Do you know where the clearance section is in your grocery store?
With the end of summer rapidly approaching we have been trying to cram in a few last minute trips. I’ve seen a lot of kids sporting mohawks and I guess that is a sign of me being out of touch. Why?!
Yesterday we drove up to Rockford to visit with Frugal Boy’s Great Aunt. Since it was a longer drive, we tried out a new thing and checked out an audio book, War Horse, from our library. Listening to Joey’s adventures in France helped the miles pass by quickly. Upon arriving at our destination we decided that the best (cleanest) place to change Frugal Boy’s diaper was in the backseat of the car.
We walked around for a little bit while we waited for Auntie to arrive. It didn’t take long before we had to retreat back to the car to fetch the first aid kit. Shae had stepped on a broken beer bottle and had to patch up her foot. Yay, litter!
For lunch we went to a Vietnamese hole in the wall restaurant.
When eating at an ethnic restaurant, I always pay attention to the other customers. If the majority of the other diners are of the same ethnicity as the restaurant, then it is probably a good spot. In this case, the food was great!
While we were eating and talking I couldn’t help but notice the torrential downpour occurring outside. The short trip from the restaurant to the gardens proved to be an adventure as the car splashed through huge puddles. At one intersection, a car’s exhaust pipe was underwater, I’m not sure if they got out or not.
Soaking wet, we resumed our day at Nicholas Conservatory and Gardens. While the gardens and greenhouse were no match for Garfield Park a couple of hours away, they still boast to be the third largest in the state. Before even entering the greenhouse area, visitors are treated to a view of the immense mechanical systems required to keep the temperature and humidity at proper levels for growing tropical plants in northern Illinois.
The conservatory has an abundance of Koi ponds and for a certain six month old, that was pretty fascinating.
There are also many waterfalls.
This kaleidoscope bowl was pretty neat. You look through the eyepiece and then spin the planter bowl.
Benches are tucked away and provided ample opportunities to slow down, chat, and enjoy the surroundings.
This plant would appeal to many little girls egos out there.
Leaving the greenhouse we ran into the first little princess (with 7 escorts).
We left Princess Peach behind and strolled through the rose gardens.
Working our way back we stopped to take a picture of the pond and greenhouse. You know it is someone’s special day when they don’t bother to stop to stay out of your pictures.
It was starting to feel very Jets vs Sharks when we ran into the second princess.
This one had a photographer and a videographer.
It was a good thing that we went early in the afternoon. By the time we returned to the conservatory it had been closed for a special event.
Here was the third princess’ gang of lackeys.
They were notably older and not male. Princess Peach and the rest of the jets had finished their pictures and were crowding into a stretch limo.
The groom and groomsmen piled out of a stretch pick up truck. Why in the world would you ever need a stretch pickup truck?!
Shae had grabbed a brochure, and the price to rent out the conservatory for an event was $3200. That did not include catering.
All in all, it was a very fun day. The people watching was extraordinary and we didn’t have to move much because the sights came to us.
The ride back was uneventful besides the fact that Joey got tetanus and was almost put down. Then he was almost sold to the evil French butcher. Mmmm, now I’m hungry for some horse meat. Can you tell I’m not a horse person and would rather feed starving human refuges.
Frugal Boy got to try out a brand new toy.
One of the reasons why we live frugally and try to cut costs in our lives is so that we can travel more and take Frugal Boy with us. Being frugal isn’t the same as being miserly!
Frugal Boy had his six month checkup today and is in good health.
All of that playing has helped develop his body and mind.
At the doctor’s office Frugal Boy weighed in at an impressive 20 pounds and 2 oz (91%), measured 27.5″ long (86%), and had a head busting 18″ melon circumference (98%).
The main reason for doing these checkups is to get vaccinated against horrible diseases. In three months he will start a new round of vaccinations. I always thank the nurse who administers them because they are truly life saving wonders of modern medicine. Today I caught the nurse off guard, the office was crawling with people and she probably hadn’t been thanked all afternoon. Thank you’s are one area you don’t need to be frugal in!!
School starts tomorrow for our local K-12 schools. That means that you should be wrapping up your summer reading program. We finished ours and turned in our logs a couple of weeks ago. Some of the goodies that we got included a half pound of beer nuts, a free haircut coupon, and a free zoo admission coupon.
I didn’t finish Do Fathers Matter as there are only so many ways that the same conclusion can be reached in the span of 200 pages. I was in the mood for another personal finance book so I picked up a copy of Dave Ramsey’s The Total Money Makeover from our local library. For those of you who are unfamiliar with Dave Ramsey, let me give you a few bullet points about him.
- He runs a self syndicated radio show that ranks in the top 10 in listenership
- He has authored several New York Times best selling books about personal finance
- He is anti debt
- He is openly Christian and uses bible quotes in his books and on the air
- His methods are controversial
The last point I will share my own thoughts as I walk through my summary of The Total Money Makeover.
What’s it all about?
Ramsey models the book after a fitness plan (there are many fitness analogies) and lays out seven steps to take the reader from debt laden to a golden retirement. The first five chapters cover some (un)common sense items about personal finance such as the importance of not racking up debt, ignoring the Joneses, the stupidity of gambling, and the importance of insurance. The next seven chapters Ramsey describes each of the seven steps of his plan along with some of the frequently asked questions. The last chapter paints a rosy picture of how good life will be once you have completed the makeover. It is also the chapter where his Christian ideologies come out in full force for better or for worse.
Step 1: Save $1,000
According to Ramsey, the first thing you should do to get out of debt and start building wealth is to put aside $1k for emergencies. Well, technically there is a step 0 where you have to get current, pay off any past due bills, on all of your existing debts. I digress. Ramsey spells out what qualifies as an emergency and what doesn’t. Christmas for example, isn’t an emergency because Christmas comes at the same time every year. The reasoning behind saving up $1k first is to keep you from sinking into any more debt when a real emergency such as your car’s strut coil blows out.
Step 2: The Debt Snowball
The second step of Ramsey’s plan is in my mind one of the most controversial points in the entire book. First I’ll describe the step as detailed by the author and then I will add in my 2¢.
With a $1k emergency fund in place, Ramsey suggests that the next prioritization to building wealth is to eliminate all debt. To do this, he recommends that you list all of your debts that are less than 50% of your gross annual income on a sheet of paper from smallest balance (e.g. $54 cell phone bill) to largest (e.g. $35,000 student loan). Then cut up all of your credit cards so you won’t use credit ever again. Finally, put every penny you can muster into paying off the smallest balance first while continuing to make the minimum payment on all of your other bills. When the smallest balance is paid off start on the next smallest and so on. If at any time your emergency fund dips below $1000, stop making extra debt payments and replenish the rainy day fund. According to Ramsey, most people should be able to finish steps 1 and 2 with two years.
Here is where I have some bones to pick with the author.
Number one, I don’t think that credit is the anti-christ. Ramsey tends to portray things in a very black and white world view; good vs evil, up and down, on and off. Credit cards are labeled as bad and dangerous when in reality they are no more dangerous than say a hammer. Sure, if you continually hit yourself or someone else in the face with a hammer, you can do a lot of damage. If you use the tool properly, it can make life a little easier for you. His assertion that debit cards provide the same level of protection as credit cards is incorrect. Yes, on paper they offer the same protection against fraud, but reality doesn’t line up nicely with what is written in the fine print. I had my debit card number stolen earlier this year and let me tell you what a pain in the ass that was. For starters, when a thief makes a bunch of charges using your debit card, that money is GONE from your checking account. Bye bye money, I hope you weren’t planning on buying anything important anytime soon. You contact your bank’s fraud department and they ask you a series of questions, then you print off, sign, and mail some affidavits to back up your claim. They credit your account with what is missing (assuming everything has gone according to plan) and you wait 4-6 weeks for confirmation that you really were robbed and the temporary credit will be made permanent. Compare that to when my credit card number was stolen several years ago. It was issued by the same card company. I called them up and reported the fraudulent purchases and because it was the company’s money that was taken, not mine, they took IMMEDIATE action.
With all of that said, if you are one of 60% of individuals who carries a card balance, aka you don’t pay the card off in full each month, then you should probably consider cutting up your credit cards. Hitting yourself with a hammer is no fun.
Number two, I cannot whole heartedly agree with his prioritization of debt repayment. Smallest balance to largest completely ignores the interest rates associated with the balance. Mathematically speaking, one should pay off the highest interest rate balance first and continue down the line until they are at the lowest rate. Logically, my way saves more money and would have debts paid off sooner, but humans are illogical and the psychological boost from paying off small debts probably does help individuals tackle the harder larger debts later on.
Step 3: Finish the Emergency Fund
Once all your debts except the house are paid off, Ramsey encourages the reader to finish funding their emergency stash. For the average American a full funded rainy day stash will be between $10-15k. Ideally that money should be kept in a savings, checking, or money market (with check writing) account for easy but not too easy access. CDs, bonds, and dresser drawers are not recommended because they are either too easy or too hard to access money in an emergency.
Step 4: Invest in Retirement
Only after paying off all debts except the mortgage and having a fully funded emergency fund does Ramsey suggest that you start contributing to a retirement account. Even if your company offers a match, he still doesn’t recommend contributing until the first three steps are complete. I have another beef with this because you are giving up FREE money for the sake of having debts paid off a month or two sooner. If I had to pick just one point of contention between Ramsey and other talking heads in the personal finance world, it would be concerning his investment advice. Ramsey swears by large cap growth mutual funds and their ‘unshakeable’ 12% annum return. Many of his calculations later on in the book use this magical 12% number to support ostentatious claims about golden retirements on small monthly investments. In fact, Ramsey only wants individuals to contribute 15% of their gross income to a tax preferred retirement account because that will be sufficient. If you have ever played around with a retirement calculator, you know that a change of even 1% return compounded over 20-40 years will have a HUGE impact on the final outcome. Consider for a moment that the de facto number used for most stock market investments is 8% and you have a pretty glaring difference between what Ramsey is preaching as truth and what may be truth.
Step 5: College Funding
If you don’t have kids or they have already graduated college you can skip this step. Going along with step 4, Ramsey discourages the practice of prepaying tuition at todays rates in favor of investing in a large cap growth mutual funds via an Education Savings Account, or ESA. His justification is that prepaid credits will only earn the rate of college tuition inflation, 8%, which is less than his superior 12% mutual funds. While 529 plans are okay, he thought they were too restrictive, mostly because they don’t allow you to arbitrarily pick investments like an ESA does. An ESA isn’t without restrictions. For starters, you can only contribute up to $2000 a year. Unlike 529s, you cannot roll the money over to another beneficiary. If money remains when the ESA beneficiary turns 30 years old, it must be withdrawn at a 10% penalty on top of regular capital gains taxes.
Either way, I would highly recommend that parents set up something for their kids education expenses. Student loans are a great catalyst for a life in debt.
Step 6: Pay off the home mortgage
If you forgive the fact that we haven’t cut up our credit cards (because we pay the balance each month), then this is the step that we are currently working on.
As you have probably learned by now, Ramsey despises debt. His first recommendation is that people should avoid mortgages and put down 100% cash on home purchases. Failing that, they should secure a 15 year fixed rate mortgage and work to pay it off early (that’s the route we went). One of the interesting conundrums that this step is challenged with is how one secures a mortgage if they have religiously followed the above steps. By closing all credit accounts, one’s credit score will drop. A low credit score makes it more challenging to get a prime mortgage. Ramsey’s ‘solution’ is to find a small bank or credit union that still does in house underwriting without relying on a FICO score. To me, this sounds like scuttling around the issue. Sure, there are probably some financial institutions out there that won’t pull your credit score but c’mon, most of them will.
Step 7: Build Wealth
By now you should be completely debt free, including your house, your retirement is on track for a dignified exit from this world, and your children are set to graduate from college with no student loan debt. Invest, spend, and give become the motto for this step. Continue to build your wealth but take some time to spend money on yourself and the wants that you have denied yourself for so long. Finally, Ramsey encourages a healthy dose of charity to help those that are less fortunate. In Ramsey’s eyes, you are considered wealthy when your money makes enough for you to live on.
So there you have it, one of the most popular financial planning books on the shelves. Is it a perfect one size fits all plan? No. Would I recommend the book to someone caught in a debt vortex. Yes.
Share your thoughts on The Total Money Makeover plan in the comments. What step are you on?
Just last week we were walking through Babies R Us (aka the Amazon showroom) to look at child seats because Frugal Boy has almost outgrown his infant car seat. We have also been on the lookout for a cheap high chair so that Frugal Boy can get out of our lap during dinner time and better participate in mealtime without clawing at our plates. Out of curiosity I took a cursory glance at the high chairs in the store and found the cheapest one with legs to be about $80.
The next day on our nightly walk we passed by a neighbors garage sale and there just happened to be a wooden high chair for $20. We scooped it up and carried it home to get it ready for its latest occupant.
I removed the swinging tray and took it out to my little workshop in the garage. The tray had a slim piece of veneer that had been crudely glued into it and this made the perfect gaps for crumbs to sink into. I removed the veneer and the copious amounts of glue so I could repaint it.
Shae on the other hand set to work making a seatbelt system to hold Frugal Boy in place.
I really appreciate having a crafty wife. On our trip to the craft store we couldn’t help overhearing the clueless boyfriend/girlfriend couple who were attempting to make patio furniture (probably something they saw on pinterest). The poor store clerk told them that the interior fabric and padding wouldn’t work outside. Then later on they had no idea how much fabric they needed. “Enough to make five pillows.” Well how big are those pillows going to be?
Anyway, back to the point, I love a woman with a plan.
Here is a test fit of the restraint system with a live and very wiggly load.
After the paint was done drying, I was able to add the tray back on.
I don’t really care if he gets any wheat circles into his mouth. Just keeping him busy and letting us eat dinner is good enough for me.
All told, the high chair ended up costing us $25.