Week #1 Review of FPU
As I mentioned, I want to walk you through my experience with Dave Ramsey’s Financial Peace University (FPU). It is a 13 week course designed to teach you everything you need to know about personal finance. I am basing this review on the audio version of the DVD’s, which I am watching and discussing with a small group organized by the church that I attend. I missed the first week of small group due to my Ten Year wedding anniversary cruise, but I watched the DVD on my own time, and will provide you with an overview of the main points below.
This lesson was titled “Super Savers” and it dealt with the benefits of saving and having an emergency fund. He describes the emergency fund as an “umbrella for a rainy day” because at some point for everyone “its going to rain.” Dave provides examples of how “it rains” in all of our lives with “unexpected emergencies,” and that many of us are in the habit of pulling out our credit cards to cover these emergencies. Knowing that these emergencies are inevitable, Dave’s point is that we should have a certain amount of readily available money set aside to cover these costs without needing to turn to credit cards. Some examples that Dave cites as “emergencies” are really just regular occurrences in our lives that we forget to plan ahead for, such as car repairs, kids growing out of their clothes, and Christmas. We should really budget for the above examples, and save our emergency fund for instances that are truly unexpected.
Dave’s main point in this lesson is that credit cards are being used in place of emergency funds and that this is a plan that costs us a lot of extra money in the long run. He suggests starting with the creation of a $1000 emergency fund, which is his “baby step number one.” The emergency fund should be kept in a money market account or a savings account, and should not be expected to make you money since it should be considered “insurance”. In his opinion, insurance costs you money and shouldn’t make you money. Dave also mentioned the emergency fund is not a “new couch fund,” and should not be tapped into for anything other than an emergency.
With regard to saving for retirement, he provides great examples of the power of compound interest, pointing out that investing at a young age can easily make you millions by the time you retire. For example, he demonstrates how a person who invests $2,000/yr from ages 19 to 26 years, and then never invests another penny, will outperform at the age of 65 someone who invests the same $2k/yr beginning at 27 and continues to invest until age 65. In simple words, START INVESTING NOW!
Mostly, the lesson was a good primer into the overall goals of FPU, which are to be prepared for emergencies and retire with dignity. Personally, after listening to and taking in his stories and anecdotes, my spirits were uplifted and I felt inspired to accomplish the goals that were set out.
As homework for the class, we were instructed to begin doing a Quickie Budget, using the forms in the membership kit. Also, we were to begin trying to scrape together a starter emergency fund of $1,000 as quickly as possible for Baby Step #1. Fortunately, I have been following this plan for some time, and have accomplished these steps. It will be interesting to listen to my fellow small group partners’ descriptions of their struggles and successes with accomplishing these steps. Hopefully I can help them along in their journey.
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