April 2012

Here is April’s review of blog posts. We hope you find something you enjoy!


Get Rich SlowlyJust One Thing: A Simple Way to Make Changes to Your Life – Changing your life doesn’t have to include a major overhaul. Just do one small thing a day different, and the change will come naturally over time.


Get Rich SlowlyThe Costs and Benefits of the Family Dog – Owning a pet can be a major cost. Don’t rush into it without considering all the potential expenses and commitments, especially if you’ve never owned a pet before


Get Rich SlowlyBe a Budget Traveler…in Your Own Town – Even if you think you’ve seen and done everything your hometown has to offer, you’ve probably missed something.


The Simple Dollar How We Plan for a Summer Vacation – Family vacations can be very stressful if not planned correctly beforehand.


Wise Bread 7 Money Moves to Make When You Get a New Job – If you’ve recently moved to a new job or will soon, here are some tips to make help ensure the move a is financial success for you.


Wise Bread 8 Great, Cheap Summer Vacations – Another vacation planning post. It’s that time of the year!


Please let us know if you have a favorite financial blog that you think we should be reading.



  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.



Last week, we briefly touched on Dave Ramsey’s Baby Step program and Len Penzo’s commentary on it. This week, we’ll provide our own commentary on the program, step by step.

Step 1: “$1,000 to start an Emergency Fund”

While Len disagrees with this step, we think it’s a smart move. The idea is to pay down your debt, and if you don’t have a safety net for a possible emergency, you could end up creating even more of a problem for yourself than you started with. However, we would say $1,000 should be just a guideline. Depending on your situation, this short-term emergency fund may need to be smaller or larger.

Step 2: “Pay off all debt using the Debt Snowball” (excluding mortgage)

Again, Len disagrees (as do many other financial experts). The Debt Snowball method pays off the smallest debt balance first and doesn’t consider interest rates. We agree with Dave Ramsey here. If you have 2 credit cards, one with a 15% interest rate and a $1,000 balance and one with an 18% interest rate and a $3,000 balance, we would say pay the lower interest card first.

Yes, that means you’ll be paying more in interest. But feeling successful is a great motivator and being able to cross that card off the list will help you feel even more inspired to pay down the second.

Also, paying down the smallest balance first will help you free up cash flow faster. The $200 you were using to pay down your first debt will be freed up in 5 months if you pay off the $1,000 balance first as opposed to 15 months if you pay off the $3,000 balance first.

Len says that the financial implications outweigh the psychological benefits of motivation. People who are truly committed to paying off debt will do so, no matter what and should pay down debt in order of highest interest rate to save money. Unfortunately, we think this doesn’t play out well in the real world. Even the most highly motivated people who want to change their financial situations completely can slow down or give up when they perceive all their hard work is having little payoff.

Paying off the higher interest card may save you money, but we don’t think it’s worth the risk of feeling defeated and giving up.

Step 3: “3-6 months of expenses in savings”

Len agrees, and so do we (to an extent). Depending on your situation, waiting until you’re done paying down debt to save an emergency fund may not be a great idea. If you’ll pay down your debt quickly, have a secure income, and little other expenses, you can probably wait. If it’s going to take you a significant amount of time to pay down your debt, have unsecure income, or many other fixed expenses, you may want to consider splitting your monthly debt payback allowance to begin funding an emergency fund sooner (as the $1,000 from Step 1 may not be sufficient).

Step 4: “Invest 15% of household income into Roth IRAs and pre-tax retirement”

This step is one where we split from Dave Ramsey’s thinking. First of all, 15% is often unrealistic, especially for younger people. We typically recommend 10% for retirement savings. It’s achievable and sufficient for many people, and leaves more cash available for other worthwhile pursuits.

Also, like Step 3, we disagree with waiting until your debt is paid off to fund retirement. This is especially true the older you are and the more debt you have. Suspending retirement funding may help you pay down your debt faster, but it may be too detrimental to your future if you’re not careful.

Also, if you’re lucky enough to have a company matched retirement plan through your employer, we would say always fully fund to get the match, no matter your situation, while you pay down debt. That’s free money, and while it may take you a little longer to get rid of your debt, you’ll likely be better off for it in the future.

Step 5: “College funding for children”

Len completely disagrees, saying his kids will pay for their own college degrees, since it won’t help him in his future. We would say this step is entirely situation dependant. If you don’t have kids or have no intention of paying for your kid’s schooling, this step obviously won’t apply.

We see nothing wrong with even fully funding you kid’s college education, especially if your debt is paid off and you’re sufficiently funding retirement. However, we would recommend putting stipulations on the funding (paying for a local, public university). Make it clear to your kids what is expected (if they choose to go out of state or to a more expensive, private school, they must pay the difference). Again, how you handle it is completely dependent on your situation.

However, we’d like to point our that not all college funding vehicles will go to waste if your kid’s choose not to use it all. We’ve written before about using your own Roth IRA to help fund your kid’s education.

We would also like to say that if your situation doesn’t allow you to save enough to cover your kid’s education, it’s not a good idea to go into debt to fund it, especially when you’ve worked so hard to payoff your own debt! Avoid that situation, even if it means not being able to help your children as much as you may have wanted.

Step 6: “Pay off home early”

Again, this is entirely situation dependent. There are situations where paying off your mortgage early makes sense and situations where it doesn’t. Some people chose to do it simply for “peace of mind” as Len says.

Step 7: “Build wealth and give!”

This is not everyone’s ultimate financial goal in life. If it is, then that’s great, you would hopefully be able to do so after following the program. However, if it’s not your goal, you should spend some time thinking about what your goals are, and what you need to do to achieve them.

Ultimately, like any financial plan, Dave Ramsey’s Baby Step program is designed to simplify. Each step when completed, should make the next easier to manage. And the hardest part is usually getting started.

Would we recommend the Baby Steps program?

As you can see, there are some aspects of the program we agree with. But we would say it’s much too uniform. There are too many variables not considered, and not every universal step is the right thing for everyone following the plan. Yes, it provides a good guideline for people who need to start somewhere. But as we said last week, many people take Dave Ramsey’s word as law and fail to consider what else might work best for their situation. Our recommendation would be that anyone who chooses to follow the plan should carefully consider each step to decide what the right move would be.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

This week over at lenpenzo.com, Len did a great post entitled “Debt Elimination: The Pros and Cons of Dave Ramsey’s Baby Steps.” Basically, he went step by step through Ramsey’s plan explaining what he agreed and disagreed with, and why.

We found it very interesting. Working in financial planning, we often hear people say something along the lines of “But that’s not what Dave Ramsey says…” Honestly, it can sometimes get frustrating. Not to say that Ramsey’s plan doesn’t work. He’s helped many people get in control of their finances and out of debt, so obviously his plan works. However, we definitely agree with Len that the plan works for anyone who is committed to it (which is the same with any sound financial plan).

The problem with some people who follow Dave Ramsey is that they believe he is the end all of financial advice. Any ideas outside of the realm of his advice can’t possible be right (we’ve personally seen people like this). But there are always new ideas and new ways of doing things that are better than before. Your personally situation is going to change, making one plan that you were following completely inappropriate for your life. We think it’s fine to follow his plan if it’s going to help you in your personal financial situation, but it’s not the only way to successfully handle things.

Next week, we’re going to go through Dave Ramsey’s Baby Steps and discuss what we agree and disagree with and why (and touch on what we agree and disagree with Len as well).


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

We’re out of the office today for Good Friday. We hope you have a Happy Easter! We’ll be back next Friday with our regular weekly post.