Dave Ramsey Techniques to Finances Part 2

Preface: I failed to mention that the “Financial Partners” class S. and I are taking turned out to be a DVD course of Dave Ramsey’s “Financial Peace University” – we did not know it when we originally began the class, weird, I know, but it was never mentioned in the class advertisement. I highly recommend that you find the course in your local area – it could save your marriage, your family, and your financial future; but if you can’t take the course, then buy his book that comes complete with all the forms; he also has a web-site. You are never too old to change your money habbits. FYI: We were not propositioned in the class to do advertising for Dave Ramsey, but again, it is such good information, that I can not help but to want to share the knowledge – I am sharing the basics, for greater detail and specifics and how-to’s, attend the Financial Peace University course or read his books!

Part 2:

Marriage and Money – Discover which spouse in the marriage is more inclined to be the number cruncher and the person heading up the budget work and preparation. When making a cash flow plan (budget) both parties must be involved. If you are not married, then find a friend who you can be held accountable to. This is not just for the married.

A cash flow plan allows you to make your money behave the way you want it to. Every SINGLE dollar of your income must be told/planned where it is to be spent on paper before it is spent at the beginning of the month.

Remember that a good monthly cash flow plan/budget should have categories that allow you to save for those big crisis events that will happen, such as Christmas and major car repairs, it should also allow you to save money monthly for large purchases like furniture or a family vacation. If your monthly cash flow plan is well planned for these events, AND the small step # 1 (see previous post part 1, and ) of having an $1,000 emergency fund is accomplished, you shouldn’t need a credit card for those just-in-case unexpected problems that will arise.

It usually takes 3 to 4 months/tries to figure out the budget and work out all the kinks. Plan/Budget your money for what you need to survive, the 4 WALLS of BUDGETING: shelter, food, clothing, transportation (including insurance). Pay necessities first then fit the rest in.

Here is the budget/cash flow plan (make sure you use a pencil, with a long eraser, you’ll need it): dave's cash flow plan/budget form. As a married couple, take some time and develop this budget form together.

For those whose monthly income is always fluctuating (self-employed), you need to also use this form: irregular income form

The percent of take-home pay that you should actually be spending on all of the categories in the cash flow form found in the link above are between 5% and 10%, except for housing which should be between 25% and 35% of your income. You'll want to make sure you are not exceeding these percentages, if you are – you have a problem.

Using a budget is fundamental in managing your money and making your money happen for you.

Begin now to use the envelope system and pay only cash for food, eating out, transportation, clothing, personal items, and entertainment so you don’t go over your budgeted amount. Write a check to the bank to withdraw cash for the budgeted amount per envelope. When the money is gone, it’s gone, and you cannot buy another thing until the next month. This creates discipline.

If you are using credit cards for every-day-purchases, STOP, even if the monthly balance is paid off every month, and begin to use the envelope system. Why use the envelope system? When spending cash you actually spend 12% to 18% less, because there is actual pain involved when handing over a nice stack of crisp $20 bills (a recent study by Dun and Bradstreet). Spending cash hurts and will curb extravagant spending encouraged by the use of credit cards and credit card companies. Getting your teenager a credit card does NOT teach them to be responsible with money! For more details, you’ll have to take the class.


Parents should show their children HOW to live debt free. Teach your children how to handle money as early as possible. Do not use an allowance, but use the employer system. The child is given a certain amount of jobs, each job completed entitles compensation. They should not be paid for every little thing they do at home, like taking their dish to the sink – they do that because they love and respect their parents and where they live. At the end of the week if the child does the prescribed job, he is paid, if the job is not done, he is not paid. From what money the child has earned he then must divide it into 3 categories: giving/tithing, saving (for larger purchases, mission, college, car), and spending all using the envelope system.

Giving is the most important principle a child can learn (I believe). Giving/Tithing makes the child responsible by actually paying their own tithing from the money they have earned. They fill out the donation slip, put THEIR OWN $$$ in the donation envelope, and they give it to the bishop. What lesson does the child learn when the opposite is done and the parent gives their money to the child to pay tithing with?. Do they really learn what it is to give and to sacrifice? Think about it.

Allow children in their early teenage years to open up a checking and savings account, teaching them to balance it monthly, as well as the fact that you are dishonest to the bank when a check is written for a purchase when the funds are not present. Teach children how dangerous credit cards are, (especially for college age children – credit cards and debt are the worst thing a college student can get stuck in, it prohibits them from being debt-free and from saving money themselves). Children who see their parents using credit cards teaches them that debt is OK, and it teaches the children to NOT budget or care for the money they receive. Help upon opening a checking account assist your teenager in setting up their own monthly budget so they can learn this essential skill before they are released into the world.

WATCH this Dave Ramsey 50 minute program on Hulu about credit cards. He also talks about saving for a college education. The ideals he talks about in the show are also discussed in the course.

Watch this Baby Steps video from Dave Ramsey on Hulu

I love mint.com – it is a great way to track your income, net worth, and set-up an electronic budget – I do prefer it to paper. But if you are beginning a budget for the first time– put it on paper first. Remember, both you and your spouse must agree on all the amounts on the budget, there will have to compromise between the two of you.

What should you be doing now?
1)Get a $1,000 emergency fund saved up as fast as you can (aim for 1 month)
2) establish a cash flow plan/budget to plan out how every single cent you make is going to be used for the month
3) stop using credit cards
4) use the envelope/cash only system.

Good luck!