Financial Peace Review: Week 1
(This post is part of my Finance Peace University Review series from 2019, and updated in 2020 with additional content!)
Financial Peace University is a 9-week personal finance program, usually taught in small groups and often offered in churches around the country. The course is designed to help its students get on a budget, pay off debt, and create a financial plan for their future.
In recent years, an online version called Financial Peace University Flex has also been available.
And, because I appreciate flexibility and convenience, I signed up for it through my church.
Throughout the course, you watch the Financial Peace videos online, download and print out the worksheets, and take notes on your own.
If you signed up through a group (like I did) then you would meet once a week to discuss the content and how you would apply it to your own finances. There is also an online community for additional support.
One cool benefit is that you have access to the course videos and materials for a whole year!
I thought it would be helpful to write a summary of each week’s video and the steps covered. Of course, it takes a lot longer than a week to actually complete each step in the online course, so these Financial Peace reviews will focus mainly on the content presented and how it applies to my situation.
Week 1 is all about Baby Step 1 and Budgeting.
Dave’s Story And The FPU Baby Steps
Dave Ramsey starts off the first video talking about his own experiences with financial struggle.
He began selling real estate in his early 20s, shortly after he graduated from college and married his wife. They were broke and started off with nothing, but within a few years he owned $4 million in real estate and was making over $200,000 a year.
To get to this point he had to go into a lot of debt. When the bank called all of his notes (meaning they demanded full payment), he lost everything. Two years after the height of his success, he was broke and bankrupt.
The guy understands how debt can wreck your life, which is why he started telling others about the lessons he learned.
He took advice from older, wealthy people, and drew principles from the bible to figure out a system that worked. In order to be successful, there are some Ramsey rules to follow:
- Poor financial habits aren’t solved mathematically – you must change your mindset
- You must make a 100% commitment to change, not just change-ish (“ish” is a wish!)
- You can’t just pay off debt and increase savings – you must also learn the offense and defense of wealth building
He applied the “common sense” he learned to his own situation and dug out of the debt hole he was in. He vowed to never go into debt again, and it changed the trajectory of his life.
He figured out that good financial principles, when done in order, eventually lead to success.
He calls these principles “baby steps” because that’s how you overcome financial problems – one small step at a time. (Although I agree with this, I don’t consider any of these “small” steps because each requires a lot of time, effort and commitment!)
These are the 7 baby steps that are the building blocks to the Financial Peace system:
- Baby step 1: build a starter emergency fund of $1,000
- Baby step 2: pay off all debt except for your mortgage using the debt snowball method
- Baby step 3: increase savings to cover 3-6 months of expenses
- Baby steps 4-6: focus on your retirement account, college savings, and paying off your mortgage
- Baby step 7: focus on wealth building
The principles in these Financial Peace steps have literally helped millions of people around the world take control of their finances!
Baby Step 1: $1,000 Emergency Fund
Dave calls this the easiest and the hardest step.
Easy because it’s “only” $1,000. Hard because you may have never saved up $1,000 before.
This is the step where you need to decide if you’re all in or not.
For some, this step is already done. For others, it might take every ounce of discipline to save this much over a month or two.
Dave doesn’t spend a lot of time explaining this step. Basically, he says to put all your effort and focus into saving $1,000 – just enough to cover a small crisis so you don’t have to go into further debt for something like a broken faucet or new tires.
Later, in baby step 3, you’ll build on this fund.
But for now, it’s only meant to give you a little bit of breathing room.
We already have a pretty good cushion in our savings account. On one hand, I’m thankful we can check this off and move on to baby step 2. On the other hand, I’m concerned that we didn’t need to go through any behavior change to complete it. Our emergency fund is just money left over from the sale of our previous home, so there was really no sacrifice in saving it up.
The real challenge for us will come with baby step 2, and also keeping a budget.
Dave Ramsey’s daughter, Rachel Cruze, leads the segment on how to create a budget and have a budget committee meeting with your spouse.
Like her father, Rachel starts off by sharing a little of her own story.
After getting married, she struggled with going on a budget. Even when her new husband stressed the importance of it and created one to follow, it took about three months for her to see the benefits.
She describes the two typical personalities when it comes to managing money as the Nerd and the Free Spirit.
In her marriage, she is the Free Spirit and her husband is the Nerd. (Personally, I prefer to think of myself as a Planner, or a Realist – but, whatevah.)
She explains that the Nerd needs to create the budget because … well, because they want to.
The Free Spirit just needs to show up, look at the budget, and not say “whatever you want”. They must change at least one thing in the budget. This begins the process of working together.
And, based on her experience, she reminds us that it may take a few months to find your rhythm.
You’ll make mistakes with how much you budget for each category, you’ll go over your budget, and you will inevitably feel frustration and resistance to this new way of managing money.
That is all totally normal – just stick with it and eventually, everything will click.
You’ll realize that a budget doesn’t restrict your spending – instead, it allows you to spend!
It creates healthy boundaries that don’t leave you feeling guilty, but instead gives you a sense of freedom and security with your money.
Here are some additional Financial Peace budget rules and guidelines she brings up:
- Rule 1: you must create a budget every month before the month actually begins
- Rule 2: it must be a zero-based budget, where every single dollar is put into a category
- Guideline 1: begin your budget with giving, then saving and debt reduction, then spending
- Guideline 2: fund all budget categories with 5-15% of your net income, except for your mortgage (25%)
- Guideline 3: use cash and the envelope method for your daily spending so you “feel” it
Rachel goes through the process of setting up a budget using the EveryDollar app, and adds that a budget is *critical* to your success with the FPU system.
You must commit to creating and following a budget every month!
Dave Ramsey explains “baby steps”:
The Fear Of Commitment
My husband and I didn’t follow a budget for most of our marriage. That kept us in a paycheck to paycheck cycle that was stressful and unpredictable.
Between us, I’m the Nerd and he is the Free Spirit (and this pretty much describes us to a tee). I have created budgets in the past, but was never committed enough to them to try to convince my husband to follow it with me.
As much as I wanted to be more responsible with our money, I think I had some fear about being the “Nerd”, creating a budget, leading monthly meetings, and committing to a spending plan.
I was afraid I would fail, and that I wouldn’t be able to hold up my end of the commitment. After all, I’ve gotten very used to not being held accountable for what I spend money on.
Yes, I’m conscious of how my spending affects our bank balance, but my husband has never challenged me on how I spend our money.
To ask him to follow a budget means I have to follow one, too. To ask him to change his spending habits means I have to change mine as well. And that might be harder than I realize.
Like Dave said, this isn’t about solving a mathematical problem. Figuring out all the numbers and creating spreadsheets is the easy part.
The difficulty lies in committing to a shift in mindset.
Changing the way we think. Letting go of what’s comfortable, and turning towards the uncomfortable.
I’m not used to uncomfortable. And I don’t think I would like it.
So the big question is:
Have I decided that I am not going to live like this anymore, and will I do whatever it takes to reach financial freedom?
And the answer is, I believe I am. Even when I don’t *feel* like I am, I’ll hold onto this belief that I’ve chosen.
We will most definitely experience failure in our efforts, but through them, we’ll learn to do better.
It’s time to change the trajectory of our future and change our family tree.
It’s time to be intentional and commit to pursuing financial freedom.
It’s time to say I’m not living like this anymore.
What about you? Are you ready to commit to living like no one else, so later you can live like no one else?