Archives for November 2018

Dave Ramsey’s 7 Baby Steps: Step 7 – Build Wealth And Give!

In the last post we talked about Baby Step 6, where Dave Ramsey suggests that you pay off your home early.

We looked about both sides of the argument, talking about how a paid off house can give you freedom, and allow you to save, invest and give more.

We also talked about how some suggest that it isn't the best way to go, but that you should try investing and making a better return on your money.

Ramsey suggests that the positives you get by paying off your house early far outweigh the alternative.

In today's post I'll look at the final step of the 7 baby steps – building wealth and giving to others!

I think this is one of the most exciting of the baby steps because it allows you to do something for others – using your wealth to help others.

Baby Step 7 – Build Wealth And Give

Steps 1-6 of the baby steps are focused on getting together your financial life, paying off your debt, planning ahead for the future by saving and investing.

There are men who gain from their wealth only the fear of losing it. – Antoine Riverolli

In step 7 Ramsey talks about how many people have a mistaken belief that the way to have more is to hold on tightly to what they have. In reality, it doesn't work that way he says. Instead he puts forth the idea that generous people tend to be more prosperous.

Why are generous people better off? Giving to others makes you less selfish – and people who are less selfish tend to do better in both relationships – and in wealth building.

Dave Ramsey gives the example of the open fist and the closed fist.

If you have a closed fist your money is safe and it's not going anywhere. The problem is, you can't take in any new money either. With an open hand when you give – your hand is open already, and you're able to receive blessings – as you give!

The idea of holding money with an open hand might seem to violate common sense. We feel that if we don’t hold on tightly to our money and our relationships, they will slip away. I’m not saying literally hold your money with an open hand – it represents our attitude toward money. When you give, you open yourself up. You allow the dollars to leave and the freedom to enter.
Giving works because it is in your personal blueprint to be a giver, and you unleash good things in your life that you will never see until you learn the art of unselfish giving. Giving lifts us out of ourselves; we take our eyes off our rights, our problems, and our stuff. The new view gives us renewed vision and hope. Giving is powerful. – Dave Ramsey

So when you have paid off all of your debt, and you've been able to save and invest – it's time to start giving as well! Not only will you be giving blessings to others, but you’ll be receiving blessings in return (and not always in a monetary sense).

Why Do I Give?

There are a lot of great reasons to give. Here are a few of mine:

Surplus wealth is a sacred trust to be managed for the good of others. – Andrew Carnegie

I'm a Christian, and I believe that I'm only a steward of everything I have – it all belongs to God. Psalm 24:1 says “The earth is the Lord’s, and the fullness thereof”. And since the money is all God's it sure makes it easier to give away doesn't it?
Giving is good for you! It makes you less selfish, and helps to be more Christ-like.
We are happiest when we are serving and giving.
Giving helps me to live out my life purpose of helping others.

Get Creative When You Give!

Giving doesn't always have to be monetary – you can also give of your time and talents. In the end you're only limited by your creativity. Some ways you can help:

Help a single mother buy groceries or pay a couple of bills.
Volunteer time at your church serving others.
Give an extra large tip to a waiter or waitress.
Spend time with people at a local nursing home, talking and listening to them, playing music for them or just playing games with them.
Pay for someone’s meal behind you in line at the fast food restaurant.
Serve meals at a local food shelf, and eat with them when you’re done serving.
Give to a local charity.

What are some ways that you give? Give us some suggestions in the comments!

Why Now Is The Time To Start Preparing Your Taxes

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Paying your taxes is a challenging time for many people.

They struggle with the daunting tasks of sorting out receipts, contributions, and their tax statements.

Tax time can be even more difficult for businesses or someone in a higher income bracket.

An accountant can help you keep track of your tax records and file your taxes. However, not everyone can afford to hire professional assistance for their financial records.

To avoid filing late, you should always begin organizing your tax information as soon as possible. Why not pay your tax debt to the IRS as soon as possible?

More importantly, filing your taxes early will take the stress out of last-minute reporting.

Why You Should File Your Taxes Before The Deadline

A tax services professional can help you with your back taxes.

If you submit your taxes in mid-January, you won't be responsible for what you owe until the April deadline. Filing form 1040 early will help you make arrangements for your anticipated payment.

Furthermore, you can avoid many tax scams by filing your return early. Many identity thieves target taxpayers on an income tax scheme early before many people think to file. Plus, early taxpayers can avoid delays.

What You Need To Know About Filing Your Taxes Early

Filing your taxes early means a faster return. Many people wait until April to file which could mean a longer wait. In fact, a paper check may take a few weeks. E-filing early is one of the fastest ways to get a quicker return.

If you will be getting a return, filing it as soon as possible with direct deposit can help expedite your return. Don't e-file without knowing the terms and conditions of their services. Read the rules for the particular e-filer's website that you choose.

Early taxpayers can avoid an extension. Most people need more time to organize their paperwork with an extension. An extension gives the taxpayer more time to gather receipts and/or look for extra deductions.

Unfortunately, if you don't pay what you owe with an extension, the IRS may charge huge penalties.

The Internal Revenue Service may request payment in full when you use an extension but fail to pay your taxes accurately. Paying your taxes earlier will eliminate the need for an extension request. If you don't owe anything, it's best to get your taxes filed early.

How Early Can Taxes Be Filed?

Many people have questions for the IRS each year. These questions can stop taxpayers from making very serious mistakes on their return. You should have your paperwork in order if you expect to file early. There is no guarantee you will get an early return by filing early. However, the IRS tries to get out tax returns as they're processed.

Your employer has until the end of January to issue your W-2s and you can then fill out your tax return. More importantly, 1099 tax forms are also issued by the end of January.

You can always hire a professional to help you file your early tax return.

They will assess your tax information and help you come up with the best return possible. A professional will help you get the most that you're entitled to each year. They know what kind of credit and deductions to apply to your taxes. Plus, an accountant can help you keep your taxes in order by using software technology. They often work well for businesses but can also help individual tax filers. You can search the internet for more details on a tax specialist for your early returns.

There are many questions that people should ask the business filing your taxes. The most important question is their qualifications. You should make sure the business or individual has a TPIN identification number. This number allows them to legitimately file your taxes.

The IRS has an online TPIN directory that will allow you to check their credentials. A lawyer may not always be legally qualified to file taxes. The Volunteer Income Tax Assistance (VITA) program is a great program to use to get assistance with your early return. However, they only help individuals with basic income tax returns.

Dave Ramsey’s 7 Baby Steps: Step 6 – Pay Off The Home Early

By Mr. Money 4 Comments

In Baby Step 5 Ramsey talked about your options for saving for your children's college education.

While I think it's a good idea to get your kids involved in helping to pay for their own education, I'm not against giving them some help as well.

I think you need to do your best to go to school and graduate debt free if you can – or with minimal debt.

Baby Step 6: Paying Off Your Home Early

In step 6 Dave suggests that you pay extra on your mortgage, and payoff your mortgage faster.

When we talk about mortgages Dave talks about how he thinks you should have no more than a 15 year fixed rate mortgage, and that your payments should be no larger than 25% of your monthly income. For many people that doesn't seem doable because of the housing markets they live in, or because of the standards they've set for the home they want to live in. Sometimes people just aim too high! In any event, in most cases it is something that most people can do – take on a 15 year loan for less than 25% of their income.

I will be the first to admit that we've taken on a 30 year mortgage at our house because when we bought the house we weren't as serious about our finances, and we were over the 25% of our income as well. At the same time we have no other debts to speak of, and since we bought the home our income has gone up – to the point where it is no longer over that 25% number. In any event, we're also paying extra on the mortgage now to help pay it off early.

So what do you get by paying off the mortgage early? You'll be giving yourself peace of mind in a tough economic climate knowing that your house is paid off. If the worst happens and you lose a job or have a medical emergency, you’ll be able to get by on a whole lot less. After all, the house is paid for!

Why You Should Pay Off The House Early

If you read personal finance blogs, there are a lot of arguments in favor and against paying off your home early. Which is the better for people financially? To pay off their mortgage early, or to save and invest the money for the long term?

First, here are some points in favor of paying off the mortgage early:

Save Money On Interest: If you pay off your mortgage off early, you'll be saving thousands of dollars in interest. Think about this: If you have a $200,000 dollar mortgage for 30 years, with an interest rate of 6%, at the end you'll have paid $250,000 in interest. Change that to a 15 year mortgage and only $115,000 in interest will be paid. If you can pay down the mortgage even faster than 15 years, you'll be saving even more because you'll be paying less interest.
Mitigate Your Risk: One of the most attractive things about paying off the mortgage early to me is the fact that it helps to minimize the amount of risk that you have in your life. With a paid off house you don't have to worry about mortgage payments. If you can scrape enough together to pay for food, transportation, clothing and utilities, you should be able to get by. Without a mortgage that number is significantly lower. Trying to invest the money and come out ahead may work for some, but because investing is inherently risky (we've seen that in the last year or two), it could mean adding risk to your life as well.
Financial And Emotional Peace + Less Stress: With no mortgage I know that we would be much closer to true financial and emotional peace just because we wouldn't have the debt weighing on our shoulders – and the risk of losing our home to a job loss or medical issue are greatly reduced. So less debts and obligations mean less stress in our household. Add to that the fact that you’ll have less stress when having to deal with a job change, or wanting to become a one income family so one spouse can stay home with the children. When you have a paid for house you’ll only need to cover the minimum of life's essentials – and you'll have walkaway power – power to walk away from any job you don’t love or enjoy because you only have minimal expenses!
With A Paid Off Mortgage You Get A Huge Raise!: When your monthly debt obligation drops so significantly because you've paid off your house, it means that your income will go up significantly. Can you imagine how much money you could save, invest and give if you didn't have a mortgage?

Being debt free brings freedom, and sometimes that’s better than a few extra dollars made through investments.

Arguments For Investing Instead Of Paying Extra On House

There are some pretty good arguments that others have made against making extra payments on a house. Here are the few that made the most sense to me:

Keeping Your Holdings Liquid = Flexibility: When you have your money in investments as opposed to prepaying on a house, the money is going to be more accessible if you absolutely need to access it. When your money is being invested in a house, you can't exactly just cash it out – you still need a place to live. So many would suggest that investing your money will give you more flexibility in the case you need to access your money in an emergency.
Returns On Investing Will Be Higher: If the money you expect to make in the stock market is more than the amount you'll save by pre-paying your mortgage, than it may be a better bet to invest your money.
Inflation Is Your Friend?: Inflation goes up by a rate of 3-4% every year, so by not prepaying your mortgage you are in essence paying less money for a house that is increasing in value every year. The amount you pay in 2040 to live in your house is the same as you're paying in 2010. You'll be getting more for your money!
No Asset Diversification: By only investing in your house, some argue that you're not properly diversifying your holdings – you're only investing in one asset type and class. Better to invest and diversify your holdings.

The arguments for investing vs. paying off your mortgage early really do make a good case, although I will admit some of them hold less merit for me than others.

What We're Doing

We've considered both sides of the argument at our house, and in the end the thought of having a paid off house – and no mortgage debt – just appealed to us more. We love the idea of having the freedom and the walkaway power that goes along with having a paid off mortgage.

At the same time, we still want to invest. So what we're doing at our house is a little of both. We're both investing for our future, and we're pre-paying our mortgage to the tune of several payments per year. We may not pay off the house as fast this way, but we'll still be paying it off years early.

What do you think about paying off the house early? Do you think it’s a good idea or a bad idea? Which path are you choosing if you’re at that point? Tell us in the comments!

Dave Ramsey’s 7 Baby Steps: Baby Step 5 – College Funding For Children

By Mr. Money Leave a Comment

In baby steps 1-4 we worked towards paying off debt, building up an emergency fund and investing 15-20% of our income. In baby step 5 we look at saving for your children's education.

Baby Step 5: College Funding For Children

Baby step 5 talks about how if you've taken care of your other priorities first (like saving for your own retirement), you can save up and help pay for your child's education.

One thing that Dave Ramsey stresses, however is that you don’t have to go into debt for your child to go to college. Once you've taken care of your baby steps 1-4, start saving up a nest egg to help them pay for their education. Beyond saving for their education, also encourage them to take an active part in their own education, get good grades, and help pay for their education through grants, scholarships and other free money. If they're involved in paying for their own education, they'll be more invested in it.

Here are some ways that you can save for your kid's college education.

Education Savings Account (ESA): You may save $2,000 (after tax) per year, per child that grows tax free! Beneficiary must be under 18 years old. Money must be used for education purposes only. Otherwise, a 10% penalty and taxes will apply. Money must be used or rolled over to a qualifying family member by age 30 or a 10% penalty and taxes will apply. Singles with an income over $110,000 – or married couples with an income over $220,000 are not eligible.
529 Plan: If you do not meet the income limits for an ESA, or if you want to save money above an ESA, you can use a certain kind of 529 plan. You can save up to $12,000 per year, per child in a 529 plan. The money must be used for higher education only. Otherwise, a 10% penalty and taxes will apply to the gains only.
UTMA/UGMA Plans: UTMA (or UGMA) stands for Uniform Transfer (Gift) to Minors Act. Not usually as good as the ESA or 529 plans.

Here are some ways that Dave Ramsey thinks should never be used to fund your child’s education. Beware of these things:

Insurance
Savings bonds (only 5-6% growth)
Zero-coupon bonds. (only 6-8% growth)
Pre-paid college tuition (only 7% inflation rate)
401k loan (never!)
Home equity loan

ESAs, 529 Plans and UTMA/UGMA plans are preferred by Ramsey.

Should Other Things Come Before Your Kid's College Funding?

Providing for your child's education is an emotional topic, and for many people providing for their kid's and their schooling is so important it comes before they have reached baby step 5 in the process. They think that by not funding their child’s education until they have all their debt paid off or retirement funded that somehow they are being self absorbed or that they're harming their child.

In my opinion you do more harm if you don't do baby steps 1-4 first. Your kids can always help pay for their own education through grants, scholarships and loans. On the other hand, if you don't get money saved for retirement, and get all your other financial ducks in a row, your child could end up having to support you or pay for your care in the future. You don't want to saddle them with that responsibility do you? Better to get your financial house in order first, and then help where you can. If you can get out of debt, save for retirement and then help pay for their schooling as well – even better!

Here's why I believe it's a good idea to get out of debt and save for retirement first.

Making sure your retirement is provided for takes a burden off of your children later on.
Set a good example for your children by showing them how to properly manage your finances.
Having to pay for part of your education helps build character and makes the education mean more.
Encouraging them to do well ins school to help pay for their own university training will help promote responsibility.

Personally I think that even if you are able to pay for your child’s schooling outright, it’s a good idea to have them participate in paying for their own schooling. They can do that either by saving up for college through after school jobs, getting good grades that lead to grants and scholarships, and by going to in-state schools that cost less. Here's a post on another site talking about these ideas.

Dave Barry says it better than I can:

I believe that we parents must encourage our children to become educated so they can get into a good college that we cannot afford. – Dave Barry

In baby step 5 Dave Ramsey encourages us to take control of our financial lives, and take care of our own debts and retirement savings before helping our children to pay for college. Once we've completed steps 1-4, however, he suggests it's a good idea to help them pay for college by saving money in an ESA, 529 savings plan or a UTMA/UGMA Plan.

What’s your opinion of paying for your kid’s college? Are you saving for their college funds? Will they have to pay for part of it themselves? Let us know in the comments.

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