The Monthly Budget: Boring but Powerful

Living on a budget won’t make you sexy. It won’t turn you into Mr. or Ms. Personality. (Unless you are an accountant/CPA like me.) :-)

But it will help you get out of debt.

And it will help you avoid the financial mediocrity trap that so many of your friends are falling into.

Dave Ramsey’s approach to budgeting is one of my favorites. His book, The Total Money Makeover, provides you the information to make monthly budgeting a part of your approach to maturing as an adult (and freeing up more cash to put against your debt).

As Dave often says, having a budget will make you feel like you got a raise.

It’s almost impossible to get a handle on your money, and start paying your student loans down faster, without making a monthly budget a part of your life.

Grab Dave Ramsey’s book, The Total Money Makeover. It is one of the smartest purchases I have ever made. My bank account is soooooooo glad I bought it.

I bet it will do the same for you and your bank account.

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Create a Nice, Big Emergency Fund

A lot of the stress in people’s lives comes from living on the edge financially. Your car has an oil leak and the mechanic says it’ll cost $1,800 to fix it. A medical problem comes up unexpectedly and your health insurance deductible is $1,300.

Worrying about how to pay for expenses like that creates stress and worry, sometimes even panic. You can almost eliminate those routine stresses in your life by having an emergency fund.

An emergency fund is money you set aside so you can fix the car when it breaks down.  You can deal with unexpected medical bills.  Life throws you a curve ball and you say – no problem.  It’s not the end of the world.

I wish it hadn’t happened that’s for sure. But I’ll just write the check and take care of it.

Time to get it fixed and move on.

Dave Ramsey says you should start your emergency fund with $1,000 then work it up to about three to six months of expenses. I’m okay with making your starter version of your emergency fund bigger, depending on your income, but get it going now.

You’ll never live without it once you have one.

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Normal is Broke: Don’t Be That Guy

In many areas of life, you can look at what the majority of people do… and give serious consideration to doing just the opposite. Personal finance is one of those areas.

Dave Ramsey, the author of The Total Money Makeover and the creator of the Financial Peace University program says “normal is broke”. He is right. The normal American family is deep in debt and has almost no money to show for all their hard work over the years. Most are living paycheck to paycheck.

Most of your friends have student loans… and they probably will for a long, long time to come. They have bought into the myth that dragging their debt out over their working life makes good sense.

“A small monthly payment makes my student loans more affordable. It makes it easier to manage my student loan that way.” That’s how your friends are being taught to “manage” (drag out) their student loans. It’s bulls@$! It’s not the ticket to financial freedom in life.

Having Money

One of the reasons so many people are broke has less to do with money itself and more to do with how people view their money and their debt.

I’ll show you why this is true in my next post.

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Dave Ramsey asks college students and their families about their student loans

On the Dave Ramsey Facebook page recently, they had a post that included two questions: “Question for college students and/or their families. Do you have student loans currently? If so, did your school promote them to you?”

Let’s look at a few excerpts from some of the responses on that post. Then I will share with you some key insights about student loans.

“I am interested to know how many parents do not save for their children’s education BECAUSE student loans are readily available. I understand that there are a number of families just making it paycheck to paycheck but how many families are buying/leasing expensive cars, living outside of the means and not saving for their kid’s college.”

 

“I graduated in 2002, and I still have student loans I’m chipping away at. I finished school with close to $50k from a private, Christian university. My biggest regret, though, is that I understood my loans would be paid off in 10 years. It was about 8 years in that I realized it was more like a credit card payment, in that my $400/month was not going to pay off anything and that I’d have to work much harder to get out from under it.”

 

“No, however the Christian university I wanted to go to push student loans so hard that I ran the other way. Maybe because I had a few more years on the average student, but the whole thing left a bad taste in my mouth when a Christian university pushes massive debt at students and there are options (though few). Sadly it is also instant money for the University. At that point there is little concern for what is best for the students.”

 

“I have student loans and an un-used degree, my husband has student loans and got an excellent job before getting his degree. Go figure! I used to work in a financial aid office, and loans were included with every financial aid award letter, and if you ever want to hear some of the (sad) stories I saw, let me know! Including the 60+ year-old student with over 100k in loans applying for more, and many other desperate students who couldn’t afford the private college but attended, anyway…”

 

“I unfortunately co-signed for my son’s loans, two to be exact. Yes to both questions and now I am paying for them since my son is working two jobs just to survive. I had my financial life all cleaned up and now these loans are coming back to haunt me.”

 

“Unfortunately, I do. Yes my school did to a degree promote them to me in the form of “financial aid”, which is obviously not what they are! Amongst what is literally aid as far as grants and work study goes, I currently have about $12,000 in student loan debt after 2 years of school…something MY children will NOT have.”

 

“Yes, still paying 15 years later and yes, they promoted to me. I had no idea the gravity of what I was signing. It was presented as, this is just how it works. If only I had known I’d still be still paying them 15+ years later, I can’t imagine I would’ve signed for them.”

 

“Currently paying off my student loans. I graduated in 2007. They promoted student loans heavily and more than amount that I need. Every semester I had a couple grand left over to spend on whatever I pleased. I held onto it and bought things I need throughout the year. Like food, rent, gas, bills, etc.”

Very interesting comments from people who have experienced student loans.

Here are some principles/lessons that I believe are important for you to consider.

  • Many parents and children get so focused on the ease of taking out student loans that they lose sight of how they can be working and saving to help pay for college. Saving money for your children’s college education is the smart way to pay for college.
  •  Student loans are easy to get but difficult to pay back. It’s like the ease of putting on weight compared to the difficulty of losing weight. It’s wiser to take a little pain now (avoiding the student loans) so you can avoid a huge dose of pain and struggle later in life with a bunch of student debt.
  • Does the fact that student loans are available and so easy to get, cause parents to lose their focus on saving for their kid’s college? Are you saving for your kid’s college? (Please do. It is very important to save so you are ready when they become college age.)
  • Parents, don’t co-sign any student loans and don’t take out any Parent loans to fund college. Paying for college by saving up for it is wise. Even if your child is not able to complete school it is still the right thing to do. Things don’t always turn out the way we want them to. That’s life. But if you take on the responsibility for student loans for your children, you are taking on a huge risk that could kill your financial health if things don’t turn out well.
  • Student loans make college even more expensive than it already is.
  • Student loans are not “financial aid”. It’s debt. And it is debt that has some of the most hardcore, negative implications on the financial future of those whose plans for a degree and a good paying job do not work out exactly as planned.
  • Yes, student loans can work out for many people. It’s like any other debt in that it works great… when it works. But oh boy… it can cause financial havoc when it doesn’t work. Why risk your financial future.
  • One of the dangers of student loans is they can make it easy (and tempting) to live beyond your means while you are going to school. A student then creates a lifestyle that is a couple notches above what you would expect of a “broke college student”. And that is a very dangerous trap to fall into.