we will be buying.

Baby Step 3: Once you complete the first two baby steps, you will have built serious momentum. But don’t start throwing all your “extra” money into investments quite yet. It’s time to build your full emergency fund. Ask yourself, “What would it take for me to live for three to six months if I lost my income?” Your answer to that question is how much you should save.

This meant that we had to sit down and actually write down how much we’ve been spending and putting together a budget plan. We’ve realized we’re not really fond of actually tracking each and every peso we spend. There’s something a bit miserable about that, but it was good to know more or less how much of our money was going into eating out, groceries, utilities.

We’re parked on this step right now as we’re building our emergency fund but we’ve decided to always do Step 7 even while working on this!

Baby Step 4: When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth. Dave suggests investing 15% of your household income into Roth IRAs and pre-tax retirement plans. Don’t invest more than that because the extra money will help you complete the next two steps: college savings and paying off your home early.

Baby Step 5: By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now. In order to have enough money saved for college, you need to have a goal. 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!

Never save for college using:
Insurance
Savings bonds (only 5-6% growth)
Zero-coupon bonds. (only 6-8% growth)
Pre-paid college tuition (only 7% inflation rate)

Baby Step 6: Now it’s time to begin chunking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments.

Baby Step 7: It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It’s really the only way to live!

{*Baby Step text from http://www.daveramsey.com/new/baby-steps/}

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