Today, we’re reflecting on the lessons we’ve learned from this 1st chapter on savings, and how we can apply those lessons to our specific personal finance situations.
Right now, we’re in the main section of Page 24, under the titles ‘Key Points’ and ‘Questions For Reflection‘ in Chapter 1 of Dave Ramsey’s Complete Guide to Money.
Here, I’ll be sharing my takes on the summary points; and my answers to the key questions from this chapter.
And my lesson for the day is sweet, short, and to-the-point:
Saving must become a priority.
That lesson actually came from the first key point on this page. And so we’ll start from there.
1. Saving must become a priority
Saving is no longer a luxury habit, or a nice thing to do. Saving money is a habit that needs to be front and center for us, if we’re truly serious about our goal of having financial peace and building wealth.
In fact, we need to STOP spending on expenses first, then if any money’s left, we save.
No, here’s what we should do:
We need to start saving first, then use the rest to take care of our monthly expenses.
The latter is a good financial habit, while the former will only lead to financial worries and problems down the road.
Making saving a priority in our financial lives will be hard and take a lot of sacrifices; but we have to do it..
… because, I can tell you this:
A lot of good things come from that consistent habit of being able to stock away cash for the rainy days – be it for emergencies, big purchases, or wealth building.
2. You must save for an emergency fund, major purchases, and wealth building
If you think about it, outside of everyday expenses, those are the three biggest areas that will make or destroy your personal finances…
- … if you’re able to financially prepare yourself for any emergency…
- … if you’re able to discipline yourself in making the major purchases the financially smart way… and
- … if you’re able to consistently save up to invest and build wealth…
If you can master those three areas…
… then it’s safe to say: that your personal finances is in great shape and will give you lasting financial peace all the days of your life, and even your family when you’re long gone.
But we’re talking about these three areas here, because they’re hard to do.
In other words, you can’t just cruise through life, and expect these three good things to happen to you.
You’ll need to be intentional; go all in and actively reach for higher goals in these three core areas of your personal finance.
So, start by saving for your $1,000 beginner emergency…
… then move on to your full emergency fund, to cover three to six months of key expenses, that will keep your household running in case an emergency hits…
… then graduate into saving part of your income first before spending anything, so you can scale higher to saving 30%, 50%, or even 70% of your take-home pay.
The key here’s to think long-term about the financial benefits that you’ll reap afterwards from going big into saving…
… that way, you can find the consistent confidence to look away from the allure of the many different bags, vacations, designer wears, sneakers, etc. that tempt you.
3. Decide and agree with your spouse on what qualifies as an emergency
In my home, I know we’ve had disagreements about spending money on what either of us thinks is an emergency.
And we quickly realized that those arguments arise, because we weren’t totally on the same page, regarding exactly what an emergency is, and what an emergency is not.
If you want you and your family to win with money, you’ll need to make sacrifices.
And for you to make sacrifices, you and your spouse will need to agree on your family financial goals, and how y’all plan to get there.
Because here’s the deal: Sacrifices are, by their very nature, painful to endure and go through.
And no matter how brilliant your family’s financial plan may look, none of it will stand or come to fruition, if one person thinks that following that plan is making them to needlessly suffer and live like a poor church mouse.
And it’s okay if that conversation isn’t resolved in a one-time meeting.
As emergencies come, and as big purchases surface, y’all will need to continually apply the core ideas of your financial beliefs to each specific situation.
So start with you and your spouse being in agreement on the core financial beliefs that both of you establish your spending and saving habits on.
For example, if you both agree that work is an essential part of life, and count it as an emergency…
… if one person’s work laptop breaks down and they’re the business owner, then it’s easier to start thinking of ‘getting a new laptop’ as an emergency, rather than a luxury expense that can wait.
Another example: if you both agree that you won’t joke around with health, and won’t wait till someone’s health condition gets worse before taking action…
… then it’s easier to get a special type of milk product, even if that milk that costs way more than usual, because it’ll help fight off illnesses and give you strong lasting health.
Questions For Reflection
Next, here are my thoughts on the questions for reflection. Please feel free to share your perspectives on these questions in the comments below.
1. What keeps you from saving?
As a grad-student couple with $90,000 in student loans, the biggest challenge for us, every month, is deciding how best to split our monthly stipend on expenses, student loan repayments, and savings.
So, the biggest issue keeping us from saving (as much as we’d like) is the need to pay down debt. But we’ve taken care of our beginner emergency fund, and only spend money on key expenses every month.
That way, we can simply funnel the rest into savings and loan payments; which is our way of living frugally now, in order to achieve two goals side-by-side, and invest later.
2. Why is Baby Step 1 the hardest step for many people? Is it that way for you?
Baby Step 1 – Put $1,000 in a beginner emergency fund ($500 if your income is under $20,000 per year).
The main reason I think Baby Step 1 is the hardest, is because it’s the beginning of something new. In other words, achieving the 1st baby step requires people to change their habits in a way they might not be familiar or comfortable with.
Baby Step 1 requires change, and we, humans, are very uncomfortable with change.
Also, folks (especially men) think of ‘better’ ways to invest that $1,000 and get good returns… better than just put it in a money market account with little or no returns.
So, combine change with the need to make more cash, and you have a recipe for getting a lot people stuck in achieving that all-important Baby Step 1.
For us in our home, we’ve realized, that for many areas of personal finance, the hardest part is actually starting.
Once we start, and take one step then another, then we suddenly realize things aren’t as hard as they seem…
… which then gives us more boldness and confidence to steadily march on to financial success.
For us, we realized early on that emergencies come when no one expects; but we can do our best to prepare – so we started by putting away that $1,000 in a beginner emergency fund.
3. Why do so many people use debt (credit cards, loans, home equity, etc.) for emergencies?
Because it appears simple, and looks like you’re getting that debt for free.
But you’re not.
If we pay with cash, then we realize we’re actually paying for this expense, and so we cautiously watch how we spend that cash.
But it’s not exactly the same with using debt / credit cards to pay for emergencies.
For example, with a credit card, you give them a plastic card, and they give you what you’re paying for.
Right there and then, it doesn’t seem like you’re giving away anything important… just a plastic card which you’re collecting back.
And so, you don’t see the reason why you shouldn’t do it… again and again;
But as we know, those bills do add up in credit card payments, fees, and late payment fines.
4. What does it mean to say that money is amoral? How is money like a brick?
It means money is simply a tool that we use.
Money doesn’t have feelings or emotions; we’re the ones who attach those feelings and emotions of happiness, sadness, broke, abundance, or freedom to the money.
As a tool, we can use money as a brick to build a house, or we can crush the brick into fine sand particles – it’s totally up to us.
So money isn’t the real cause of the many financial frustrations and worries that we experience, the real culprit is our relationship with money.
5. What would constitute a financial emergency for your household? How would you cover such an emergency today?
In my household, we prioritize our faith, our health, and being able to make money and achieve impact through hard work.
So, we try our best to make sure that these three areas are on firm and solid footing at all times.
Because if we can achieve our best in these three areas especially, we can be ready if any financial emergency comes.
So, a financial emergency for us might come from expenses related to our faith with God, having a perfect health, and from work (jobs / side businesses).
And we’d cover such an emergency by first dipping into our beginner emergency fund, and readjusting our saving and spending priorities as needed.
And, our goal is to save even more to prepare and be ready. That is:
Saving must become a priority.
We believe in God that by His grace and the knowledge he has empowered us with, we are more than conquerors, no matter the emergency that arises.
How about you?
What are the key points that resonated with you? What are the biggest reflections you’ve had as regards Chapter 1 of this book – Dave Ramsey’s Complete Guide to Money?
Please feel free to share in the comments below.
That’s all for today, my friend. We’ll continue in the main section of Page 25 of the book tomorrow.
See you then.