1. Make Your Debt Known

    NOTE: This article was originally published on Money Musings in May of 2006. I’m republishing it now to update some info and links, for one thing, but mainly because I think the idea here — to tell others about your debt, so you can begin to overcome it — is worth repeating. Loudly.

    I have become a big proponent of an idea I first heard from Suze Orman: If you’re in debt, and want out, then you must tell others about your debt.

    I bring this up because this week my wife purchased a newsstand copy of All You magazine. I’d never heard of it before. Because “what I read” is not nearly as important to me as the fact that I just read SOMETHING, I have no problem tossing aside my manhood and flipping through a publication whose self-described audience is “Value-conscious American Women.”

    (Yeah, I’ll read articles from stuff like Cosmopolitan and Woman’s Day, too. Sometimes there’s personal-finance stuff in there, which I’ll read no matter where it comes from. Other times, it’s more like reconnaisance. Us guys can get an interesting look behind enemy lines that way.)

    Anyhow, in this issue of All You, there was a one-page article about a 25-year-old woman who’d piled up $20k in credit-card debt. Not much about the story (soapishly titled “I Was Hiding a Huge Secret”) caught my attention, until I hit this little snippet:

    …I joked to my friends about being in the poorhouse, but because I’d landed a great public relations job, no one guessed what was going on. I never told because I was afraid people would see me as irresponsible.

    One day, though, I was with my best friend, Mandi, and I just blurted out the truth. For the first time, I actually said aloud the amount I owed. It was a huge relief. Mandi, who was a loan processor for a mortgage company, reassured me that I could get my debt under control, and she offered to show me how.

    I don’t know about you guys, but in my experience, folks with money problems almost always get to that point in secrecy. Read that again: Folks with money problems tend to get there in secrecy. I would contend that this is a powerful and dramatic “common feature” in today’s financial world.

    We could spend days talking about why this secrecy, damaging as it so often is, plays out. It’s a cultural thing; money simply isn’t an open topic in social (and, often to a larger degree, familial) circles.

    It’s human nature. Acquiring debt can hint at shortcomings, and who in their right mind wants to advertise his or her shortcomings if they don’t have to do so?

    It’s a “commercial presentation” thing. Ever notice how credit-card bills arrive in discreet white envelopes, while credit advertisements can usually be spotted by your mayor’s son’s future parole officer from two blocks away? Think about the possible implications. If you’re in debt, it’s a “privacy thing,” and you’ll probably want to keep it quiet. If you’re debt-worthy, though, you want the world to know.

    I could probably come up with another 10 or 12 reasons, but I’ll save the wear ‘n’ tear on your browser and eyes, and move on to the good side of all this. More from our spendthrift 25-year-old:

    I’m so glad I opened up about my debt problem. Today I’m 29, and my credit rating’s stellar, my debt’s entirely gone and I’m considering starting my own public relations business.

    Here’s where we recite that old tenet about facing your problems head-on: You pretty much have to. No one else will do it for you, right? For me, a big part of facing my debt head-on was making it a public affair. (In the case of It’s Your Money and this here blog, well, that’s about as public as you can get.)

    I needed the opportunity for learning that this site provided me. I darn sure needed the accountability. I needed the responses from readers, some who’d already been where I was, and who years ago had found the EXIT sign, and some who were right there with me, practically in lock-step, from Day One.

    Not everyone needs these things, of course. Waging a successful war on debt can be done entirely in private. But given the situations I’ve seen in my life, and the people whose lives I’ve seen ruptured by debt, I sure don’t like the odds.

    This is why it’s always made me happy to see new blogs popping up — the ones where the authors have made a decision to move forward in their money lives, to vanquish their debts and whatever other baggage they might have, and to generally get on with kicking life’s butt. I am here to proclaim that it’s a worthy mission.

    There are a host of other goal-oriented bloggers who see fit to make their debt paydowns public, and I commend each one of them. I do still try to keep up with as many as I can. Because I’ve been where they are. By making their debts, their goals, and their actions public, they’ve turned vague “ought-tos” into unmistakable, concrete targets.

    They’re asking for an audience. They’re asking for accountability. This goes against pretty much everything our society preaches regarding money and debt. And by gosh, it takes big-time courage.

    If you’re thinking about doing something like this, about starting up a WordPress blog or LiveJournal or something like that to help you get your money straight, I say “Fire it up.” There’s a great deal to be gained when you open up the windows and let some light in.

    Make your debt, and your task, known.



  2. Kiyosaki’s Rich Global LLC To File BK

    Those of you who follow the travels and travails of Rich Dad Poor Dad author Robert Kiyosaki will be interested to see this:

    NY Post: “Rich Dad Poor Dad” Author Files BK

    So it appears that one thing Mr. Kiyosaki’s “rich dad” taught him was that corporate BK is a perfectly valid method for retaining and shielding one’s personal wealth. In the three Rich Dad books I read, Kiyosaki was quite insistent that creating businesses and setting up corporations was a must.

    Because hey, you never know when you’re gonna lose a lawsuit for a $24 million breach of contract.



  3. Debit Card Drawbacks

    I’ve mentioned it numerous times on IYM: Debit cards are a great tool, but they have serious drawbacks, too. And there are some things for which they’re totally unacceptable.

    Cue the piece from USA Today:

    USA Today: Debit Card Holds Can Derail Travel Plans

    Dave Ramsey loves to talk up debit cards, but as the article tells us, there are times (vacations, for one) when you really ought to keep that particular slab of account-zapping plastic tucked in your pocket.

    What makes debit cards even worse? Well, as my daily dealings with Joe Q. Public have taught me, there are still a great many folks who have no idea how debit-card daily limits and hold policies actually work. (Though, to be fair, most people also have no idea how their credit-card policies work, either, so why would it be any different for debit cards?)



  4. Dave Ramsey and 12 Percent

    This, friends, is easily the one thing about Dave Ramsey that pisses me off the most. This particular table comes from Dave’s Total Money Makeover Workbook, page 229:

    Twelve Percent ... HOW?

    The point of that data is pretty simple: If you’re not making payments to anyone other than yourself, AND if you’re willing to work hard, you can accumulate a lot of money in a pretty short amount of time.

    Now, I agree with that premise wholeheartedly. Heck — I’m seeing it play out in my own life. Our only debt payments go to the mortgage company, and further, those same mortgage payments (15-year, fixed-rate loan) take up less than 15 percent of our monthly take-home income. (For those who care, Dave’s recommended upper boundary for mortgage payments is 25 percent of take-home pay.)

    So, because there aren’t any car payments or student loans or credit-card debts sucking cash out of our accounts, we have a lot of leeway in directing our money where we want it to go.

    No, my problem is with the “12 percent returns” Dave loves to talk about SO VERY OFTEN. And, as noted by the chart above, use as a reference point in his books.

    Here’s the text that accompanies the chart:

    Exercise #69

    Consult the chart below.

    • Determine how many years you have to retirement … or to the place you’d like to set as your Pinnacle Point.
    • Determine how much you have to invest each month to get there.

    At your current rate of investing, how long will it be before you reach the Pinnacle Point? Are you willing to invest more each month?


    “Invest your money in good growth-stock mutual funds,” Dave always tells radio listeners, “and in twenty years, earning twelve percent a year, you’ll be a fobzillionaire!” Or something along those lines.

    Well, yeah. At annual earnings of 12 percent, the math works.

    But it’s getting that “average 12 percent per year” return that might cause some consternation.

    Like It’s a Given

    Dave throws this figure out there constantly. Like it’s inevitable. Like it’s a given.

    That, at least, is how I hear it.

    And it never fails to make me cringe. (As I’ve mentioned before.)

    It seems to me that when you’ve had a few decades of economic “growth” built upon declining and/or stagant wages for the lower and middle classes, coupled with repeated injections of massive debt at every level of society — how else to make up the difference and still keep asset prices high? — then it’s at least worth considering that maybe investment returns going forward will come with a level of risk that’s not conducive to double-digit expectations.

    Am I alone in this thinking?

    Because some days — like when I come across the chart above — it sure feels like it.



  5. Debt-Free is Nice, But…

    A couple of weeks back, I spent some time thumping on How to Get What You Want in Life With the Money You Already Have, a book written by Carol Keeffe in the early 1990s. While not a literary prize by any stretch, the book deserves some credit: It did get me started in the world of personal-finance reading.

    One of Keeffe’s particularly egregious recommendations — and this is just kerfuffle waiting to happen — is for folks to make minimum payments on all their bills and credit cards until they’ve saved up six months’ worth of salary as an emergency fund. To me, such a plan would almost guarantee failure. How many folks do you know with the financial (and disciplinary) ability to pull that off?

    Not many, is my guess.

    I much prefer Dave Ramsey’s Baby Steps plan, and its suggestion to make “minimum payments only” until one saves $1,000 (or $500, if you’re a low-income household) … and THEN to attack the debts full-force and head-on.

    However, as I was finger-flipping through How to Get What You Want a little more, I managed to find a few paragraphs that stood out — in a good way! Actually, I found this to be quite insightful, and a bit Suze-Orman-esque:

    For most of us there are two things that would make a big difference in the quality of our lives: (1) having the deeply satisfying feeling of knowing we’re directing money toward making our dreams come true, and (2) having the secure feeling of knowing money is available for today’s emergencies as well as tomorrow’s needs.

    Well, I’m not so sure about the “making dreams come true” part, but I’ll vouch for the utter goodness of financial security. Having money available for emergencies changes everything. Life looks far different when you’re ready for the speedbumps and potholes.

    Keeffe continues:

    If you were thinking that eliminating a bill would make a significant difference in the quality of your life, watch out. It’s only a diversionary tactic of the mind. Of course things would be better if the bills were more under control or gone altogether. But eliminating a bill creates only a temporary feeling of relief compared with the deep and lasting feelings of power and security that money in hand creates. The availability of money means choices, and choices mean control. Lack of bills will never compare to the potency of having choices (money).

    You know what? I agree with this. One. Hundred. Percent.

    As a guy who’s made it through Step 3 of Ramsey’s Baby Steps (no debt except for the mortgage; fully-funded emergency fund is in place), I found that for me, while paying off that last debt felt great, hitting my savings mark felt even better.

    As Keeffe notes, “Eliminating a bill creates only a temporary feeling of relief, compared with the deep and lasting feelings of power and security that money in hand creates.” To this I say: AMEN.

    Debt-free is sweet, but there is no substitute for savings.

    But We Gotta Qualify This…

    As much as I love what Keeffe says here, she is still presenting it in the context of “You need to have a bunch of money saved BEFORE you begin seriously paying off your debts.” The logic of this baffles me entirely. While it sounds silly, I want to scream at her, “Hey! The longer your readers stay in debt, the less likely they’re ever going to get out of it!”

    Though of course I have no quantifiable evidence to support this, everything I’ve learned to date, and everything I’ve seen, points toward the assertion that the more you muddle through life, simply “living with” your bills and debts, the less likely you are to ever get out from under them. Let’s face it: Banks and other lending institutions endeavor to make it so.

    At some point the lack of progress, the years of frustration and stress — all of it accumulates into the deadly “This is just how everyone lives!” attitude.

    At which point, you’re sunk.



  6. Good Elizabeth Warren Article

    She’s the author of The Fragile Middle Class, The Two-Income Trap, All Your Worth, and several other finance-related books. She’s in the news these days, and making the evening talk-show circuit, due to her capacity as a TARP overseer of sorts. (Suffice to say that banks don’t like her very much.)

    And those of you looking for a good (recent!) interview with Elizabeth Warren can find it here:

    Counterpunch.org: Talking to Elizabeth Warren

    I’ve been quite impressed with what I’ve heard from Ms. Warren since she took on the oversight task. Just wish she had a bit of “legal power” to go with her innate gift for pointing out where taxpayers and the middle class are getting hosed.



  7. Why I Promote ‘Baby Steps’

    When you have a website about personal finance that’s been up and running for years, you’re going to get plenty “Where do I start?” emails from readers.

    It’s pretty much inevitable.

    Same goes for your day-to-day life. As a financial blogger, if you develop any sort of “rep” at all, you’ll get similar questions from people you meet first-hand. The ones you don’t scare away, at least. You’re an Excel-wielding freak, after all.

    Over the years, in these situations, I’ve become quite comfortable in my promotion of Dave Ramsey’s Baby Steps plan. The reason it became my first choice?

    Simplicity, with a capital S.

    Well, actually, that’s just the main reason I point folks toward the Baby Steps. The plan can, with minimal description necessary, fit on one page. Everyone grasps it, and grasps it quickly. In a world where smart personal finance is frequently nuked by eye-glazing jargon, fine print, and fast-talking brokers of every sort, “simple” is a big plus.

    However, in my opinion, Ramsey’s Baby Steps plan is also the best-packaged (yes, this matters) and most accessible money plan out there.

    Dave Ramsey himself often says (correctly) that there’s nothing new in what he preaches. Instead, he just “packages” it better than everyone else.

    (He also has a mighty powerful, semi-captive “in” with the church-going crowd. But that’s a tangled post for another time.)

    Don’t You Care About the Math?

    Of course I care about the math. When I was working through my own “debt snowball,” I rerouted as many debt dollars into low-interest promo offers as I could, and then threw all extra cash at the highest-rate debts first. It worked great for us … but it also lengthened the time between instances where we could “cross debts off the list.”

    In lieu of that, I had to find other ways to keep myself motivated and on track. Most of these had to do with creating It’s Your Money and Money Musings and writing as much as I could. And oh yeah — I read every financial book I could get my hands on.

    Look: Paying debts off by smallest- to largest-balance, rather than by largest- to smallest-interest-rate, is practically guaranteed to cost more in interest. (Though how much more it’ll cost is very much a factor of how skyscraper-ish the rates are that you’re paying.)

    What it does give you, though, is something that 98 percent of debtors I’ve encountered desperately need. And that something is near-term, rapid bursts of motivation. A sense of immediate progress. A way to look down and see that they are, in fact, moving forward. They’re marking creditors off the list.

    It’s all about “quick wins,” as Ramsey phrases it.

    I’ve given the pay-by-balance versus pay-by-rate battle a lot of thought. Once I account for human nature, I have to come down on the side of pay-by-balance. So on this facet, Dave and I agree … but lots of other money bloggers disagree.

    Getting to Debt Freedom:
    How Much Does The “How” Matter?

    While it makes for interesting reader comments on higher-traffic blogs than this one, the “pay-by-balance” versus “pay-by-rate” debate seems, to me, to mostly miss the target:

    If the plan you follow works — if it gets you out of debt, decreases your stress, and improves your life — then it was the right plan.

    One More Reason I Recommend Dave…

    It’s because he’s everywhere.

    It comes down to that motivation thing again. If you’re feeling like you’re losing your grip on your finances, like your emergency fund saving and your debt paydown plans aren’t going anywhere, like your Baby Steps have become Baby Stumbles, then a few “visits with Dave” via his ubiquitous radio show and/or his nightly Fox Business call-in show can get your head straight in a hurry. And if you’re a Sunday-go-to-meetin’ soul, odds are pretty darn high that you’ll have a Financial Peace University setup going on there which you can easily access.

    No other money guru is as accessible, as available in as many channels, as Dave Ramsey is right now. AM radio … TV … live events … books and DVDs … you name it. He’s there, and ready to smack you upside the head should the need arise. (Which it will.)

    So there you go: In my mind, it’s the simplicity and accessibility of Dave Ramsey that puts him at the high-water mark of today’s financial personas.

    Is he a salesman at heart? Absolutely he is.

    Does he need to move DR-branded product? You bet he does.

    But until someone else’s name starts popping up in the “My husband and I finally have our finances under control, and it’s all thanks to Dave Ramsey” statements I hear so often, his Baby Steps plan will be the one I suggest.



  8. Dave Ramsey Training: Cheaper Now (Sort Of)

    Well, I suppose you could call it deflation.

    Folks interested in becoming “Dave Ramsey certified counselors” in Dave’s counselor-training program will now find their wallets lightened by roughly $2,950 for the priviledge. (Spouses can tag along for just $1,500 more.)

    Stout price tag? Yes. But readers with healthy memories might recall that the last time I checked, this counselor-training course of Dave’s was running in the $3,950 range. However, if you were participating on behalf of a non-profit, church-related entity, you could get all “Dave’d up” for the low low price of $2,350.

    So the course is cheaper now for Your Average Joe, but more expensive for the church-based crowd. Better pass that collection plate around a couple more times.

    $3k Keeps Out the Riff-Raff

    I’ve kicked around the idea of taking the counseling course. Obviously this topic (debt-busting, financial independence, and so on) is one that I eat up, and I agree far more often with Ramsey than I disagree with him.

    However, while I’d likely have a blast at the event, I just don’t know how much I’d learn there — nor do I know how I could make it financially worthwhile for myself. Tax-deductible or not, three grand is a chunk o’ change.

    And aside from the cost basis required by providing for a Tuesday-Saturday hotel stay, food, and “high quality training materials and manuals” (all included in the price), I’m quite sure Dave’s group sets the price where it is so that they can, in some measure, weed out all non-hackers who don’t pack the financial gear to serve in his beloved corps.

    In the end, Dave has become too salesman-ish these days for me to feel good about handing him $3k to relearn what I likely already know. I’ve bought and given away numerous copies of his books, so my conscience isn’t nagging me about “giving back” to those from whom I’ve derived value. (That “value” hasn’t been restricted to just a personal level: A fair amount of search traffic at IYM gets here via Google and Yahoo searches for Dave-Ramsey-related terms.)



  9. Liquid Savings Goal Reached

    Astute readers will notice that, as of the end of last month, Lisa and I reached our Liquid Savings Goal of $15,000. For the first time, that little green “Liquid Savings” bar chart on the right sidebar shows progress of one hundred percent.

    Though we’ve not strictly followed Dave Ramsey’s Baby Steps plan, we’re now up-and-over Baby Step 3:

    Create a full-fledged Emergency Fund containing 3 to 6 months’ worth of expenses.

    The $15k gives us about four months’ worth of living expenses. With no debt other than our mortgage, and four-plus months’ worth of cash in the bank, I would like to take this opportunity to channel the incomparable James Brown and state that, yes, truly, I feel good.

    What’s Next?

    You’ll forgive me, I hope, for not yet knowing exactly what goal I wish to target next. If I turn to Dave Ramsey again, I see that Baby Step 4 suggests:

    Direct 15% of your annual pre-tax income into your retirement plans. Utilize tax-advantaged accounts such as 401ks and Roth IRAs, if eligible.

    While notching up my 401(k) contributions to 15 percent of income would be easy to pull off, effort-wise, I have over the last 5-10 years grown quite skeptical of the 401(k) setup overall. The high fees of my company’s particular plan are bad enough. But beyond that — call me crazy, if you like — I’m also way reluctant to start pouring more cash than I already do (enough to get the full employer match) into a tax-deferred investment vehicle which my spend-itself-silly government so obviously eyes as a future income source.

    I’d favor the Roth IRA route, for sure. But even then, one has to wonder just how exactly the idea of allowing us “rich” Roth investors to withdraw investment gains tax free is going to play out in the future. (My opinion? Not well.)

    So … as I said, I’m undecided where to focus efforts next. In fact, when it comes to savings, there are a multitude of items we’ll need to consider:

    • My personal vehicle is now 15 years old. My 1995 Nissan truck will have to be replaced at some point. I don’t want to borrow for my next truck, if I can help it. It’s likely time to start making monthly Freedom Account payments to myself for this future expense.
    • Our house will need a new roof soon. Ah yes, the old house-maintenance big-ticket expenses. In this realm, new siding and windows would be beneficial, as well. And you should see our carpet. (Actually, no, you shouldn’t. Bleh.)
    • Vacations. Good ones. When I was a kid, my family never took “big” vacations. Sure, we’d make yearly trips to Iowa to visit relatives, but that was about it. There were things I wanted to see as a kid, but never did, and there are even more things I want to see now with my family: national parks, Disneyland, Gettysburg, the Smithsonian, various historic sites in the northeast … you name it. My list is long. But when you live in Oklahoma, as we do, which is close to precisely nothing, such trips don’t come cheap. Gotta save, save, save for them.

    So yes, I have savings-goal ideas — don’t we all? — but haven’t yet given a whole lot of thought to “What next?”

    For now, I’m just happy to finally see that fifteen grand tally up at the top of my Quicken sidebar … and to know that my household is in better shape financially than it has ever been.



  10. Try Paying $2,950 for Dave Ramsey

    There’s a nice little snippet from JLP at All Financial Matters that’s been quite the comment-magnet:

    AFM: “Dave Ramsey Gets on My Nerves”

    I wholeheartedly agree with JLP on this. I appreciate most of what Dave Ramsey espouses, but Dave and chunks of his website do have the occasional infomercial feel to them, and I could do just fine without that. But he’s doing what he’s doing because it makes him money — and folks could find lots of worse things to spend their cash on, I imagine.

    I’ve purchased three of Dave’s books (Total Money Makeover in audiobook and hardback, and Financial Peace), and I’ve attended a Dave Ramsey Live Event. So I’ve given my share of change to Dave. But Dave’s writing, ideas, and energy helped me get to where I am today, financially, which is to say that he played a significant role in making my life better. What money I’ve spent has, in my opinion, been well spent.

    Three-Dime Dave

    Now, for those who might not be so well versed in Dave Ramsey Financial Paraphernalia, it’s worth pointing out that Dave also sells “Counselor Certification.” The price tag? A mere $3,750 $3,950 $2,950 as of this writing [Source]. (You can add your spouse to the class for another $1,500.)

    Why do I know these figures? Because I’ve strongly considered plunking down the cash (and the time) for the training.

    You’re kidding, right?

    Look: I love personal finance, and I’m all about most of what Dave has to say. I love helping people, and seeing people grow and improve their lives. Financial counseling of this sort is right up my alley. What I’ve done of it so far, I’ve enjoyed tremendously.

    However, while I’ve gotten a ton of value from Dave’s stuff, I just can’t see $2,950 worth of substance in re-learning what I (mostly) already know. And I don’t know that a link from daveramsey.com, or referrals from his group, is worth that kind of coin.

    For comparison’s sake, I could take the six CFP-prep courses at Florida State University (I’ve done the Intro to Financial Planning one already) and be out less than $2,950 with books and all. And I’d practically guarantee that I’d learn tons more useful-to-me stuff from FSU than from Dave Ramsey U.

    So you won’t do Dave Training, right?

    I dunno. Maybe.


    I just love this stuff that much.

    Admittedly, attaching a 3.9-dime price tag to his counselor-training gig is a fine way for Dave to screen out the riff-raff. And the multi-day session can’t be a blow-off thing, as it can earn CPA attendees just over 34 CPE credits. Not bad … I think. (Although, for all I know, you might be able to earn 2 or 3 CPE credits just for punching yourself through a self-serve checkout at Wal-Mart. )

    In the end, Dave’s in this to make money, and that much is obvious. He’s constantly finding new angles by which to sell his schtick, at price tags that range from $5 all the way to $2,950. This is a businessman in action, folks. And a successful one, at that. I don’t know that it’s good … or bad.

    It just is.