Saturday, January 10, 2015

Financial Freedom: Financial Peace University

If you're just tuning in, you can check out the first three posts about our journey to debt freedom.  Check out these posts about our financial history how we acquired $34,000 worth of debt, and the first step we took to get out of debt.  

As I left off with last time, Neal and I began Financial Peace University in October 2013.  This was a serious game-changer for us, not only in the way we viewed our finances, but it helped to strengthen and encourage us in various areas of our marriage.  
The way FPU is set up, you attend the class (usually held at a church or community center...but look here for a class near you!) for nine weeks.  Each week there's a different topic: 

1. Super Saving.  This outlines why it's important to save and what happens when you do.  
2. Relating with Money.  This week's lesson talks about how you relate to money independently and, in your marriage, as a team.  I'm the nerd...Neal's the free-spirit.
3. Cash Flow Planning.  Here you'll discuss the importance of a budget.  Seriously enlightening, y'all!
4. Dumping Debt.  Lesson four shares LOTS of information about why debt is so burdensome and gives you tips on how to get rid of it.  It IS within your reach, I swear!
5. Buyer Beware.  This talks about how advertising sucks us in and also talks about how to break our bad buying habits.  We defined what a "major purchase" is and committed never to buy any major purchases without each other's approval.
6. The Role of Insurance.  During this week Dave outlines seven types of insurance you need and how to steer clear of insurance traps.  We're definitely still working on this. 
7. Retirement and College Planning.  This week's lesson gives you an overview of all of the 401k, IRA, 403b stuff.  This is still way over my head and Neal pretty much deals with this department.  It all confuses my social worker brain, but his engineer brain just seems to get it.  
8.  Real Estate and Mortgages.  Here you'll discuss effective tips for buying and selling real estate and talk about the best time, financially, for you to purchase a home.  This was really helpful! Definitely a huge reminder to just be patient. 
9. The Great Misunderstanding.  Lesson nine shares information about misinterpretations as well as the blessings regarding generous giving. Huge lesson: You cannot gain with a clenched fist.

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Each of these nine lessons tie back into the Seven Baby Steps that Dave Ramsey has established.  Here are the baby steps...in case clicking on the link is too distracting ;)

1. Put $1,000 in an Emergency Fund. The key word is emergency. This is not an "I want a vacation or a fancy dinner or new outfit fund.  Be clear about what an emergency is.
2. Pay off all debt using the Debt Snowball.  List your debts, excluding your mortgage if you have one, in order, smallest to largest.  The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the debt with the higher interest rate first.  Pay the minimum on all but the smallest debt.  Put your money toward the smallest debt first.  Any extra income should go here also.  Once that debt is paid off, take what you were paying on that and put it toward the next smallest debt.  Continue to do this (i.e. build the snowball) until you pay off ALL of your debt. You CAN do it!
3. Save 3 to 6 months of expenses in savings. This is your full emergency fund.  It's important.  Don't skip this step!
***If you haven't bought a house, this would be where you would be in the position to do that.  But put at least 10% down and get a 15 year mortgage with a fixed APR.  Here's some more information regarding purchasing a house. 
4. Invest 15% of your household income into Roth IRA's and pre-tax retirement. When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth.
5. Saving for college for your children.  By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now.  Be deliberate about this.  Set a goal of how much you want saved and explore the best way to save that by the time your child(ren) go to college.
6.  Work toward paying off your house EARLY.  Begin chunking all of your extra money toward your mortgage. You are getting closer to realizing the dream of a life with NO HOUSE PAYMENTS!
7. The final of the baby steps, build wealth and give!  It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess.

In each week's lesson you watch a video and you have a workbook in which you fill in information as you watch the video.  We both felt that the class did a great job of using a variety of teaching techniques...so regardless of your learning style, the information will stick.  So you watch the video, fill in some information in your workbook, then you do an activity.  Each activity pertains to the lesson.   For example, in week four we filled out the debt snowball worksheet.  We would also break into small groups and engage in discussion (this was awesome!) and we also engaged in discussions as an entire class (about 20 of us).  Then each week there was "homework" to complete.

As I'd mentioned before, up until this point, I was in control of the finances and while I tried to keep Neal up-to-date, he really didn't care.  He knew the bills were paid and we'd saved a little money and he was good with that.  The homework each week forced us to sit down once a week, together, and discuss our finances.  This did awesome things for building that "team" and "togetherness" in our marriage.  That's important whether you've been married 2 months or 50 years.  

At this point (November 2013) we were back to a two-income household but we were used to living strictly on Neal's income.  This meant we had a lot of extra income that we could put towards things like paying off my second student loan and our auto loan.  As we learned new things each week, we realized that we really did have control over our money after all and it was SO incredibly empowering.  For the remainder of 2013 we continued to pay the same amounts on our student and auto loans but we were saving a lot more money.

We finished FPU in December 2013. The excitement during this time was unreal! And honestly, it still is. 

So where did we stand with the Baby Steps?  We completed Baby Step 1 (thankfully we already had the $1000 in savings) right out of the gate.  Then in January 2014 we took the extra money we had in savings (leaving just $1000 behind) and put it all toward my second student loan.  (Thanks to technology it went like this: sitting in my parents' living room, looking at our bank account on my phone before leaving for a hockey game while in VA for the holidays, I said, "Hey we have enough money in savings to keep our $1000 emergency fund and pay off my student loan. Wanna do it?" Neal: "Sure."  Annie: click, click, click. "Okay. It's paid in full."  Hahaaa. Oh, technology.) So that meant our auto loan was the only debt we had left. Woop woop!
We still had $17,604.90 left to pay on our truck (again, not including the interest being tacked on daily).  We then resolved that we were GOING to pay it off within one year from the time we paid off my student loan (i.e. our goal was to be 100% debt free by January 2015).  Once we paid off my student loan (now looking at my records I see we were paying $175 a month toward my student loan) we took that extra $175 and started putting it toward the truck payment.  So in January 2014 we increased our payments from $400 a month to $575 a month.  We were making that debt snowball work for us!

Meanwhile, we were meeting each month, more often if needed, to discuss our budget.  I'll share more about our budget in the next post.  But let's just say we were living very frugally at this point.  


We continued the momentum throughout 2014.  As long as Neal's company is profitable (they've had a really awesome few years, praise Jesus!), employees receive an annual bonus.  We receive his bonus and our tax return around the same time each year. So between March and April 2014 we threw an extra $7300 at our auto loan in addition to the $575 we were paying a month. This made a huge difference in how long it would take us to pay off that debt. 

We moved back to Virginia in March 2014 and we were fortunate to stay with my parents (and Neal's company paid to keep our belongings in storage) for a few months which saved us a lot as it meant we had hardly any bills to pay.  On the flip side, we didn't have a gas card from Neal's company anymore and he was driving our truck (we finally got smart and switched vehicles)  almost 100 miles every single day, so our gas bill sky-rocketed.  I also got my old job back  as soon as we returned to Virginia (another blessing!) so we maintained two-incomes. 

Side note: For full transparency I should mention, we  made money on our cross-country trip (a trip of a lifetime, by the way!).  Neal's company reimbursed us for all of our expenses (food, gas, lodging...the fun stuff was on us).  That meant we got paid like $.050 a mile or whatever the IRS says to pay.  Well, we got like 18 miles to the gallon on average or something.  And if gas is only like $3 a gallon, then when it was all said and done we ended up making money.  Be wise, folks.

Our bills increased moving back to Virginia (Hampton Roads is an expensive place to live!) and while we were both working, our incomes decreased slightly.  We continued to make a monthly budget and track every expense.  We also continued to increase our auto loan payments as we were really committed to paying off that stupid loan.  In June 2014 we began paying $750 a month instead of the previous $575.  So at this point we were basically doubling up on payments.  In October 2014 we increased our payments again to $1000 a month.  We were coming down to the wire and getting really  serious about being 100% debt free. 

I know this is an abrupt stopping point, but there's so much information here already and I have so much more to share.  In the next post I'll discuss our tithing (AWESOME things happened) and how we set up our budget.  Stay tuned!

P.S. Again, If you're even thinking about taking FPU.  Stop thinking.  GO SIGN UP!

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