Personal Finance Topic #160 – How FPU helped us become debt-free

Filed in Gather Money Essential by on May 14, 2010 0 Comments

I want to share our personal experience and the progress we made when we applied the concepts from Dave Ramsey’s Total Money Makeover (TMMO) program. 7 years ago, we took Financial Peace University (FPU for under $100, taught nationwide), a video course taught by a radio and TV talk show host and a Christian Financial Counselor, Dave Ramsey. Few years after we took the class, we became completely debt-free (mortgage and all), and built enough wealth for us to retire 5 years ahead of schedule. I don’t plan on taking out Social Security until I’m 70.  Since 2003, I taught FPU 9 times in 8 years. It’s a very simple system that follows 7 Baby Steps.

Dave Ramsey’s 7 Baby Steps

  • Step 1 – $1,000 to start an Emergency Fund
  • Step 2 – Pay off all debt using the Debt Snowball
  • Step 3 – 3 to 6 months of expenses in savings
  • Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
  • Step 5 – College funding for children
  • Step 6 – Pay off home early
  • Step 7 – Build wealth and give!

Be forewarned that this program is not a walk in the park. It’s a highly disciplined, tough program, requiring sacrifice and two years of very frugal living. If you are married, two of you must be on the same page when executing monthly family budget. Sacrifices include:

  • Living within your means, based on a zero-based budget
  • Saving to pay for things without borrowing (cutting up credit cards)
  • Maintaining old cars and buy reliable used car
  • Taking brown bag lunch, and no more snacks at vending machine
  • Less dining out and cheaper vacations
  • Paying minimum payments on debts but paying off the smallest balance (Debt Snowball)
  • Once the debts are paid off, focusing on retirement, college, mortgage, and in that order

When we started this program, our kids were still young enough not to complain about stuff. My wife and I really tightened our belts, clipping coupons, buying clothes at second hand stores, and paying off debts from the smallest to largest. It was grueling two years, which paid off handsomely.

There are many other excellent wealth building programs, but this program was the most practical, and very cost-effective. As a matter of fact, while we were taking the 13 week video course, we managed to eliminate $6,000 in debts, and added $2,000 to our savings, and the rest is history.

We highly recommend this program to anyone who has an income. You won’t like it if you’re immature about money and refuse to grow up. It’s not for everyone. But once you’ve finished Baby Step #3, you will feel a huge load has been lifted off your shoulders. But if you don’t like it, you can always go back to the way you were living.

Please comment if you have taken FPU or read the Total Money Makeover book, or started your debt-freedom program. Find a class for Financial Peace University .

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