Previous Post: Dave Ramsey’s Financial Peace University
Financial Peace University Lesson 1 – Super Saving
My wife and I attended our first Financial Peace University class Wednesday evening with a bunch of people from our church (check out the introductory post for this series) I was really excited to see the large turnout. We listened to Dave Ramsey speak for about an hour (via DVD of course) and then had some brief discussion. The majority of this week’s discussion was everyone introducing themselves and telling the group why they were attending the class.
I was quite happy to see that there is a great deal of diversity in the class. The attendees range from an 18 year-old guy, to some young married couples, to some couples with young kids, to some couples with college-aged kids, to those already retired. There was also significant diversity in the answers to why each person was attending. Some people just wanted to do a check up on their finances, others wanted to get out of debt, some wanted to prepare for having children or sending them to college, and others wanted to get on track in preparation for retirement. I said that I was here because learning about and discussing personal finances is one of my passions but I was most excited by the opportunity to take part in a PF class with my wife (she said she was there because I signed her up) I’m optimistic that all this diversity will lead to some interesting and useful discussion over the course of the, um….course.
Baby Step 1 – $1000 in an emergency fund
In the DVD, Ramsey highlighted a number of topics that he will expound upon in later lessons. For instance, he introduced his “baby steps” concept where he believes making small, focused changes will eventually lead you down the path to where you want to be.
He mainly focused on baby steps 1 and 3 this week. Baby step 1 is to, as quickly as possible, put $1000 in an emergency fund. If you are making less than $20,000 per year, then he suggested you change that number to $500. He underscored that this is not an investment, rather it is insurance, so put the money in a safe, liquid fund like a money market. Then, DO NOT TOUCH IT. It is there to provide peace of mind if anything unexpected happens (and he drove home the point that something unexpected WILL happen, so get ready).
When is a car crisis not just a car crisis?
I found it most interesting when he discussed what happens if you are not prepared for unexpected expenses. For instance, say your car breaks down and you have a large repair bill. If you are prepared, you just pay the bill without incurring debt and move on – car crisis solved. If you are not financially prepared, however, then not only do you have a car crisis, but now you also have a financial crisis. Imagine the stress on you if every time you have a crisis (car, health,whatever), it triggers an associated financial crisis. Actually, since most people in the US do experience that phenomenon with each crisis, maybe we should imagine how much less stressful it would be to just take some cash out of your emergency fund and pay the bill….financial crisis averted.
Ramsey also gave an introduction to wealth building. His two main points were that you must be disciplined about building wealth and you must remember that it is a marathon, not a sprint. He also suggested that you automate your saving and investing and showed the power of compound interest with the famous example of 2 brothers investing. One invests $2k from age 19 to 26 (a total of $16,000) and then stops. The other doesn’t start until age 27 (I guess they’re twins) but then puts the same $2k every year until age 65 ($78,000 total). Even though he has invested much more money, the late-starting brother still ends up with roughly $700,000 LESS (assuming 12% interest) at retirement.
My take on the first lesson
In summary, Dave is a very good speaker. Did you ever have the experience where you’re at church for Bible study and in the next room that class is watching a DVD of Beth Moore teaching? Sure, your class is interesting and all, but it never quite seems as fun as those women watching Beth (your main clue is the periodic uproarious laughter). Well, Dave is very funny and, during the first lesson at least, is able to really hold your attention and make the lesson quite entertaining and enjoyable.
I’m on-board with his saving first mantra, I already have an emergency fund, and there wasn’t much time for discussion this week, so I didn’t learn anything terribly intriguing. Still, I am very much looking forward to the next class (though I am distressed to say that I will miss class next week. My wife and I will listen to the CDs provided with the kit and I hope to post on the lesson and some of our personal discussion).
So, are you intrigued? Does preparing for and avoiding stressful, debt-inducing, financial crises pique your interest? Check back for more highlights next week or check out a class for yourself either at a local church or organization or sign up at Ramsey’s website to take an online version of the class.