DebtFREE-Revolution

Dave Ramsey is pretty big in the personal finance blogosphere.  Whether you love him or hate him, he gets a lot of posts published about him as a “financial guru” (or “hypocrite” or “con man” or “cult leader” or even “liar” as one recent blog mentioned!) and also about his get-out-of-debt ideas. 

There’s a considerable amount of bloggers on each side of the fence.  I am firmly in the “love Dave Ramsey” camp.  Some are firmly in the “hate Dave Ramsey” camp.  But there is actually a third camp, and this is the group that makes me bite my fingertips: people who blog about Dave Ramsey without really knowing what he says or writes!  There are quite a few in this camp who might read a snippet on another blog and pop off without doing all the research.  Then there are a few who will take the time to do a little research over at DaveRamsey.com but still not really understand what the message is.

I’m going to pick on PaidTwice (with her permission!) and her misunderstanding of the Dave Ransey term “gazelle intensity.”  She posted today saying she isn’t a gazelle, but a cheetah …. ummm … yeah she hasn’t been through Financial Peace University or attended a Live Event to see Dave Ramsey’s whole gazelle-and-cheetah routine.

I tried to warn her before it posted that she didn’t really want to call herself a cheetah in the same post as mentioning Dave Ramsey.  She says she read the explanation on the Dave Ramsey site about gazelle intensity, and even links to it.  Now I will agree with her that this specific explanation doesn’t capture the true meaning.

Along with being the fastest mammal on dry land, cheetahs are predators … and that is the metaphoric way Dave Ramsey uses them to represent credit card companies and in general any pure lending company that exists only by “feeding” off of people.  They are definitely the fastest in the financial world when it comes to slapping fees on their customers!

The whole idea of gazelle intensity comes from a Bible verse in Proverbs: “Deliver yourself like the gazelle from the hand of a hunter.”  Dave Ramsey says he didn’t understand that verse until he saw the gazelles and the cheetah on the Discover channel and watched the clips of gazelles running to escape the faster cheetah.  Gazelles run and bob and weave and dodge because their very lives depend on it!  Dave Ramsey says this is how you should get out of debt, since your very financial life depends on it if you want to thrive as well as survive.

So even after her explanation, why would I still insist she shouldn’t want to be “cheetah intense?”  Well I watched that same Discover channel show on the gazelles and the cheetahs … and cheetahs have NO staying power.  They are very fast sprinters, but give up quickly since they only catch one gazelle in 19 chases.  They’re really not very sucessful either at catching the gazelles, all in all.  The gazelle gets away 18 out of 19 times!  I’ll take my chances on the gazelle side of this equation, even though I don’t consider myself to be truly gazelle intense.  More on that last bit in another post…

As y’all can probably tell, I’ve been having a slow week idea-wise here.  I didn’t blow anything up in chem lab this week … so no inspirations like last week LOL  although as expected my percentage yield was pitiful.

I am still censoring myself about the latest rate cut from the Fed.  Y’all may recall I was pretty unhappy about last week’s rate cut…so as you can probably imagine my opinion of this latest cut is as expletive-laden as an old Sam Kinison routine - which leaves very few words left to write after the bleepity-bleeps get taken out.  I’ve been reading on the internet a lot trying to understand the reasoning behind these rate cuts.  Apparently I am not the only one who is mystified by this.

I did particpate in some blog carnivals this past weekend:

• My first ever submission to the Festival of Frugality made it in: my post “Crock Pot Finances“
• I submitted my post It Blew Up In My Face (about last week’s fateful chem lab) to the 44th Carnival of Money Stories
• And *of course* I submitted to the 124th Carnival of Debt Reduction which was interestingly enough hosted by Madison of My Dollar Plan…y’all know…that person I had the Great Credit Card Debate with!  She thought my post on Reluctant Spouses, Compromise, and Debt Reduction was good enough to be an editor’s pick.

I’ll do a wrap-up  on this week’s bloggin project tomorrow after all the articles have been posted so I can link to everything at one time, which will give everyone a chance to read over the weekend before we dive into yet another multi-PF blog project

Finally, lemme toss this out to y’all:  What would y’all - the readers -  like to see here on DebtFreeRevolution? 

Y’all have seen the ads: some smiling beautiful person is trying to tell the world how much easier their life is since they “paid off” their credit card bills by using their HELoC (Home Equity Line of Credit).  It might have been on TV, in the newspaper, on the radio, or even online.  It’s touted as the “smart” thing to do.  There is so much wrong with this idea, I am not even sure where to begin!

First, let’s tackle the erroneous notion that you can “pay off” debt by borrowing (more debt).  Yes, a HELoC is borrowing…it’s borrowing against the equity of your HOME.  Dave Ramsey has a cute but very true saying: “You can’t borrow your way out of debt.”  He is 100% right on that point.

Now let’s look at the (lack of) wisdom in this strategy: The notion that taking unsecured credit card debt and moving it to a secured debt situation is “smart”.  Credit card companies will scream, holler, and cry blue murder if you don’t pay them … trust me I have had personal experience with this … but the worst they can do is ding up your credit report (and score) then discharge the debt and sell it to a collection agency who usually has as bad or worse phone tactics. 

A HELoC puts your home up as collateral.  At best, if you can’t pay on a HELoC they put a lien on your home.  I have heard in some states, a HELoC in default can trigger foreclosure proceedings.  So what is smart about that?

“But the interest rate is so much better…!”  Yeah, there is a reason: secured debt is always a lower interest rate because if you default  they can always come seize the collateral to recoup their losses.  Therefore the loan is less of a risk for the lender when they can take your car or house and sell it at auction.

“But it’s one easy payment…!”  First of all, I have never actually had an “easy” payment.  All payments have some degree of pain associated with them, even my mortgage (which apparently means “death contract” according to David at My Two Dollars).  Second of all, it might be “easy” now, but what happens when there’s a layoff, or medical emergency, and you suddenly aren’t working or working less than before?  Instead of a bunch of little payments you can prioritize, you have one big payment now and it’s an all-or-nothing situation.

Even worse, I have seen, heard, and read many financial experts say people should open up a HELoC as an emergency fund rather than save up cash!  According to statistics (and yes I know statistics are one of the three kinds of lies), the number one reason for bankruptcy today is a sudden medical emergency and the bills and debt and time out of work associated with it.  If this is your emergency, how can it possibly be smart to jeopardize your home as well as all your other debt obligations?  Or if your emergency is a layoff, how can anyone call it smart to take on more debt - especially the secured kind?

The absolutely most irresponsible marketing of a HELoC is for “fun” stuff: vacations.  This is the one I have never been able to understand, even in the depths of my financial ignorance.  Why in the world would anyone offer up their home as collateral for a vacation?  Someone please explain the rationale behind this notion!  I just don’t get it at all … what is the justification thought-process behind this?  I know it’s being continuously marketed for so long because the marketing works and people actually do this - I just don’t understand why.

I know I am biased; I am debt-adverse.  The only two things I can possibly think of to use a HELoC for are major home repairs and major home improvement before a sale.  Definitely not for transferring credit card debt … definitely not for emergencies … and absolutely not for fun stuff!  In fact, I am wondering if the HELoc-mania as a financial panacea is part of the reason people are finding themselves upside-down in their mortgages, and if it is part of the reason for the foreclosure rate now hitting records?

Just one final thought: your house is not supposed to be an ATM machine; it should be your home and castle!  Maybe we should go back to that idea.

 Note: This is part of a group project about mortgages, homes, and foreclosures involving several PF bloggers, and I will provide a wrap-up on Thursday evening or Friday morning of everyone particpating.

Dave Ramsey often quotes the proverb: “The rich rule over the poor, and the borrower is slave to the lender.”  Last Wednesday while in the post office, my son asked if he could borrow some money until today (when I pay him for his chores).  For the past five days, I have been trying to make this proverb as real as possible to my teenager son.  In fact, after we were done at the post office and got back into the car, Dave Ramsey quoted it on the radio as soon as we turned on the car!

I warned my son: Mom is worse than any loan shark could think of being.  Mom will charge an interest rate that would make payday loan places cringe.  Son will be Mom’s wage slave for a period of five days, unless Mom feels she didn’t get her money’s worth in which case that period of slavedom will be extended.  (Is slavedom even a real word?  Eh, who cares…he didn’t ask!)

To my son’s credit, he has put up with all my demands in good humor.  To my credit, I haven’t made him scrub the bathroom with an old toothbrush.  The dishes have been done, the kitchen floor is clean, and the aluminum cans have been stomped as soon as I mention it.  So how did I accomplish this with a teenage son who tries every delaying tactic known to man and boy when it comes to chores? 

I threatened to get up before he goes to school, take him to school in the cute OLD purple pickup, while dressed in my purple robe and slippers…and make him wear a Roman-style slave placard around his neck that says “I borrowed money from Mom so I am now her work slave.”  Yes, I am actually enjoying this LOL

Hopefully my son is NOT enjoying this!  I want my child to learn on the gut-level that borrowing is bad, so he should only borrow in extreme cases when there is just no other option available.  I don’t want my son to make the same money mistakes I did when I first became an adult and got into debt.  I don’t want him to live crisis-by-crisis and hand-to-mouth.  I want him to be confident and competent with money.  I also want him to know, down on the cellular level, that work equals money and money equals work.

So far my son has kept up his end of the bargain, and not complained about the chores.  I’m not sure if he is developing a sense of pride about it, or if I just didn’t make the chores unpleasant enough.  Perhaps I should have made him clean the baseboards around the kitchen with a scrubby sponge…but then again he has asked to go to his school’s lock-in on Friday night, so I can always tell him that chore will be a way for him to earn extra money!  “Overtime” work equals extra money.  The sooner he learns these things, the better off he will be once he becomes an adult man.

Continuing my “Investing for Complete and Utter Idiots” series (and for anyone else who feels intimidated by the subject of investing!) I’m gonna tackle one that I actually knew a little bit about: the Federal government’s Thrift Savings Plan (TSP) which is offered to the military, the post office, and most federal employees.

Back when I was in the Army, we used to say everything was written on the 8th grade level.  The Army doesn’t want anyone to have the excuse that they just didn’t understand a technical manual or op-order.  Believe it or not, the TSP isn’t too terribly hard to understand :)  After all, I think I have a pretty good grasp of the basics!

The Thrift Savings Plan started out in 1988 with only three funds.  They came out with two more parts of the TSP back when I was perpetually hung-over private, and explained it to us as the military’s equivalent of a 401(k) without the matching.  I’ve since heard that some civilian federal employees get the matching, but the Army doesn’t.  TSP contributions are pre-tax, like a 401(k).  The TSP has six funds to choose from: G, F, C, S, I, and L.  Here is a chart of what they are, what their objective are, and the risks associated with these TSP funds.

If you never tinker with your TSP, all money will be put into the G fund.  This is government securities (bonds), the least risky and least growth.  It is also the default setting…so apply for your login for TSP.gov and change that one!  If you’re not comfortable with doing it online, I think they still let you fiddle with things on paper…but the government is really trying to go paperless and online is actually very easy.

There is also the F fund, which is Fixed Income.  Not as “bad” as the G fund, but still low risk and low return.  It is designed to match a bond index fund ( a whole group of different bonds that have different interest rates).

The C fund is “common stocks” like an S&P 500 index fund.  It’s mostly stuff you’d find in any standard mutual fund.  Getting this fund is like playing most of the stock market, and can provide good returns…but if you’ve been anywhere near the news lately you know the market has been up and down a lot recently.  Overall it goes up long-term.

The S fund is small and medium-sized company stocks.  You can make a lot in this area, but the risks are higher as well.  Everyone hears about how so-and-so should have bought Microsoft stock back when Bill Gates and Steven Jobs had the business in their garage…well, this is the fund that is supposed to be finding the Next Big Thing.  It’s also kind of like watching someone dribble a basketball: up and down and up and down.

The I fund is for international stocks as in non-U.S. companies.  This one’s been doing great lately.  It mostly covers Europe, Australia, and the “Far East” part of Asia.

Then there’s the new L funds, which stand for Lazy…er…Lifecycle.  It’s the newest fund, since it came out after I left the Army.  It’s a combination of the other five funds and they have it broken up into target retirement dates.  If you pick the furthest out retirement date, it will be more risky than a closer retirement date.  The closer the L date, the more G funds it has, so “go long” if you want to get decent returns.  If you don’t yet understand the how, what, or why of the other five funds, set your money to go into the L fund to give yourself time to do some research.

So, what do I have hubby in as far as his TSP goes?  Since hubby plans to do his twenty years and get his military retirement pension, I decided to go aggressive with his TSP: 40% C fund, 40% S fund, and 20% I fund.  Yeah, it’s “pretty ballsy” but both hubby and I are getting late starts on the retirement savings idea so I figure maybe we can make up for lost time a little.  I’m debating the idea of kicking some into an L fund as we start to amass more, but right now I think that’s the basic proportions of the furthest out L fund when you subtract out the G and F portions.

I’m sure I have oversimplified something here, but this is just a “q-ref” version of the Thrift Savings Plan.  Those of you who know more than I do, feel free to add to or correct :)  This is after all a learning process for me!

Over the past ten days, a whole bunch of us personal finance bloggers banded together to do the series “Money Matters for All Ages.”  I participated last week, and promised to give y’all a full round-up at the completion of the project.  So, without further ado:

• Financial Strategies for Infants and Young Children by Madison (the math nerd).  This is for those of y’all who love to plan ahead long-term and are in a position to take full advantage of the power of compounding interest, along with some great tax tips for new parents. 
• Teaching Pre-Scoolers about Money by Paid Twice.  This mom for pre-schoolers doesn’t expect them to make out zero-based budgets just yet but explains how she has taught her “littles” what money means and where it comes from.
• Personal Finance for Children and Pre-Teens by Lynnae of BeingFrugal.net.  Lynnae has one of each, and has different expectations for these two age groups.  She breaks down what she does and how she does it for the children age group (6-9 years) and also the pre-teen age group (10-12 years).
• Teach Your Teen the Basics of Money Management by GLBLguy.  Gibble goes into the nuts-n-bolts of preparing a teen for real life money handling and management, using his experiences with his 13 year old son.
• Money Advice for My Teenage Son by ME! :)  This is all the things I hope my 14 year old son will learn and internalize about money.
• College Money Matters by Mrs Micah.  She just recently graduated from college, and shares her experience with getting through a four year degree with no student loans.
• Money Matters for All Ages-the 20’s by Patrick.  Looking back over his “roaring twenties” Patrick gives some advice on how these years can be the foundation for prosperity.
• Financial Advice for Your Twenties by Emily.  Emily also looks back over her twenty-something years, and has some good advice about traps the twenty-something crowd can (and do) fall into…she speaks from experience.
• Money Matters for All Ages…The Chaotic Thirties by Pinyo.  I second Pinyo’s statement that the thirties are a very chaotic decade with home buying, children, marriage, saving for kids’ college, saving for retirement, and worrying about parents nearing retirement age…
• Personal Finance Advice for Your 30s by MyTwoDollars.  How to build your finances, while you are “still young enough to figure out a video game,” from the non-kid perspective.
• The Forty-Year-Old’s Wake-Up Call by Randall.  Ummm…can I hit the snooze button on this one??  What to do if you wake one morning to the “Big Four-Oh” and wonder how that happened.  Yeah, it’s gonna be me in about five years…
• Retirement Objectives in Your 50’s by Randall.  Randall was on a roll LOL and takes a look at how much fun empty-nesters can have planning for that perfect retirement, with advice on the ways to make it happen.
• You’re in Your 50s-Wake Up and Start Saving! by Ryan.  If you haven’t amassed a nest egg by the “Bigger Five-Oh” Ryan says it’s not too late to start.  Some great ideas on how to play “catch up” if you are a procrastinator like me.
• Easing Into the Golden Years: The 60s and Beyond by Ciaran (we call him “Chance”).  Chance is a certified financial planner and has some advice on how to ease into retirement, rather than waking up one day wondering what to do with yourself.
• The 4% Retirement Rule by Four Pillars.  A nuts-n-bolts look at just how to keep that nestegg intact for 25 years or more using mathematics…hey I was looking for this a few days ago!  FP is a Canadian, but the rule works on this side of the border also.
• Retirement in the U.K. by plonkee.  It’s fun to see how things are the same and different on the other side of the “Pond” as well as be reminded on how the U.S. and England are spearated by a common language.

Whew…that’s a lot of reading!  Good thing it’s a Friday :)  and I hope you take the time to read through all these life stages as they pertain to money so you can plan ahead and prosper.

OK, I’ve waited a couple days to temper my words on the subject of the Federal Reserve Bank’s recent emergency rate cuts … but my feelings have not gotten any milder yet.  I am angry!

First, this affects me in a NEGATIVE way.  This may sound strange considering I am not debt free yet.  But seriously, my mortgage is a fixed rate and hubby’s stupid truck note is also fixed.  Our credit cards are gone, but the Fed’s rate cuts won’t have an immediate effect on those anyway.  I have no plans whatsoever to run out and finance ANYTHING.

What this does affect, both immediately and negatively, is my money market account.  Every time the Fed does a rate cut, my interest rate goes down.  Granted, I only have my baby emergency fund and it’s only $1600 but still I am seeing a big difference from what it earned back in the summer just six short months ago.

Aside from the negative impact on my paltry little savings, I have to ask: HAVE BERNAKE AND THE FED LOST THEIR MINDS???  Isn’t this whole problem caused by too much credit?  Over the last six months or so I have read about the subprime mortgage fiasco, now I am reading about how credit card defaults are up (yahoo’s article “credit card crunch” here for those who don’t like CNN Money)!  Those are examples of being overextended in credit.  So the solution is to make credit easier to obtain?  And cheaper?  Am I the only one who sees something wrong with this picture?

Let’s not forget about inflation either.  Isn’t the Fed supposed to be guarding us against inflation?  Every time the Fed cuts the rate, I read about how the dollar has fallen against other currencies … so they must be related although I am not sure how.  When the dollar falls, inflation goes up … especially since the U.S. has lost a good portion of its manufacturing base and instead mostly imports goods.  Inflation is a huge concern for me since I started doing a budget!  Gasoline and groceries have both risen over the past year, and I personally do not want them to eat up too much of my monthly income.  I doubt many of you want to see those two necessities to skyrocket either.

Wednesday’s rate cut looks like it was done just to ease the stock market and prevent a serious correction.  That’s what it looks like to me down here in the trenches at least.  It FEELS like it was a measure to make people far richer than I am feel better … while making my economic picture a little more difficult!  Again, am I the only one who sees something wrong with this picture?

The bottom line as far as I can see is this latest rate cut does not help me at all.  Worse yet, it could hurt me financially for several months.  It doesn’t even look good for the economy in general, from my point of view … it seems more likely to prolong our current credit problems!  How can this be a “good thing”?  Am I really the only one who sees a problem with this picture?

Standard disclaimer:  I am definitely not an economist, just an over-educated pizza delivery driver.  If you feel I have made some grievous error feel free to correct me.

OK, the unknown radio station my computer speakers mysteriously pick up just played that catchy old Beatles tune “When I’m 64″ and as I hummed along it got me thinking:  What will I be doing when I get to age 64?  That’s only 29 more years from now!

I’m not going to bother with specifics like where I will be living or what I will be eating LOL but a big question is: Will I still be working because I need the money?  Or will I be free to work just for something to do to keep myself from being bored?  Will I feel financially secure by then?  Or will the fear of being poor still haunt me?  Will I have caught up on my retirement savings by then?  Will I ever truly catch up on my retirement savings since I have started so late?  Am I starting to sound like an old serial cliffhanger announcer yet?  LOL

But seriously, I don’t yet know enough about investing and retirement calculations yet to know these answers.  How much will I need?  Will the government decide to up the retirement age before then?  What will the economy look like?  Will there even be Social “Security” by the time my parents’ generation get through with it?  Will I even care if there isn’t?  Right now it looks like I have a better chance of vacationing on the moon than ever collecting Social Security.

A lot can happen in 29 years.  Twenty-nine years ago the world was a different place:  there was no internet, or even home computers.  Star Wars was still new and ground-breaking.  Inflation was sky-high and people didn’t think interest rates would ever go below 10% again.  People still believed you could come out of high school and get a factory job that you worked until retirement, then you got a pension.  Gasoline prices were outrageous and the Pittsburgh Steelers were the best football team ever … oh wait … those two things are still true!

I guess the point of this song-induced rambling is that while I don’t have a clue what tomorrow holds, much less that far into the future, I can still make some best- and worst-case scenarios to work from.  I do know we will get debt free long before then, and I have no intentions of going back into those chains.  I plan to save up a nice big cushy emergency fund, then invest like a madwoman because I am so behind  in that respect.  Will it be enough to foster a sense of financial security?  Who knows?

And while I’m at it…just how do you figure out how much money you need for retirement?