Financial Peace University Week 4 Review
(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 that helps people get on a budget, pay off debt, and save for their future.
This course was created by Dave Ramsey, who struggled with some financial crises himself before he learned to master money management and teach others to do the same.
The online version of the course is called Financial Peace University Flex, and it provides a web-based curriculum using videos and downloadable materials to facilitate the lessons.
With FPU Flex, you have support through an online community, and access to the course videos and materials for one year.
There are nine weekly lessons in the online course, and I’ve created review posts for each one (plus a “Top 10 Lessons”). I hope these personal reviews are helpful in learning Dave’s financial precepts and applying them to your own finances.
This popular money management course teaches financial principles through a series of “baby steps”, which is meant to convey that small, consistent changes can lead to financial freedom.
Financial Peace University lesson 4 covers Baby Steps 4 through 7, which are meant to be done simultaneously.
Step 4 is investing for retirement, step 5 dives into saving for a college fund, and step 6 talks about paying off the mortgage.
The last step – step 7 – encourages us to “give like no one else”. (That’s the step I can’t wait to get to!)
Baby Step 4: Saving for your retirement
Once you’ve paid off all your debt (except for the mortgage) and stashed away 3 to 6 months of cash for your emergency fund, then it’s time to double down on future savings.
Here’s where you need to decide if you want to look wealthy or be wealthy.
Building wealth takes time, so of course, the earlier you start, the better.
And I don’t mean “earlier” like Oh shoot I didn’t start earlier than today so it’s too late!
I mean “earlier” like the earliest time TODAY.
Over half of working Americans have saved less than $10,000 for retirement. In fact, according to this article by Smart Asset, the Government Accountability Office has reported that approximately 29% of households age 55 or older don’t have a retirement account or a pension.
Why, you may ask?
Because there was never a “today” that they committed to saving.
The good news is, every day you have a new today!
So, if you haven’t already, start today. As early as possible. Preferably before breakfast.
Dave Ramsey recommends you save 15% of your take-home pay for retirement. Once you’ve lived through the struggle of paying off all your debt (except the mortgage) and saved up your gigantic emergency fund, this should be a walk in the park.
The trick is to do it.
You may *feel* wealthy with all that extra money left over at the end of the month and that pile of cash in the bank. But, don’t fool yourself. At this point, you’re still only a few misfortunes or mistakes away from sliding back down to square one.
Chris Hogan recently wrote a book called Everyday Millionaires, based on a survey of over 10,000 millionaires. One fun fact he discovered was that the number one tool that millionaires have used to build wealth is their 401(k).
Like, not complicated investment strategies or their own (expensive) personal finance expert.
Just the same tool your employer probably provides, where your money can get invested before you even see it!
The magic is in the compound interest – you know, that free money that makes your dough ball bigger exponentially over time.
Introduce your money to time and compound interest – create opportunities for them to all hang out together a lot, encourage them to be best buds, and eventually your little pennies will one day be big bills. It just takes patience and intention.
What if you’re in your 50s and haven’t saved anything? Start now!
Trim all the fat in your spending, then run to the bank with the money you’re saving and put it into a retirement account.
If your employer has a 401(k) program, fill out the paperwork or sign up online. Just start!
How clear are you seeing your dreams?
Chris Hogan says you don’t get to live your dreams without a plan.
Everybody has a dream. It may be on its last breath and buried under a heap of regrets, but you have one.
If you’re in my boat (that would be the 50-something-better-late-than-never one), it’s a great time to blow off the cobwebs and give your old dreams a good shine. The kids are older, your brain is wiser, and your insecurities aren’t bullying you around so much.
There couldn’t be a better time than right now to give some attention to those aspirations that have been waiting quietly and patiently in the back of your mind your whole life.
If you’re married, it’s time to have a dream meeting. This is where you share with each other those things you’ve always wanted to do, and figure out what dreams you have together.
And just take the word someday out of your vocabulary. Make a plan, have a goal, set a date.
Cut out pictures that represent your dreams and put them up where you can see them every day. Let this help motivate you to stay in the game. Let them be a reminder that the sacrifices now will be so worth it.
Make sure your vision is crystal clear. Down to the color, the size, the city, the date, and the dollar. Get specific and write it down.
Dream about retirement like it’s going to be the most magical time of your entire life.
Chris Hogan has a free retirement calculator on his website, ChrisHogan360.com, that will help you reach your goals. It allows you to calculate your Retire Inspired Quotient (R:IQ) so you’ll know exactly how much money you’ll need to live your dream retirement.
Not only that, the tool will tell you how much you need to start investing right now in order to get there. Go check it out!
Condoleeza Rice once said,
“It doesn’t matter where you came from, it matters where you’re going.”
Don’t look behind you and regret your mistakes. Yesterday is over friend. Your future starts today.
Chris reminds us that when we change our thinking, we change our future. Make the decision to take back control of your life.
Be intentional. Make a commitment. Change your thinking.
A dream without a plan is just a wish, and unless you have a genie in your back pocket, that dream’s just living in your heart without paying rent.
Get some return on those dreams by making a plan and investing in them.
Get this free Dream Meeting worksheet, then plan your “dream” date with your partner to write down your retirement dreams together!
Baby Step 5: Saving for college
Baby step 5 is saving for your kids’ college fund.
Again, steps 4 to 6 are done simultaneously, by priority.
*Hint*: your priority is your retirement fund.
Because, well, it’s pretty much 100% guaranteed that *someday* you’re going to retire.
But college? Not necessarily a given.
Still, you want to stash away some moolah for the *possibility* of college so your kids don’t end up graduating with a degree and $50K in debt.
There are a couple of possibilities to save for college that are mentioned in this segment of the course:
- an Educational Savings Account (or Educational IRA), and
- a 529 plan
The ESA has restrictions on your level of income in order to qualify for an account, and you can only invest up to $2,000 a year.
If you are at a higher income level and you can put in more than $2,000 a year, then you’d want to choose the 529 plan. However, there are several plans to choose from, so make sure you pick one that allows you to stay in control of the money.
What if you have a senior in high school and you haven’t saved a dime? You can still help your kiddo in some pretty significant ways that could potentially get them through college without debt.
Here are a few ways to help your children practically:
- Encourage them to choose an affordable school – an in-state public university, a community college, or an online program
- Require them to apply for scholarships, grants, and work studies. When I was taking my oldest son on campus tours, the financial aid director would always say to treat this as a part-time job. Have your child devote time every day to applications.
- Support them in getting a job. Studies have shown that if a student works 20 hours a week they can pay their way through college. Don’t get hung up on how they’re going to maintain their GPA or keep up with a social life. Working while going to school will teach them time management and keep them out of trouble.
- Allow them to live at home rent-free. I know, I know – you had visions of turning their bedroom into your happy place, but this literally will save them tens of thousands of dollars over the course of their college career.
Of course, you’re NOT a bad parent if you can’t (or even won’t) pay for your kids’ college tuition.
Like Rachel Cruze (Dave Ramsey’s daughter) says, college is a blessing and not an entitlement. Whether you choose to foot the bill or help them out in non-financial ways, you’ll be helping your kids avoid falling into a huge debt hole.
Baby Step 6: Becoming a true homeowner
The last step to achieving financial freedom: pay off the mortgage.
This may sound close to impossible for you right now. It does to me.
But that’s because this is like reaching the summit of a mountain. If I’m still at the bottom looking up at the top, it will feel too big to achieve. I’ll give up before I even start.
I guess that’s why they’re called baby steps. Everybody hikes to the top of a mountain the same way: putting one foot in front of the other.
If you just focus on your next step and not the destination, eventually you will get there. Put your blinders on, keep your head down, and continue moving forward.
Dave tells us that the average person who follows all the steps, in order, gets completely out of debt within 7 years.
Does that seem like forever to you? I’ll be 57 in 7 years! It sounds so far away. Dang that’s a lot of steps.
Then I think about 7 years ago. I was 43 (which sounds young to me now). But not much has changed in our financial situation. We still live in the same house, still have the same 2 cars, still have the same jobs, still have a lot of debt.
The point is, if I’m not intentional about anything then nothing will change. I can either be debt-free with a rockin’ retirement fund in 7 years, or I can still be living paycheck to paycheck.
Which would you choose? Mmmhmm.
It’s not too difficult to imagine how your life would change without a mortgage payment. Ours is over $2,000 a month, and I could sure think of more fun things to do with that money than give it to a bank.
And don’t go tricking yourself into thinking a mortgage is good for your tax bill. Do the math and you’ll see that keeping a mortgage just for the deduction is like trading a dollar for a quarter. Those are dumb numbers.
Besides, with the recent change in the tax code, you’re probably better off taking the standardized deduction.
If you happen to be renting, just keep saving up until you have a sizeable down payment for your own home. If you don’t want to wait until you can pay cash for a house, choose a 15-year fixed rate loan with a payment that’s no more than 25% of your take-home pay. The goal is to get it paid off as soon as possible.
Paying off your mortgage sets you free. You’ll no longer be a slave to the lender.
Now you can start living and giving like no one else.
Baby Step 7: Build wealth, bless others
You’ve reached the top of the mountain, and now you can just enjoy the view.
You can see clearly now how you can help others that are climbing their own mountain.
You can breathe easy, knowing you’ve created a new legacy that will not only secure your future, but also your kids’ and maybe even your kids’ kids.
You’ll be able to give outrageously to others, and you’ll have the most fun you’ve ever had in your life.
I can’t wait!
Just imagine being able to take your entire family on a trip to Europe. Or owning your dream cabin where everyone comes for Christmas.
Or giving a car to a neighbor in need.
Or paying for your friend’s medical bills.
Or funding new schools in Africa.
What else can you imagine? What’s your vision as someone who’s reached financial freedom?
Your actions today dictate your future. You can make the decision to change your family tree, to alter the course of your life and leave a legacy that will bless your loved ones for decades to come.
On your way up the mountain, you will endure obstacles, hardships, and sacrifice for sure.
But it will be worth it. In the end, you will look back and be able to say, no regrets.
As wonderful as it sounds to end this journey at the top of a mountain, you’re not done yet.
Now, you want to make sure you don’t fall off.
Dave calls this having a strong offense and defense. You need to have protection in place, and strategies to sustain your wealth.
- knowing how to spend wisely
- having sufficient insurance
- learning to invest
- being smart with real estate
- giving generously
These will be the topics of lessons 5 through 9, and each is super important for maintaining wealth.
As Dave says, “you’ve got the framework, you know how to get the plane off the ground, and now you need to learn to fly.”
Come back next week, when I’ll dive into the next lesson which will teach us how to gain power over our purchases!