OtherBooksbyDaveRamsey

DaveRamsey’sCompleteGuidetoMoney

EntreLeadership

FinancialPeaceRevisited

MoreThanEnough

SmartMoneySmartKids

TheTotalMoneyMakeover

TheLegacyJourney

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Contents

1.TheTotalMoneyMakeoverChallenge

2.I’mNotThatOutofShape:DENIAL

3.DebtIs(Not)aTool:DEBTMYTHS

4.The(Non)SecretsoftheRich:MONEYMYTHS

5.IgnoranceandKeepingUpwiththeJoneses:TWOMOREHURDLES

6.WalkBeforeYouRun:SAVE$1,000FAST

7.LoseWeightFast,Really:THEDEBTSNOWBALL

8.KickMurphyOut:FINISHTHEEMERGENCYFUND

9.BeFinanciallyHealthyforLife:MAXIMIZERETIREMENTINVESTING

10.MakeSuretheKidsAreFitToo:COLLEGEFUNDING

11.BeUltrafit:PAYOFFTHEHOMEMORTGAGE

12.ArnoldSchwarzedollar,Mr.UniverseofMoney:BUILDWEALTHLIKECRAZY

13.LiveLikeNoOneElse:REACHTHEPINNACLEPOINT

AbouttheAuthor

Notes

1

TheTotalMoneyMakeoverChallenge

KeyConcept#1NoMoney...IsNoFunIrememberthefeelingsvividly.Forseveralyearsinmytwenties,Ifacedtheendofeverymonthwithdread.Ihadtoomuchmonthleftattheendofmymoney.Iwasnothavingfun.

Iwasn’tafraidofhardworkandsacrifice.Ididn’tneedasecretformulaformakingmoney.Ididn’tneedapositive-thinkinggurutopumpmeupandtellmetohave apositive attitude. Iwas simply sick and tiredofbeing sick and tiredwhen it came time to “do the bills.” I felt hopeless, as if I were running afinancial race with no traction and no ground covered. Money came in andmoneywentout,withnothingrealtoshowformyeffortorincome.

WhatAboutYou?Doyou feel as ifyouhave full controloveryourmoney . . . or areyourbillscontrollingyou?Theamountofcontrolyouhaveoverfinancialmattersisoftenreflectedinhowyoufeelaboutmoneymattersingeneral.

Thesamethingistrue,ofcourse,whenitcomestoanyareaofyourlifeinwhicha“makeover”mightbeneeded.

If you are in very bad health—or your physician tells you that certainnumbers in your lab reports and exams are “abnormal”—you may becomehighlymotivatedtoundertakeanewexercise,diet,orbetter-healthplan.Ifyourspouse tells you the endof yourmarriage is on thehorizon, youmaybecomehighlymotivatedtoseekoutacounselortohelpyourevampthewayyourelatetoyourspouseandtoimproveyourmarriage.There’safeelingthathitsthepit

ofyourstomachwhenyoufinallywakeupandsaytoyourself,“Something’sgottochange!Ican’tcontinuetolivethisway...thefactis,tocontinuethiswayisn’t really living. It’s justexisting,enduring,putting in the timeandthemilesandhopingIendupsomewhereIlike.”

Before you are trulywilling to embark on a TotalMoneyMakeover, youneedtofaceuptohowyoufeelaboutyourcurrentfinancialsituation.Thatwilltellyouhowmotivatedyouare todosomethingaboutchangingyourfinancialsituation.

Plain and simple, if you likeyour current financial situation, youprobablyfeelprettygoodaboutmoneymatters,andyoudon’tneedamakeover.

On the other hand, if you don’t like your current financial situation, youprobablyfeelprettylousyaboutyourfinances.Amakeoverisforyou!

Exercise#1HowDoYouFeelAboutMoney?

IchallengeyoutotaketheTenSituationsTestbelow.Respond to each of the statements quickly and instinctively with a

simple“Iliketotalkaboutthis”or“Idon’tliketodiscussthis.”LIKEtoTalk:The“LIKEtoTalk”categoryincludesresponsessuch

as“Ienjoygettingnew ideasabout this”and“Idon’thaveanything tohideonthissubject.”“LIKEtoTalk”shouldreflectanenthusiasm—nota reluctance—for talking, and a willingness to be open, honest, andcandid. Finally, the “LIKE toTalk” category should not reflect just an“I’vegotapatansweralreadyprepared”attitude,but ratheran“I thinkthis is a good opportunity for a candid sharing of ideas and opinions”attitude.

HATE to Talk: Included in the “HATE to Talk” category areresponsessuchas“Iwouldn’tbecaughtdeaddiscussingthis”and“I’ddojustaboutanythingtoavoidaseriousconversationaboutthis.”“HATEtoTalk”shouldbecheckedifyoufeelreluctance,awkwardness,ordread.

LIKEto

HATEtoTalk

Talk

1. Someoneasks,“Howareyoudoingfinancially?”

2. Yourspousewantstodiscussthismonth’sbudget.

3. Yourtaxaccountantcallsandsays,“Let’smeet.”

4. Yourpastorwantstohavelunchwithyou(andyouknowhewantstodiscussthepossibilityofyourmakingaspecificcontribution).

5. Yourchildasksyoutocosignaloan(oracreditcardapplication).

6. Themoneymanagerinyourfamilysays,“Ihavesomeconcernsaboutafewcreditcardcharges.”

7. Afriendsays,“Whatdoyouinvestyourmoneyin?”

8. Asupplierorvendorasks,“Doyouwantthisautomaticallydeductedfromyourbankaccounteachmonth?”

9. Aloanofficersays,“Tellmeaboutyourfinancialsituation.”

10. Aparentasks,“Didyoueverpayoffthatdebtyouhad?”

Most thin,fitpeopleIknowenjoytellingthosewhoaskabout theirexercise routine, the diet plan that helped them shed the pounds, andother health matters. Plus, if they encounter health problems, they arequicktoseethedoctororreadhealtharticlesabouttheirsymptoms.

In the same vein, I’ve seen that those who have children who areexcelling, orwho havemarriages that are loving, usually enjoy talkingabouttheirfamilyrelationships.

And . . . those who are financially fit usually enjoy talking aboutmoneymattersandsharingtheirinsightsintomoneymanagement.

Take another look at thewayyou responded to the situations listedabove. Overall, how do you rate your willingness to face and discussyourfinancialsituations?

Circleoneofthetworesponsesbelow...andthencrossthroughthe

statementthatdoesNOTreflectthewayyoufeel:Response #1: Overall, I amWILLING and EAGER to discussfinancialmattersopenlyandcandidly.

Response#2:Overall,IamNOTWILLINGandNOTEAGERtodiscussfinancialmattersopenlyandcandidly.

Exercise#2ScaredorSmiling?

How do you feel—gut-level, first response—about each of the elevenmoneymattersbelow,onascaleof1to4(1being“Scared”and4being“SmilingAlltheWay”)?

(1)Scared

(2)ALittleWorried

(3)UnderControl

(4)SmilingAlltheWay

1. Payingthismonth’sutilitybills:[YourNotes]

2. Makingthecurrentcarpayment:[YourNotes]

3. Payingnextmonth’smortgage:[YourNotes]

4. Fundingretirement:[YourNotes]

5. Payingforthekids’college:[YourNotes]

6. Payingbackaloan:[YourNotes]

7. Payingtheminimumonthismonth’screditcardbills:[YourNotes]

8. Payingoffallthismonth’screditcardbillsinfull:[YourNotes]

9. Abilitytohandleanemergencyexpense:[YourNotes]

10. Preparedtopayforachild’swedding:[YourNotes]

11. Takinganicefamilyvacationthisyear:[YourNotes]

Thetruthofthematteris...IfyoufeelSCAREDorfearfulaboutanyofthesemoneymatters,you

likelyarenotincontrolofyourfinances—theyarerunningyourlife,andperhapsevenruiningyourlife!

IfyoufeelALITTLEWORRIED,youalsoarenotincontrolofyourfinances—youverylikelyjustaren’tadmittinghowscaredorfearfulyouarethatthingscouldspinoutofcontrolatanymoment.ThosewhoareALITTLEWORRIEDareonly“alittleconfident”thatthingsaregoingintherightdirection.

IfyoufeelUNDERCONTROL,youmayverywellbeincontrol...oryoumaybeinastateofdenialaboutyourfinances.Ihaveencounterednumerouspeoplewhojustsay,“Noproblem”becausethat’sthewaytheywanttheirlivestobe,whenintruth,anybodylookingobjectivelyattheirsituationwouldshoutoutloud,“Man,you’vegotaproblem!”Controlisatermwesometimesusetotalkourselvesintobelievingthatthingsaregoingto turnoutallrightandthatanegativesituationismanageable—similartohowridingabuckingbroncoismanageableifyoumanagetostayinthesaddle.

SMILINGALLTHEWAYshouldbeinterpretedas“smilingallthewaytothebankandback”!Ifyouchecked“SMILING”formostofthesestatements,it’slikelyyoudon’tneedaTotalMoneyMakeover.But...youmayneedmoneymakeovertipsforthosespecificareasinwhichyouansweredanythingotherthanSMILINGALLTHEWAY.

KeyConcept#2IfYouDon’tKnowHowMoneyWorks...WhatFutureIsThereinWorkingforMoney?WhenIwasinmylatetwenties,mywifeandIwentbroke.Welosteverythingduetomystupidity inhandlingmoney,ornothandlingit.Wehitbottomhardandlosteverything.ItwasthenthatIbeganaseriousquesttolearnhowmoneyworks. I came to realize: 1. It’s up tome.Mymoney problems,worries, andshortageslargelybeganandendedinmymirror—nobody“made”mepoororabadmoneymanager.Ihadtotakefullresponsibilityformyownstupidity.

2.God’s and Grandma’s way of handling money works. Wealth buildingisn’t rocketscience.Theprinciplesaresimple, time-proven,andeffective. Ina

nutshell,“spendlessandinvestmore”isafive-wordfinancialstrategythateverypersonovertheageoffivecancomprehend!

3.Winningatmoneyis80percentbehaviorand20percentheadknowledge.It’s not enough to know good financial principles—it’s acting on thoseprinciplesthat’simportant.

WhatAboutYou?Oneof thefirst thingsafitnessadviserwillaskapersonis this:Whatareyoulookingtoachieve?Toanswerthisquestion,theadvisermightsuggestthatyoustand in frontof amirror to takea long,hard lookatyourselfor to reflectonwhatworkout strategies you’ve done in the past.Doyou like the placewhereyouarephysically?Ifnot,areyouwillingtoownuptothefactthatyouarethepersonwhoisinchargeofyourbodyandyourhealth?

Areyouwillingtoownuptothefactthatthethreebasicprinciplesoffitnessaren’tallthatdifficulttocomprehend?Eatless,eattherightfoods,andexercisemoreareconceptsevenachildcanunderstand.

Areyouwilling toownupto thefact that itdoesn’tmatterhowmuchyouknowaboutdietplans,goodnutrition,orexerciseunlessyouarewillingtoputwhatyouknowintohighgear?Youwon’tgetfitunlessyouactuallyeatright,eatless,andexercisemore.

Thesearegivensinachievingphysicalfitness.Thesameistrueforfinancialfitness.

Exercise#3WhoseFaultIsIt?

Checktrueorfalseforeachofthestatementsbelow.

TRUE FALSE

1. MymoneyproblemsAREN’Tmyfault.

2. MymoneyproblemsareonlyPARTLYmyfault.

3. MymoneyproblemsareMYfault.

IfyoucheckedTRUEfor statementnumberoneornumber twoabove,you need a reality check. The truth is, yourmoney problems are yourfault.

“But,” you may say, “it isn’t solely my fault.” Let’s explore that.Whomdoyoublameforyourmoneyproblems?

Checkanyof thefollowingthatyoubelieveapply . . .and then tellwhy.

MyMoneyProblemsAretheFaultof...

MyPartinThisWas...

Myspouse

Myparents

Mychildren

My“badluck”

Interestrates

Myemployer

Thegovernment

Mybank

Myfinancialadviser

Mypersonalitytype

Abadloan

Mystockbroker

Thestockmarket

Other:

Whydidyouallowthatpersontogiveyoumoneyproblems?Your“badloan”was a loan you took out or you issued to another person.Right?

Your spouse’s overspending occurred because you agreed to letoverspending go unchecked. Right? For any items above that youchecked,behonestincompletingthefollowing:

MyMoneyProblemsAretheFaultof...

MyPartinThisWas...

Myspouse

Myparents

Mychildren

My“badluck”

Interestrates

Myemployer

Thegovernment

Mybank

Myfinancialadviser

Mypersonalitytype

Abadloan

Mystockbroker

Thestockmarket

Other:

WhyamIbeingsotoughwithyouonthispoint?Tworeasons:Reason #1: Until you take responsibility for your moneysituation,youaren’tgoingtodoanythingtochangebecauseyoudon’tthinkyoucandoanything.You’llwaitforthe“otherparty”totakeresponsibility,oryou’llwaitforyourluck,stockbroker,orpersonalitytochange!

Reason #2: The way you allowed another person or entity to

impactyourfinancialsituationveryoftengivesgoodcluesaboutwhatyouneedto“undo”asyouseektobecomefinanciallyfit.

Think for amoment about physical fitness. If you are blaming toomuchicecreamandMexicanfoodforyourexcessweight,therearecluesinyourlayingblame!YouhaveaweaknesswhenitcomestoicecreamandMexicanfood.Thesolutionforyourproblem?Well,inpartit’sthis:don’tbringicecreamhomefromthesupermarket,anddon’tgoouttoeatatMexicanrestaurants!

Atthesametime,ownuptothefactthatyouaretheonewhoturnsyourcarintotheicecreamparlor’sparkinglot,andyouaretheonewhois quick to say, “Let’s eatMexican tonight.”You haven’t gained extraweightbecausethere’sagreaticecreamstorelessthanahalfmilefromyourhomeoraMexicanrestaurantjustaroundthecorner.You’dfindaway to overeat or eat the wrong foods, even if all ice cream and allMexicanfooddisappearedfromtheplanettomorrow!

Dittoforyourmoneyproblems.Ifyouareblaminganotherpersonorsituationforyourmoneyproblems,youare indenial.Theproblemsareyours. Own up to your responsibility in creating money problems foryourself, and then you can do something to turn those problems intosolutions.

Exercise#4ThePersoninYourMirror

Checkall thestatementsbelow thatyoubelieveapply toyour financialsituation.

ThisAppliestoMe

1. Idon’tknowenoughabouthowmoneyworks.

2. Istrugglewithmybillsbecauseofmyownpoor

choices.

3. Iamthenumberonepersonresponsibleforturningaroundmyfinancialsituation.

4. Iknowwhattodowithmoney...Ijustdon’tdoit.

5. Ihaven’teverreallytakenresponsibilityforlearninghowmoneyworks.

6. Ihavebeenlazywhenitcomestodiscipliningmyselfaboutmoney.

7. Iamwillingtotakefullresponsibilityformycurrentmoneysituation.

8. Iamwillingtomakethechangesnecessarytoenjoysuccesswithmymoney.

If you checked any of the above, you need a financialmakeover—andyouknowit.Congratulations!Youhavetakenthefirstreality-checksteptowardimprovingyourhandlingofmoney.

KeyConcept#3TakeaShort,PainfulWalkintoaLifetimeofSuccessThisTotalMoneyMakeoverWorkbookisbasedononeverysimplemotto:

Ifyouwilllivelikenooneelsenow...lateryoucanlivelikenooneelse.

Living like no one else now means living a sacrificial, highly focused,purposefullifewhenitcomestoyourmoney.

Living like no one else later means living without the worry, frustration,stress,orfearthatcomesfromconstantlybeingonthebrinkoffinancialdisaster.Itmeanslivinglaterwithfeelingsofconfidence,hope,andjoyrelatedtomoney.

WhatAboutYou?Areyouwillingtochangeyou?Honestly?

AccordingtoasurveybythemarketingresearchcompanyMintel,43percent

ofAmericanssayourmodernlifestylemakesitmuchhardertobehealthy,and80percentacknowledgethat“beinghealthyrequiressacrifices.”1Manypeoplewhowanttobehealthierwouldsay,“Yes,Ineedtochange.I’dliketochange.”But when it comes right down to changing, they don’t change. Why? Theforemostreasonisbecausetheydon’tlikechange—period.Theydon’twanttoalteranyaspectof their lives.Theyseechangeasdifficult to impossibleor,attheveryleast,uncomfortable.

I agree. Change always has an element of sacrifice to it. It always has anelementofself-denial.Anychangethat trulyresults ingrowthorimprovementhasanelementofpainassociatedwithit.

Soletmeaskagain:Areyouwillingtochangeyou?

Exercise#5TheWillingnesstoChange

In eachpair of opposite statements, circle theone thatmost clearly representsyouinallareasofyourlife.

Ilikechange. Ihatechange.

I’mwillingtolearn. I’mnotwillingtolearn.

I’mwillingtoadjustmyhabitsifitmeansabetterlife.

Ilikemyhabits,andIdon’tbelieveI’llhavetochangeanyofthem.

I’mcapableofchanging. Idon’tthinkIcanchange.

Iamcapableofenduringsomepain,difficulty,andsacrificeifthegoalisworthit.

I’mtrulynotwillingtoexperienceanypain,difficulty,orsacrifice.

Iamwillingtosacrificenowtoreapthebenefitslater.

IfindithardtostaymotivatedtosacrificenowforbenefitsI’llonlyseeinthefuture.

IamwillingtodowithoutsomethingsnowinordertohavethelifeItrulywantlater.

I’mnotwillingtogiveupanythingIcurrentlyhaveorroutinelyexperience.

I’dratherhavethepainofchange I’dratherlivewiththepainof

thanhavethepainofmoneyproblems.

moneyproblemsthanexperiencethepainofchange.

Take a long, hard look at your answers above. If you aren’t willing tomakesomepainfulchangesinyourlifefortheshortrun,there’snoreasontocontinueon in this book. I suggest you stop reading and come back to this workbookwhenthepainofyourcurrentfinancialsituationbecomesunbearableoryou’vereachedthepointthatyouarewillingtotradeinthepainofmoneyproblemsforthepainofchange.It’sonlyasyouarewillingtochangethatamoneymakeoverwillworkforyou.

Completethemottoifyoucan:Iamwillingtolivenowlike[YourNotes]oneelse...soIcanlivelaterlike[YourNotes]oneelse!

SimpleQ&AQ: According to The Motley Fool, afinancial-advice company, the averagecreditcarddebtforhouseholdsthathaveabalanceis[YourNotes].

A.$3,600B.$10,522C.$16,048

A:C2

Exercise#6TakingCharge

Fillintheblanksinthesevensentencesbelow.UsetheWordPoolifyouneedhelp!

1. MyfinanciallifewillbeginturningaroundwhenItakefull[Your

Notes]forthemoneyproblemsIhave.

2. IknowI’msmartenoughtolearnhow[YourNotes]works.

3. IknowIamcapableofmakingthe[YourNotes]necessarytogetridofmymoneyproblemsandworries.

4. Iam[YourNotes]tolivelikenooneelsenowinordertolivelikenooneelselater.

5. I’dratherbesmilingthan[YourNotes]whenIthinkaboutpayingbills.

6. Iwanttobein[YourNotes]ofmymoney,ratherthanhavemymoney[YourNotes]me.

7. Ifit’sgoingtobe,it’supto[YourNotes]!

WordPoolmoney • willing • me • scared • control • responsibility • changes •controlAnswers:

1. responsibility2. money3. changes4. willing5. scared6. control;control7. meGobackandreadaloudeachofthestatementswiththecorrect

wordsfillingtheblanks!

2

I’mNotThatOutofShape:DENIAL

KeyConcept#1MostPeopleAreNotasWellOffasTheyThinkTheyAreFor years I’ve conducted live financial seminars in which I’ve relayed thisshockingfact:

SeventypercentofAmericanslivepaychecktopaycheck.1

Thisstatistic,ofcourse,meansthatonly30percentofAmericansdon’tlivepaycheck to paycheck. Fewer than one out of three of us have something setasidetoallowusnottofaceamoneyproblemifwemissonepaycheck.

SimpleQ&AQ: According to Katherine Porter, aprofessor of law at the University ofIowa, [Your Notes] percent ofbankruptcy filers still get offers for newcreditcards!A:962

ItamazesmewhenIaskanaudienceatthestartofaseminar,“Areyouin

the70percentgrouporthe30percentgroup?”...andthemajorityofthepeoplesaytheyareinthe30percentgroup.Bytheendoftheday,thevastmajorityarewillingtoadmitthetruth:theyareinthe70percentgroup.

WhatAboutYou?Themirrorveryrarelylieswhenitcomestophysicalfitnessandhealth.Manyphysicalproblemsareevident—ifnotimmediately,eventually.Evenifapersonisn’t visibly overweight, he or she still can be “unfit,”whichwill showup inskin tone, the condition of hair and nails, stooped-over posture, dark circlesundertheeyes,apaleor“inpain”countenance,andsoforth.Poorhealthcanbehardtocamouflage,evenwithexpensivemakeup.

Ontheotherhand,goodphysicalfitnessisevident.Thephysicallyfitpersonhas a sparkle in his eyes, a bounce in his step, a glow to his face, a relaxeddemeanorthatis,atthesametime,readytoburstwithenergy.

Sadly, financial fitness is far less evident. Many people have fooledthemselvesintothinkingtheyaremuchmorefitthantheyactuallyare.

Exercise#7AStartingPoint

Justforfun,markonthescalebelowwhereyouthinkYOUarewhenitcomestofinancialfitness:

Andnowlet’scheckthatestimate.

CaseStudy:SaraandJohnSaraandJohnhadacombinedfamily incomeof$75,000ayear.Theyhadtheso-callednormaldebtsofmanycouplesintheirageandincomeranges:asmallstudentloan,acarloan,andabout$5,000onacreditcard.Theyhadvirtuallynosavings—just a few hundred dollars in a second interest-bearing checking

account that they called a “savings account.”Nonetheless, Sara and John toldthemselvestheyweredoingwell—infact,theytoldthemselvestheywerereallyontopofthingsfinancially.Sotheydecidedtobuildanewhouse.

Both John and Sara later admitted to having a few uneasy feelings aboutbuildinganewandlargerhouse,buttheyfiguredtheywereexperiencingnormaljitters, and they forged ahead. Theymoved into their new house inMay, andthen in September, Sara was called into a meeting with her boss. She wasexpectingapromotionand raise for thegoodwork shehaddone. Instead, shelearnedthathercompanywasdownsizing,andshewasoutofajob!

Inoneday,thefamilyincomewentfrom$75,000to$30,000.Bytheendoftheday,notonlywasSarareelingfromfeelingsofrejectionandwoundedpride,she was feeling the tentacles of financial failure creeping toward her and herfamily.SheandJohnsatdownwiththeirbudget,andtheydidn’tlikewhattheysawasanewbottomline.Theywenttobedthatnightawarethatforeclosureontheirnewhousemightbearealityinthenearfuture.

Saratoldme,“Wetookalong,hardlookinthefinancialmirror,andwesaw‘fat’peoplewhowereterriblyoutofshapefinancially.Weknewwehadtocutbackdramaticallyandimmediately ifweweregoingtosurviveforevenafewweekswithoutmyincome.”

Motivatedtoagreatextentbyfeelingsofsheerpanic,Sarashiftedintohighgearinhersearchforanewjob,andfortunately,shewasabletofindapositionandembarkonanentirelynewcareerpathinaboutamonth.Shesaid,“IknewIwasoneoftheluckyones.Someoftheotherswhoweredownsizeddidn’tfindjobsforfour,six,evenninemonths.”

The feelings of panic for Sara didn’t disappearwith the new job. She andJohntalkedatlengthabouttheirfinancialgoals,andSaraadmittedtoJohnthatsheneverwantedtofeelsuchpanicanddreadagain.Shesaid,“Ididn’tfeeltheleast bit exhilarated at the riskofnothavinga job. I feltmorevulnerable andnervousthaneverinmylife.ItoldJohnIdidn’teverwanttohavethosefeelingsagain.IfeelveryfortunatethatJohnunderstoodmyfeelingsanddidn’tcriticizemeforthem.ItoldhimIwaswillingtomakeanysacrificeswehadtomakeinthenextseveralyearsifitmeantachievingsomeleveloffinancialsecurity.”

ThemostimportantchangeforSaraandJohncamewhentheydecidedthattheywouldseek to liveata financial level thatrequiredonlyone income,nottwo.Theymutually agreed to cut back their spending andwork at paying offtheirloans.Theirgoalwastoneedonlyhalfoftheircombinedfamilyincomeforbasiclivingexpenses.Theydecidedtheotherhalfwouldbemoneytheywould

invest in retirement or use for anoccasional trip or luxury.They alsodecidedthey would live on a cash basis, without credit cards or loans other than thehousemortgage.

It tookSaraandJohna littleover twoyears toget to thepointwhere theyhadpaidofftheschoolloan,thecreditcards,andthecarloan,andtheyhadputsome money away in an emergency fund. They decided the emergency fundneeded to include an amount of money that reflected three months of theirexpenses.Theirreasoningwasthatsurelythepersonwhohadlostajobwouldbeabletofindanotherjobinthreemonths.

Sara and John currently haveonly their housemortgage as an outstandingdebt. Overall, their monthly bills have been reduced by about 40 percent.Meanwhile, Johnhas receiveda raise,andsohasSara.Theyarepayingdowntheprincipaloftheirmortgagetoreducetheirmonthlypayments.Astheystandrightnow,theyarewithinayearofhavingtheirmonthlybillsbalancedagainsttheirincomesotheycouldliveonHALFtheircombinedfamilyincome.

AreSaraandJohnexcitedabouttheirprogress?Absolutely.Sarasaidwithagreat deal of confidence, “We know where we are, we know where we aregoing,andweknowhowwearegoingtogetthere.Wearenolongerlivingindenialaboutwherewearefinancially.Weknow.WearenolongerlivingtheliewewerelivingwhenIlostmyjob—theliethat‘everythingisjustfine.’TodaywhenIsay,‘Thingsarefine,’theyreallyarefine.Andtheyarefinebecausewefacedreality,madesomedrasticdecisions,andworkedveryhardtochangeourfinancialsituationsoweareatalevelthatisbothcomfortableandrealistic.”

Exercise#8Let’sGetReal

This exercise is long, and I admit to you that it may seem a littlecomplicatedasyouworkthroughit.(Somepeopledon’tlikedealingwithmath.)Irecommendyougrabacalculator.Theexercisewillhelpyouseehowmuchatriskyouareifjustonewageearnerinyourfamilyloseshisorherjob.

Howmuchmoneydoyoumakeamonth(combinedfamilyincome)?

$[YourNotes]

Howmuchofthiseachmonthdoyousaveorputinan $[Your

investmentaccountthatyoucanaccessandthatisn’tatrisk(suchasamoney-marketfund)?

Notes]

Subtractthe“savings”amountabovefromyourtotalmonthlyfamilyincometoget...NETAVAILABLECASHFORPAYINGBILLSANDMAKINGCHARITABLECONTRIBUTIONSEACHMONTH:

$[YourNotes]

Rightnow,howmuchdoyouhaveinasavingsaccountorinareadilyaccessiblemoneyfund?

$[YourNotes]

Howmuchdoyouhaveinyourcheckingaccount(orwillhaveattheendofthismonthafterallmonthlybillsarepaid)?

$[YourNotes]

Addthesetwonumberstogethertoget...TOTAL“READYCASH”AVAILABLEFORANEMERGENCY:

$[YourNotes]

Whatpercentageofyourmonthly“spending”amountdoesthislastnumberreflect?(Forexample:Ifyouhave$2,000inasavingsormoney-marketaccount...andyouhavea“net”spendingbudgetof$3,500amonth,yourpercentageis57.[$2,000÷$3,500=57.1428571])

[YourNotes]percent

Thepercentagenumberrepresentsthe“amount”ofanygivenmonththatyou can “survive” without serious changes in your spending habitsshouldyousuddenlyhaveNOincome.Inoursampleabove,57percentrepresents17days—ortwoandahalfweeks(.57x30-daymonth=17).

Howmanydayscanyoulivewithoutanysignificantchangestoyourcurrentlifestyle?

[YourNotes]days

Ifyourtotalfamilyincomeincludesincomefromtwoormorepeople—suchashusbandandwife—askyourself...

HowmuchofourcombinedincomecomesfromPersonA?

$[YourNotes]

HowmuchofourcombinedincomecomesfromPersonB? $[YourNotes]

HowmuchofourcombinedincomecomesfromPersonC(perhapsanadultchildorelderlyparentcontributingto

$[YourNotes]

familyexpenses)?

TotalFamilyIncome: $[YourNotes]

Thetotalofthethreenumbersshouldbethesameasthedollarfigureyouenteredforthefirstquestioninthisexercise:“Howmuchmoneydoyoumakeamonth(combinedfamilyincome)?”

Nowlet’sfigureoutwhatwouldhappenifyoulosttheincomefromoneormorepeople.

TaketheamountofincomefromPersonAanddivideitbythetotalfamilyincome.ThisgivesyouthepercentagePersonAcontributestothetotalfamilyincome.(Forexample,ifPersonAcontributes$1,200tothetotalfamilyincomeof$3,500,divide1,200by3,500toget34percent.)

PercentagecontributedbyPersonA: [YourNotes]

ThentaketheamountofincomefromPersonBanddivideitbythetotalfamilyincome.ThisgivesyouthepercentagePersonBcontributestothetotalfamilyincome.(Forexample,ifPersonBcontributes$2,200tothetotalfamilyincomeof$3,500,divide2,200by3,500toget63percent.)

PercentagecontributedbyPersonB: [YourNotes]

ThentaketheamountofincomefromPersonCanddivideitbythetotalfamilyincome.ThisgivesyouthepercentagePersonCcontributestothetotal family income. (For example, if PersonC contributes $100 to thetotalfamilyincomeof$3,500,divide100by3,500toget3percent.)

PercentagecontributedbyPersonC: [YourNotes]

Thethreepercentagenumbersshouldtotal100percent.(Inourexample,34+63+3=100.)

Nowfortheseriousrealization...

Howmany days did you calculate you could live withoutmaking anysignificantchangestoyourlifestyle(previoussetofcalculations)?[YourNotes]days

Multiplythatnumberbythepercentageforeachperson:

PersonA:[YourNotes]daysx[YourNotes]percent=[YourNotes]days

PersonB:[YourNotes]daysx[YourNotes]percent=[YourNotes]days

PersonC:[YourNotes]daysx[YourNotes]percent=[YourNotes]days

Subtractthesedaysfromthetotaldays:

Person A: [Your Notes] total days – [Your Notes] (number of daysabove)=[YourNotes]days

Person B: [Your Notes] total days – [Your Notes] (number of daysabove)=[YourNotes]days

Person C: [Your Notes] total days – [Your Notes] (number of daysabove)=[YourNotes]days

Inourexample:If Person A loses his job, which reflects 34 percent of the family

income, then thisperson’s incomerepresents6daysof livingexpenses.Thetotalof17daysminusthe6days“lost”ifthisincomevanishesis11days.

If Person B loses her job, which reflects 63 percent of the familyincome,thenthisperson’sincomerepresents11daysoflivingexpenses.Thetotalof17daysminusthe11days“lost”ifthisincomevanishesis6days.

IfPersonCcannotcontributehis3percentofthefamilyincome,thisperson’sabsencerepresentsaboutahalfdayof income.Thetotalof17daysminusahalfday . . .well, thefamilycanprobablysurvivewitha

verysmalladjustment.What’syourstory?Ifoneormorepeopleinyourfamilysuddenlycouldn’tcontributeto

the total family income, how comfortable do you feel about yourfinancialsituation?

Exercise#9WhatWouldHappenIf...

OneofthebestwaysIknowtohelpapersonseehisorherfinancialstateforwhatitreallyis,istoaskthesefivebasicquestions.Ichallengeyoutotakethetest!CircleALLanswersthatmayapplytoanyonequestion.

1. Whatwouldhappenifyoulostyourjobtoday?Whatwouldhappenifyouwerelaidoff—withnowarning—andfoundyourselfoutonthestreetswithyourpersonalpossessionsbyfiveo’clock?Howlongcouldyouliveyourpresentlifestyleinyourpresenthomebeforeyouhadtohaveanotherjobatthesamelevelofincomeasyourpresentjob?

a. twoweeksb. onemonthc. twomonthsd. threemonthse. sixmonthsorlonger

2. Whatwouldhappenifaphysiciantoldyoutodaythatyouneededtohaveaseriousoperationthatwouldrequiretwomonthsofrecuperation(nowork)andanothermonthortwoofonlypart-timeworkbeforeyoucouldresumefullactivity?

a. I’dlosemyjobifIhadtobeawayforthatlong.b. I’d likelykeepmyjobbutwouldbeforced to takesomeunpaid

leave(aftersickdaysandpaidvacationdayswereusedup).c. I’dkeepmyjobandwouldbepaidforallthetimeIwasaway.d. I’drefusetheoperationbecauseIknowIcouldn’tgetanotherjob

quicklyenoughtomakeendsmeet.. .orbecauseIknowthatit

would be very difficult to get another job with that medicalhistoryhangingaroundmyneck.

e. I’dquitmyjobandgetwellandthenregroupanddecidewhatIwant to do with the rest of my life . . . and along the way, Iwouldn’thaveanymoneyworries.

3. Whatwouldhappenifyourspousewasinaseriousautomobileaccidenttodayandlosthisorherjobasaresultofalong-termrecoveryorpermanentdisability?

a. Everything in our lives would be turned upside down—not justourdailyroutine,butourfinances.

b. We’dbeforcedtomovefromourpresenthome.c. We’dhave serious troublepayingmore thanonemonth’sutility

andotherregularbills.d. We’dhavetoborrowmoneyifwewantedtomaintainourpresent

lifestyle.e. We’d focus all our energies on my spouse’s recovery, without

financialworries.

4. Whatwouldhappenifyoursupervisorcametoyoutodayandsaid,“Thecompanyisdownsizing,andyouarebeingofferedearlyretirement...And,bytheway,ifyoudon’ttakeearlyretirement,you’lllikelybeletgo”?

a. I’dtakeearlyretirementandstartdoingwhatI’vealwayswantedtodowithmycreativeenergyandtime.

b. I’dpanic. Ineed full-timeemployment topayfor the thingsI’vepurchasedontime—retirementpayjustwouldn’tbeenoughrightnow.

c. I’d beg and plead to keep my job because without it, I’d haveseriousandimmediatemoneyproblems.

d. Itwouldn’tmatterhowmuchseverancetheygaveme,I’dneedtoget another jobwithin a couple ofmonths or I’d have tomovefrommycurrentresidence.

5. Whatwouldhappenifanelderlyparenthadtomoveinwithyou(becausetherewasnootherplaceforthatparenttogo),whichwould

requireyoutoquityourpart-timejobandrelysolelyonyourspouse’sfull-timejob?

a. We’dhavetostopallluxuriesinourlife.b. Wewouldn’t be able to continue to pay for our child’s college

tuition.c. We’dprobablyhavetotradeinmyluxurycarforalesservehicle.d. We’dhavetorethinkjustabouteverythinginourbudget.e. We’dmake it just fine, and I’d enjoy this opportunity to spend

moretimewithmyparent.

Summary:Overall, how long do you estimate you could maintain your presentlifestyle—purchases,activities,house,car,andallotheraspectsofyourmateriallife—ifyousuddenlylostallorasignificantpartofyourcurrentincome(circleone)?

Twoweeks

Onemonth

Twomonths

Threemonths

Sixmonthstoayear

Ayearorlonger

“Butisthatbad?”youmaybeasking.Youtellme.Howsecuredoyoufeel knowing that you are just that far away from being homeless or“deprived” of your luxuries? How comfortable are you living frompaychecktopaycheck?

Quicklywritedown fivewordsorphrases that reflecthowyou feelaboutyourfinancialsituationrightnow.

1. [YourNotes]

2. [YourNotes]

3. [YourNotes]

4. [YourNotes]

5. [YourNotes]

Exercise#10TheFinancialMirror

Checkalltheitemsbelowthat,deepdowninside,youknowapplytoyourfinances.

Yes,That’sMe.

1. Hugehousepayments(evenifthehouseisn’thuge)

2. Fatcarpayments

3. Sloppylargestudentloans

4. Bloatedcreditcards

5. Skinnysavingsaccount

6. Nobudget

7. Anorexicretirementaccount

8. Past-duebills

9. Periodicallyoverdrawncheckingaccount

10. FrequentfakingbeforeothersthatIhavemoremoneythanIreallyhave

11. Sadfacebecausemymoneyrunsoutbeforethemonthrunsout

12. Out-of-controlpanicaboutmyfinancialfutureifthingsdon’tchange

Ifyouhavecheckedevenoneoftheseitems,tradeinyourDENIALforDETERMINATIONtodosomethingaboutyourfinancialfitness!

KeyConcept#2IfYouDon’tDoAnything...ThingsWillGetWorse!Many people think that if they don’t do anything about their current moneysituation,magicallyandmysticallyandmiraculously,thingswillgetbetter.Theyarewrong.Thingswillgetworse.

Theoldstorygoesthatifyoudropafrogintoboilingwater,hewillsensethepainandimmediatelyjumpout.Butifyouputafroginroom-temperaturewater,hewill happily swimaround in it.Youcangradually turnup thewater to theboilingpoint,andthefrogwon’tsense thechangeorreact to it . . .andin theend,hewillboiltodeath.

That’s where millions of Americans are when it comes to their financialstate. They are unfit financially but believe deep down inside that fitnesswilloccurwithoutanyeffortontheirpart.Theyaren’tawarethatthe“temperature”oftheirdebtisjustgettingwarmerandwarmer.

WhatAboutYou?Areyoutrulybetterofffinanciallytodaythanyouwerelastyear,orlastdecade?Ichallengeyoutodothenextexercise!

Exercise#11MoreorLess?

SectionOneIneachstatementbelow,circlethewordorphrasethatappliestoyou.

ImadeMORE/LESSmoneythisyearthanlastyear.

ImadeMORE/LESSmoneythisyearthanfiveyearsago.

ImadeMORE/LESSmoneythisyearthantenyearsago.

ImadeMORE/LESSmoneythisyearthanfifteenyearsago.

SectionTwoBaseyourresponsestothenextsetofquestionsonwhatyoutrulybelievetobereasonable,givenyourcurrentfinancialsituation,jobsecurity,andthe future of your current career. Don’t factor in windfalls such aswinningalotteryorlandinganew“dreamsalary”job.

IexpecttomakeMORE/LESSmoneynextyearthanthisyear.

Iexpect tomakeSIGNIFICANTLYMORE/ABOUTTHESAME/LESSmoneyfiveyearsfromnowthanImadefiveyearsago.

Iexpect tomakeSIGNIFICANTLYMORE/ABOUTTHESAME/LESSmoneytenyearsfromnowthanIexpecttomakenextyear.

SectionThreeBaseyouranswersonthetotalDOLLARamountofalldebt—includingcarpayments, credit cards, andanyother loanor indebtedness thatyouarepayingoffona regularbasis that isNOTyourhousepaymentor apaymentonaninvestmentpieceofproperty.

IhaveMORE/LESStotaldebtthisyearthanIhadlastyear.

IhaveMORE/LESStotaldebtthisyearthanfiveyearsago.

IhaveMORE/LESStotaldebtthisyearthantenyearsago.

IhaveMORE/LESStotaldebtthisyearthanfifteenyearsago.

SectionFourTakealookagainatyouranswerstotheabovethreesectionsandanswerhonestly.

I expect tohaveMORE /LESS incomeandMORE /LESS debt thisnextyearthanthisyear.

Giventhetrend,ifIdon’tmakeanyadjustments...

Iexpect tohaveMORE/LESS incomeandMORE/LESSdebt fiveyearsfromnowthanIhadthispastyear.

Doyoulikethetrendyousee?Mostpeople,iftheyarereallyhonestwiththemselves,seethattheir

debthasrisenevenas their incomehasrisen.Theyaren’treallygettingahead—the numbers associated with income and debt both are gettinghigherastheyearspass.

Mostpeople,iftheyarereallyhonestintheirprojections,mustadmitthattheymayhavegreaterincomeinthecomingyears,buttheyarealsolikelytohavegreaterdebt.

And,ifyouarenearingretirement,thelikelihoodisthatyouwillhavelessincomeandeitherasustainingoronlyslightlylowerdebtlevelinthenextfewyears.

Idon’tknowaboutyou,butthosetrendsmakemenervous.Theydonotspeakofagoodfuture,butratherafuturethatisincreasinglybleak.

KeyConcept#3

DenialIsNottheSameasBeingUninformedThere are some people who are uninformed about their finances. They haveneverreallystoppedtoevaluatetheirfinancialsituation.Theydon’tknowhowtomakeabudgetand, therefore,havenevermadeoneorattempted to livebyone.Theysimply“don’tknow”aboutassetsandliabilities.

In some cases, this ignorance comes about because one spouse allowsanotherspouse—oraparentallowsachild,oragrownchildallowsaparent—tomakeallthefinancialdecisionsandconductallthefinancialtransactions.Thesepeoplearewillfullyignorant.Theydon’tthinktheyneedtoknowaboutmoneyand,therefore,theydon’tlearnabouttheirownfinances.

Living in denial is a very different case. Denial is knowing the numbersrelatedtoyourfinancialconditionbutchoosingtoignorethemandtoliveasifyoudidn’tknowthem.

It’s not good to be either financially uninformedor financially in denial. Istrongly encourage you to become both smart and wise—smart in knowingwhereyoustandfinancially,andwiseinfacingthefactthatyoumaybestandinginfinancialquicksand.

WhatAboutYou?Areyoufinanciallysmart—informedaboutwhereyourmoneyis,howmuchyouactuallyhave,andwhatyouactuallyneedonamonthlyoranannualbasis?

Areyoufinanciallywise—realistic,facingthefacts,livingintherealitythatthe financial decisions of today will greatly impact your financial well-beingtomorrow?

CaseStudy:JimJimgraduatedfromcollegeattheageoftwenty-twoandfeltreadytotakeontheworld.Hegotagoodentry-level jobworking fora respectablebusiness inhiscommunity—atastartingsalaryof$28,000ayear—andfeltthathewasonhisway.

Hewasshockedwhenthebillsstartedpouringin.Whileincollege,Jimhadlivedinthedormandeatenmostofhismealsinthecollegecafeteria—bothofwhichhadbeenpaidforbyhisparentsandschool loans.Hehadworkedpart-time,whichhadprovidedmoney forgasoline forhis truck, a coupleofpizzaseveryweek,andanoccasionaldate.Hispart-time incomealsoallowedhim topay“theminimum”onseveralcreditcards.

Outofcollege,Jimsoondiscoveredthathehadnotonlyapartmentrentandgrocerybillstopay,butalsoutilitybills,cableTVandphonebills,andwithinafewmonths,school loans to repay.Tocompoundhisproblem,hehadcharged

several hundred dollars on both existing and newly issued credit cards topurchaseitemshefeltheneededtostartoutlifeinanapartmentofhisown.

After six months of being in an apartment alone, Jim was having seriousdifficultymaking endsmeet.He felt angry that he no longer seemed to be as“welloff”ashehadbeeninthedorm—therewasn’tevenenoughmoneyforthepizzasanddateshehadonceenjoyed!

Jimreadafewmagazinearticlesandgotafewopinionsfromolderfriendsandcametotheconclusionthathewouldtakeoutaconsolidationloantocoverhis credit card bills and school loans. He reasoned, “I have a $20,000 truck,surelyIcangetaloanfor$10,000.”

Wrong.Jim’sgrandfatherhadgivenhimthetruckwhenhewasasophomoreincollege,andbythetimehesoughtaloanagainstit,thetruckhaddepreciatedtothepointwhereitwasvaluedatlessthan$10,000.Notonlythat,hequicklylearned that no bank in his citywould issue a loan for that amount against adepreciating“asset”suchasavehicle.Neitherwouldabankgivehimaloanfor$10,000basedonhisannualincomeinajobhehadheldforlessthanayear.

Realityhithard.Jimeventuallydecidedthathewouldtakeinaroommatetohelp pay the bills. He didn’t want to share his one-bedroom apartment withanybody, but he had to. He cut up his credit cards and went to a cash-onlypaymentpolicy.Hedecidedthathe’djusthavetomakeduewiththefurnishingsandcookwareandten-year-oldstereosystemthathepresentlyhad—allofwhichwereadequate,justnotvery“in”whenitcametostyleorthelatesttechnology.He gave up cable TV and several magazine subscriptions. And he learned tocook!

“Cookingwasagood thing to learn,”Jim latersaid,“but Ididget tiredofwarmed-upcansofbeansafterawhile.WhenIgraduatedfromcollege,Ihadnoideahowexpensive it is to eat outeverymeal.Frankly, I didn’t knowwhat asteakcost,muchlessaheadoflettuceoraboxofspaghetti.”

Jim requested andwas granted a one-year deferrment on his school loans,whichacceleratedhisabilitytopayoffhiscreditcards.Thecreditcarddebtwaserasedwithintwenty-onemonths.Hethenbegantoacceleratehisrepaymentoftheschoolloans,whichshouldbepaidoffinthreemoreyears.

“I’vebeendreamingaboutanewtruck,”Jimadmitted,“butafewweeksagoIdecidedthatIdidn’treallyneedanewtruck—Ijustwantedone.I’mthinkingnow that Imight see about purchasing a small house so I reallywill have anassettomyname.Thetruckcancomelater—andI’llprobablygetonethat’sacoupleofyearsoldsoIwon’thavethebigdepreciationhit.”

Jimisstartingtogetsmartaboutmoney.

Exercise#12SmartAboutMoney

Theplacetostartinbecomingfinanciallysmartistomakeaverysimplelistof allyourmoneyassets and liabilities—inotherwords, themoneyyouhaveandthemoneyyouowe.

Take into consideration these two possibilities—which are inmanypeople’slivesveryrealprobabilities:

1. Areyoustillorwillyoubepayingoffstudentloansintheyearsahead?Howmuchmoredoyouanticipatehavingtopay?

2. Areyoufacinganymajorexpensesthatmustbemadeinthecomingmonthsoryear,suchasanoperationyouknowyouneedtohaveorrelocationtoanewcitywhereyouhavetakenajob?

Makenoteofthistotalamountonthenextpage.

Total of major expenditures I’m anticipating in the next six to twelvemonthsforwhichIpresentlydonotanticipateanyreimbursementfromanoutsidesource:

$[YourNotes]

Add this figure to the total debt figure noted at the bottom of theConsumer Equity Sheet at the end of this chapter. Then compare yourassets(value)toyourbills(debt).

TOTALCASHASSETS:$[YourNotes]

V. TOTALCASHBILLS:$[YourNotes]

Again, note the gap between the two numbers. (Subtract the smallernumberfromthelargernumber.)

TheAMOUNT: $[Your

Notes]

DoestheamountreflectanASSEToraBILL(circleone)?

ASSETBILLThat’s the reality you can expect this time next yearUNLESS you dosomethingtochangeyourcashbillsorcashassets.

Beforeyoudissolveintoapuddleofdespair,Ihavegoodnews!Thegoodnews,ofcourse,isthatyoucanmakechangesinbothsidesofthis

column, if you are willing to do so. Being smart about money doesn’tautomaticallymeanyouwillbewise—itdoesn’tmeanthatyouwon’tclosethisworkbookandcontinuetoliveindenial.Butbeingsmartaboutmoneycangiveyou the desire and the starting block from which to run a good race towardfinancialpeace,whereyou’llbegeneratingabettercolumnofsolidcashassetsthataremorethanabletocoveryourwiselymanagedcashbills.

We’ll discuss in future chapters how to erase that gap, but for now, thepurposeof seeing thesenumbers is so thatyouarebetter informedaboutyourmoney!It’sonemoreglimpseintothemirror.

Don’tcountonwhat-ifswhenitcomestoestimatingyourassets.Countonlyonthecash-registercha-chingatthetimeofthesale!

(Note: To determine your entire “equity,” complete the Consumer EquitySheetattheendofthischapter.)

Exercise#13“BeforePicture”Snapshot

EarlyinthischapterIaskedyoutoestimatewhatyoubelievetobethestate of your current finances. After completing the exercises in thischapter,whatisyourCURRENTappraisal?

Considerthisthe“before”snapshotofyourfinancialfitnesslevel.Itisn’tyourgoal.Itisn’twhoyoucouldbewithsomework;it’swhereyouarestartingout. Ifyouarewilling to“get real”withyourself,youcan“getreal”withyourmoney.

Exercise#14YourSelf-Analysis

In each of the ten sentences that follow, circle the capitalizedword orphrasethatyoubelievetobemostaccurate.

1. MostpeopleareBETTEROFF/WORSEOFFfinanciallythantheythinktheyare.

2. SEVENTYPERCENT/THIRTYPERCENTofallAmericanslivefrompaychecktopaycheck.

3. ItisbettertoliveinDENIAL/DETERMINATIONwhenitcomestomoney.

4. Ifapersondoesnothingabouthisorherfinancialsituation,thingswillgetBETTER/WORSE.

5. ThetrendinthelivesofmostAmericansistowardGREATERDEBT/LESSDEBTinthenextfiveyears.3

6. ThetrenddescribedaboveisTRUE/NOTTRUEformylife,eventhoughIhopeandexpecttobeearningmoremoney.

7. ThegapbetweenthemoneyIhaveandthemoneyIowetellsmethatIhaveMORECASHASSETS/MORECASHBILLS.

8. ILIKE/DON’TLIKEmyoverallfinancialsituation.

9. IamUNINFORMED/INDENIALaboutmoney...butIdon’twanttobe.

10. IamDETERMINEDTOCHANGE/UNWILLINGTOCHANGEmyfinancialsituation.

There really are no right or wrong answers when it comes to your

personalfeelingsoropinions,buthere’smyopinionaboutyourfeelings:ResponsestoStatements1–5:Ifyouansweredthesestatementswith

the following answers, you are well on your way to becoming moreinformedaboutmoney:worseoff;seventypercent;determination;worse;greaterdebt.

Responses toStatements6–10:Howyouanswered these statementscouldverywellbean indicationaboutwhetheryouare indenial aboutyourfinancialsituation.Takeanotherlookatyouranswersandyoumakethecall.

• Doyouneedtobecomemorefinanciallyfit?YES/NO

• Areyouwillingtomakethechangesnecessarytobecomemorefinanciallyfit?YES/NO

8

KickMurphyOut:FINISHTHEEMERGENCYFUND

TotalMoneyMakeoverProgressCheckOkay...breathedeeply.ItgenerallytakespeopleeighteentotwentymonthstocompletethefirsttwostepsintheTotalMoneyMakeoverplan.Bythetimeyoureachthisstep:

• Youhave$1,000incash,and

• youhavenodebtexceptyourhomemortgage.

You have pushed with intensity.Momentum is on your side. Pause for amoment to anticipatewhat it will feel likewhen you are debt-free except foryour house and you have $1,000 set aside in a rainy-day fund. Do I see yousmiling?

ThischapterisaboutBabyStepThree.

KeyConcept#1FinishYourEmergencyFundThisstepcanusuallyhappenquicklybecauseyounolongerhaveanypayments.The step is this: finish your emergency fund so you have a full three to sixmonthsof expenses in it. In essence, you are “upping”your initial emergencyfundof$1,000toarangethat’susuallyfrom$5,000to$25,000.Atypicalfamilymaking$3,000amonthmighthavea$10,000emergencyfundasaminimum.

IfIsawyousmilingathaving$1,000setaside,howbigareyousmilingathaving$10,000insavings?

Why three tosixmonths’worthof income?That’swhat financialplannersandfinancialcounselorsthroughtheyearshaveestablishedasageneralruleofthumb.Iteasilycantakeapersonthreemonthstofindanewjobafterajoblossortorecoverfromaseriousaccident.

Istronglyrecommendsixmonthsforthosewhoare:

• Self-employed

• Workingonastraightcommissionbasis

• Singleorhaveaone-incomemarriedhousehold

• Havingchronicmedicalproblemsinthefamily

• Workinginanunstablejobsituation

If you are in a steady, “secure” job that you’ve had for fifteen years, andeveryoneinyourfamilyishealthy,youmayoptforthethree-monthfigure.

According to a Country Financial Security Index survey, 49 percent ofAmericans could cover less than one month’s expenses if they lost theirincome.1Inotherwords,nearlyhalfthefamiliesofournationhavevirtuallynobufferagainstemergencies.You’veheardofMurphy—theonewithallthelawsrelatedtocatastrophes?Ifyouhavenobufferagainstemergencies,youmayaswellinviteMurphytomoveinandtakeuppermanentresidence.

Don’tUseThisMoneyUnlessItIsABSOLUTELYNecessary

Your emergency fund is not something you should dip into without carefulthought and prayer. Even if you feel as if something is an emergency, giveyourself a little cooling-off period before you rush to pull money out of thisfund.Youmaybeabletohandletheemergencybyreadjustingyourbudget.

Atthesametime,ifyouseeanemergencyonthehorizon,youmaybesmarttoturnfromDebtSnowballingtobuildingupanemergencyfund.Forexample,if you are expecting a baby in three months and you know your husband’smanufacturing plant is closing in four months, you’ll probably want to have

emergencyfundsinplace!

KeeptheFund“Liquid”Youneed tokeepyouremergency fund in“liquid” form—generallyamoney-marketfundoranothertypeoffundthatdoesn’thaveapenaltyassociatedwithearly withdrawal. I like a money-market account with no penalties and fullcheck-writingprivileges.Wehavealargeemergencyfundforourhouseholdinamutual fund companymoney-market account.Somemoney-market accountssuchas thesepayasmuch interest as aone-yearCD. (SomeCDsnowhavea“quick-release”featurethatallowsonewithdrawalduringthecommittedperiodwithoutpenalty.)

Do not put this emergency-fundmoney in savings bonds, bonds, or other“low-risk” investments.Thepoint isnot toearna returnon thismoney,but tohave thismoneyavailable toprotectyou in life’sstorms, togiveyoupeaceofmind,andtokeepyourfocusonstayingoutofdebt.

TheLess-“Secure”SpouseWinsIfyouaremarried,youneed toset theactualamountofyouremergency fundwithyourspouse.Veryoftenonespousefeelsaneedtohavemoremoneyinthisfundthantheother.Thatpersonwins.

I encourageyou to recognize that the sexes tend toviewemergency fundsdifferently. In general, men are more task-and action-oriented and they wanttheirmoneyout there,working for them.They aremorewilling to take risks.Women are more security-oriented. They tend to like the fact that they have$10,000inarainy-dayfund,evenifit’sonlydrawingminimalinterest.

WhatIsanEmergency?Itisusefultothinkaboutwhatmightconstituteanemergency.Readthroughthetwolistsbelowtogetalittleclearerpictureaboutwhatistrulyanemergency.

ATrueEmergencySomethingYouShouldHaveAnticipatedandBudgeted

Payingthedeductibleonmedical,homeowners,orcarinsuranceafteranaccident

Fixinguptheboat(unlessyouliveonit)

Medicalbills(yourpartafteranaccidentorunforeseenillness)

PromdressortuxedorentalStartingyourownbusiness

Blownengineonthecaryouneedtousetogettowork

TriptoCancún

Removalofanuprootedtreefromyourdrivewayafterastorm

BigsaleatyourfavoritedepartmentstoreCollegetuition

WhatAboutYou?Howsecuredoyoufeelaboutyourability tohandle lifefinancially ifyoulostyour jobandknewyouhadno incomefor thenext threemonths?What is theactualdollaramountthatyoucalculateyouwouldneedtohaveinanemergencyfundtoprovideadequateincometomeetyourexpensesforthatperiod?

Exercise#55YourEmergencyFund

WhatisthetotalofyourMONTHLYEXPENSES:

$[YourNotes]permonth

Multiply this number by 3: [Your Notes] This is the MINIMUM youshouldhaveinafullyestablishedrainy-dayemergencyfund.

Multiply the totalofyourmonthlyexpensesby6: [YourNotes]This isthe MAXIMUM you should have in a fully established rainy-dayemergencyfund.

GOAL:Therangeyouwantasagoalforyourfullyestablishedrainy-dayemergencyfundis:$[YourNotes]to$[YourNotes].

CaseStudy:DaveandSharonI have already told you that Sharon and I were millionaires and then losteverythingwhenwewerestillinourtwenties.Astwopeoplewhocrashedandwereatthebottom,youcanimaginethatthesubjectofanemergencyfundisacriticaloneinmyhome.

I readilyadmit thatourfinancialcrashwas totallymydoing: itwasareal-estate business screwup that Sharon watched me create before she took thedownhill ridewithme.One of thewounds in our relationship is this issue ofsecurity. It doesn’t take much for Sharon’s emotions to “refeel” the fear oflookingintothefacesofabrand-newbabyandatoddlerandnotknowinghowwewere going to keep the heat on. I am aware of this sensitive place in herpsyche;Iknowit’sthereforgoodreason.

Therefore.. .wedon’tuseouremergencyfundevenforemergencies.Partof thesalveIneededtoputon thiswoundinourrelationship isanemergencyfundforouremergencyfund!BeingthehighlytrainedinvestmentmogulthatIam, I could certainly find places to put our emergency-fund money where itcouldearnmore.Orwouldit?Remember,personalfinanceispersonal. Ihavecome to realize that if I evenwalknear thedrawerwhere theemergency fundmoney-marketcheckbookiskept,Sharon’ssecurityglandcantightenup.Iknowshe has peace ofmind onlywith an oversized emergency fund.That peace ofmindiswhatthisoversizedfundearns.

Guys,takeitfromme.Agenerousemergencyfundcanbeawonderfulgifttoyourwife,anditcanaddstrengthtoyourmarriage.

Exercise#56TheAdvantagesofYourEmergencyFund

Fillintheblanksofthesentencesbelow.UsetheWordPoolprovidedifyouneedto.

1. Anemergencyfundcanturnacrisisintoan[YourNotes].2. Anemergencyfundcankeepyoufocusedonreducing[YourNotes]

ratherthanincreasingdebt.3. Anemergency-funddollaramountshouldbesetbythepersonwho

hasthegreatestneedforfinancial[YourNotes].

4. Asyouchangeyourmoneyhabits,youwilllikelyfindthatyouuseanemergencyfundlessand[YourNotes].

5. Asyouchangeyourmoneyhabits,youmayfindthatyouchangeyourideaaboutwhattrulyconstitutesan[YourNotes].

6. Onceanemergencyfundisinplace,youmayfindthatwhatusedtobehuge,life-alteringeventsbecomesimply[YourNotes]challenges.

7. Evenifyourincomeis[YourNotes](suchasreceivingmoneyfromapensionplan),youneedanemergencyfund.

8. Oneofthebestthingsaboutlivingyourlifeonprincipleisthataveryhighpercentageofyour[YourNotes]arealreadymade.

WordPooldebt • security • emergency • inconvenience budget • less •guaranteed•decisions

Answers:1. inconvenience2. debt3. security4. less5. emergency6. budget7. guaranteed8. decisions

Gobackandreadaloudeachofthesestatementswiththecorrectwordsfillingtheblanks!

SimpleQ&AQ: Credit cards are big business for thelenders. Capitol One and AmericanExpress, two major issuers of creditcards, spend roughly [Your Notes] eachQUARTERonadvertising.

A:$62to$81MILLION2

BonusConcept:DelaythePurchaseofaHomeI am a strong advocate of home ownership, and I love real estate as aninvestment. I believe in both the financial and emotional advantages of homeownership.But...ifyouareindebtandyoudon’townahouseyet,Iencourageyoutodelaysavingforahousedownpaymentuntilafteryouhaveclearedawayyour debts and you have a fully funded rainy-day emergency fund in place. Ihave seen too many stressed-out young couples rush into buying somethingbefore they were either financially or emotionally ready to take on theresponsibilitiesrelatedtohomeownership.

Ifyoudon’thaveahousemortgage,andyoudohavea$1,000emergencyfund,nodebts,andthreetosixmonths’worthofincomeinliquidinvestments,youareinagreatpositiontostartseriouswealthbuilding.

9

BeFinanciallyHealthyforLife:MAXIMIZERETIREMENTINVESTING

TotalMoneyMakeoverProgressCheckAtthispoint:

• Youaredebt-freeexceptyourhouse,and• youhavethreetosixmonthsofexpenses(usuallyabout$10,000minimum)inanemergencyfund.

Youarepoisedtostartbuildingwealth!ThischaptercoversBabyStepFour.

KeyConcept#1DecideHowYouWanttoLiveinYourRetirementYearsInvestingforretirementinaTotalMoneyMakeoverdoesn’tnecessarilymeaninvestingtoquityourjob.Toooften,retirementinAmericahascometomean“saveenoughmoneysoIcanquitthejobIhate.”That’sabadlifeplan.Ifyouhateyourcareerpath,changeit.

Retirement in a Total Money Makeover is defined in terms of security.Securityallowsapersontomakechoices—workmaybeoneofthosechoices.Apersonmaywanttowriteabook,takeupartlessons,playeighteenholesofgolfaday,spendmoretimewithgrandkids,orstudysomethingheorshehasalwayswantedtostudy.

Retirement in a Total Money Makeover also includes the concept offinancialdignity.Thishappensonlywithaplan.

Let’s reviewwhereyouareby the timeyou reach this stage inyourTotalMoneyMakeover.Youhaveattackedyourdebt,and it isgone.With theextramoneyyouhadinyourbudgetaftereliminatingyourdebt,youattackedthegoalofbuildinganemergencyfundwiththreetosixmonthsofincomeinit,andyouhavethatfundedbynow.Youareatacrucialtime.Theonlythingyouhavelefttopayoffisyourhouse.Whatyoudowiththeextramoneythatyoupouredintotheemergencyfundanddebtpayoffisnowyourstoinvest.

Beforeyoucandecidehowto invest,youneedtocometo termswithhowyouwanttoliveinyour“goldenyears.”

WhatAboutYou?Howdoyoudefineretirement?Whathopesdoyouhaveforthe“goldenyears”ofyourlife?

Exercise#57DreamingofRetirement

Onthenextpage,writedowntenactivitiesorexperiences—bothongoingand one-time experiences—you dream about having in your retirementyears.Ifyoudon’tplanevertoretirefromyourcareerorfromworkingatajobyoulove,writedown“CONTINUEWORKING!”onthefirstline.

1. [YourNotes]2. [YourNotes]3. [YourNotes]4. [YourNotes]5. [YourNotes]6. [YourNotes]7. [YourNotes]8. [YourNotes]9. [YourNotes]10. [YourNotes]

Nowgo back and prioritize the top four of these goals. (Youmay justwanttoputastarbytheminsteadofnumberingthem1–4.)Askyourself:ArethesetenactivitiesorexperienceswhatItrulydreamofdoing,orjustwhatIthinkIwillbedoing?MakeadjustmentssoyouhavewrittendownyourDREAMactivitiesandexperiences.Describeyouridealretirement.

Now relist these ten activities and experiences in the blanks below,and in the space to the right of each item, identify the plan that youalreadyhaveinplacefortransitioningintothatactivity.Forexample, ifyourdreamistotraveltoTahitiandspendsixmonthsthere,writedownwhat canyou start doingnow to prepare for that—identify things fromresearching travel brochures and condo-sharing programs to making abudget for the excursion to setting aside funds earmarked for theexcursion.Ifyourdreamistospendtimeteachingyourgrandsontofish,you might need to have a plan that includes moving closer to yourgrandson,identifyingaseriesoffishingholesyouhopetovisittogether,ormakingalistoffishing-gearitemsyou’dlikeyourgrandsontohavebythetimeyougofishingtogether.

Aqualityretirementcantakefiveormoreyearsto“transitioninto,”dependingonyourdreams.Buyingayachtandsailingaroundtheworldobviously takes a lot longer than five years to figure out and fund,especiallyifyou’replanningtopurchasetheyachtandlearnhowtosail.“Read the two hundred books on theGreat Books list” is a retirementgoal thatmay take lessplanningeffort,but ifyouwant toown leather-bound editions of those books and have them in place at the outset ofyourreadingcampaign,youmayneedfiveyears.

DREAMACTIVITYOREXPERIENCE

STRATEGYORPLANFORIMPLEMENTINGTHISDREAM

1.

2.

3.

4.

5.

7.

8.

9.

10.

The point of this exercise is not to completely outline your retirementyears but to point out to you that retirement takes planning. Dreamsrequire funding for their implementation. A quality retirement lifedoesn’tjusthappen.Itrequiressomeeffortandforethoughtnow.

Exercise#58RetirementSavvy

Howsmartareyouaboutretirement?

1. AccordingtoaUSATodayreport,[YourNotes]percentofAmericanssaytheyarenotcontributingtoaretirementplanofanysort.a. 41b. 49c. 62d. 74

2. ConsumerFederationofAmericaonceconductedasurveyandfoundthatofpeoplemakinglessthan$35,000ayear,[YourNotes]percentsaidthebestwayforthemtohave$500,000atretirementageistowinthelottery.a. 10b. 20c. 30d. 40

3. AccordingtoTransAmericaCenterforRetirementStudiessurvey,[YourNotes]percentofAmericanworkersbelievethattheirstandardoflivingwillremainthesameorgoupwhileinretirement.

a. 59b. 25c. 50d. 35

4. AccordingtoasurveybyGoBankingRate.com,[YourNotes]percentofseniorshavelessthan$1,000inasavingsaccount.a. 27b. 48c. 79d. 69

5. AccordingtoaTransamericaCenterforRetirementsStudysurveycitedbyUSAToday,over[YourNotes]percentofrespondentsagesixtyandolderarealreadyworkingpastsixty-fiveorplanto.a. 38b. 47c. 80d. 61

6. Timemagazinefoundthat[YourNotes]percentofpeopleinthesixtyandolderagegrouparebehindinsavingforretirement.a. 74b. 10c. 52d. 36

7. Bankruptciesamongthosesixty-fiveandolderwentup[YourNotes]percentinaten-yearperiod.a. 54b. 98c. 137d. 244

Answers:1. (b.)AccordingtoaUSATodayreport,49percentofAmericanssay

theyarenotcontributingtoaretirementplanofanysort.1

2. (d.)ConsumerFederationofAmericaoncedidasurveyandfoundthatofpeoplemakinglessthan$35,000ayear,40percentsaidthebestwayforthemtohave$500,000atretirementageistowinthelottery.2(Talkaboutlivinginafantasyworld!)

3. (a.)AccordingtoTransAmericaCenterforRetirementStudiessurvey,59percentofAmericanworkersbelievethattheirstandardoflivingwillremainthesameorgoupwhileinretirement.3(Thosewhobelieveitwillgoupareprobablyinforaveryrudeanddisillusioningawakening.)

4. (d.)AccordingtoasurveybyGoBankingRate.com,62percentofseniorshavelessthan$1,000inasavingsaccount.4

5. (c.)AccordingtoaTransamericaCenterforRetirementsStudysurveycitedbyUSAToday,over80percentofrespondentsagesixtyandolderarealreadyworkingpastsixty-fiveorplanto.5

6. (a.)Timemagazinereportedthat74percentofpeopleinthesixtyandolderagegrouparebehindinsavingforretirement.6

7. (d.)Bankruptciesamongthosesixty-fiveandolderwentup244percentinaten-yearperiod.7(Yikes!)

Whatwecanconcludefromtheanswersintheexerciseaboveisthatpeoplewhoenter their retirementyears inournationarenotpreparing for retirement,are not prepared for retirement, and can’t handle the expenses of retirement!Thesearenational statistics.Theydonotneed tobeyourpersonal statistics ifyoutakeactionNOW.

CaseStudy:TwoFriendsIhaveafriendinhisfortieswhohasabodybuilder’sphysique.Heisleanwith

well-definedmusclegroups,butheisnotawildhealthnut.Hewatcheswhatheeatsandworksoutacouple

oftimesaweek.Ihaveanotherfriendinhisthirtieswhodietsfanatically,runseveryday,lifts

weights three times aweek, but is still forty pounds overweight.He started ahealth-and-fitnessjourneyacoupleofyearsagoandislosingweightandgettinginshape.

The muscle-man friend tells me that he worked hard years ago to get inshape,butheisn’tworkingnearlyashardtoday.

TheTotalMoneyMakeoverworksinasimilarway.Highlyfocusedintensityand effort are required to get to the wealth steps, but once there, simplemaintenancecankeepyourmoney-musclesmaintained.Keep inmind thatmymuscle-manfriendnevereatsthreeplatesoffoodatasitting.Hestillworksoutand is awareofhealth issues, andhehasn’t forgotten thebasic exercisingandnutritionprinciplesthatgothiminexcellentshapeinthefirstplace.Hesimplydoesn’thavetoworkashardnowtomaintainhisfitnesslevelasmyfriendwhoistryingtoachieveafitnesslevel.

Achieving financial fitness isalsomoredifficult thanmaintaining financialfitness.Therichreallydogetricher.

KeyConcept#2Invest15PercentofYourIncomeinRetirementThenextstepforyoutotakeintheTotalMoneyMakeoveristoinvest15percentofbefore-taxgrossincomeannuallytowardretirement.

Gazelle-like intensity in completing theprevious stepsof theTotalMoneyMakeover have brought you to the point where you have money to invest inretirement.Howdidwe comeupwith the 15percent figure?Thenumber hasbeenderivedfromworkingwithtensofthousandsofpeople.

Whynotmorethan15percent?Becauseyoustillhaveyourhousetopayoffandperhapscollegetuitionforyourchildrentosavefor.

Whynotless?Somepeoplewanttoinvestlesstopayforcollegeortopayofftheirhousemorequickly.It’swisertostartinvestingforretirementassoonas possible so the money has the maximum time to grow. Your children’scollege degrees won’t feed you at retirement. You need some money inretirement to live in a paid-for house. I’ve counseled too many seventy-five-year-olds who have a paid-for house and nomoney. They end up selling thefamilyhome,ormortgagingit,toeat.That’sabadplan.

Incalculating theamountyouput into retirement,donot includecompanymatches in your plan. If your company matches some or part of your

contributiontoaretirementplan,considerthatgravy.As a general rule of thumb, if you cheat down to 12 percent or up to 17

percent,that’snotahugeproblem,butdounderstandthedangersofstrayingfarfrom 15 percent. If you underinvest, youmay one day be buying that classiccookbook72WaystoPrepareAlpoandLoveIt.Ifyouoverinvest,youwillkeepyourhomemortgagetoolong,whichwillholdupwealthbuilding.

SimpleQ&AQ:AccordingtotheWorkforceInstitute,[Your Notes] percent of workerssurveyed were not able to make amortgage, car loan, rent, or credit cardpaymentduetomissingapaycheck.

A:378

Donot use your potential Social Security benefits in your calculations forretirement. I don’t countonan ineptgovernment formydignity at retirement,andyoushouldn’teither.Accordingtotworecentsurveys—onebyGallupPollandtheotherbyYouGov—peopleunderagethirtyaremorelikelytobelieveintheexistenceofextraterrestrialintelligentlifethanbelievethattheywillreceiveadimefromSocialSecuritywhentheyretire.9Iagree—notforpoliticalreasons,butbecausethemathofthatsystemdoesn’twork.Itspellsdoomfarmorethanitspells dignity.Now, if by somemiracleSocialSecurity is there for youwhenyouretire,considerthatalsotobegravy.

WhatAboutYou?Areyouthinkinglikeagazelle?AreyouintenselyfocusedlikeagazellerunningfromMr.Cheetah?

Exercise#59ThinkingRetirement

Justtoreinforcesomeoftheseconcepts,let’sseeifyoucancompletethefourstatementsbelowcorrectly.Circletheword,phrase,ornumberfromtheoptionsgiven.

1. Invest15/25percentofyourafter-taxnet/before-taxgrossincomeinretirementfunds.

2. DO/DONOTtakeintoconsiderationanycompanymatchingfundsasyoucalculateyourretirementinvestment.

3. DO/DONOTtakeintoconsiderationSocialSecurityinanticipatingyourretirementincome.

4. BegininvestinginretirementASSOONASPOSSIBLE/ATLEASTFIVEYEARSBEFORERETIREMENT.

Answers:1. (15,before-taxgross)Invest15percentofyourBEFORE-TAXgross

incomeinretirementfunds.Inotherwords,ifyouaremaking$40,000ayear,invest$6,000ayearinyourretirementfund.

2. (DONOT)DONOTtakeintoconsiderationanycompanymatchingfundsasyoucalculateyourretirementinvestment.

3. (DONOT)DONOTtakeintoconsiderationSocialSecurityinanticipatingyourretirementincome.

4. (ASSOONASPOSSIBLE)BegininvestinginretirementASSOONASPOSSIBLE.You’llneverbesorrydowntheline!

KeyConcept#3

InvestforRetirementinMutualFundsThe Total Money Makeover preferred “investment vehicle” for retirement isgrowth-stockmutual funds.This type of investment fund is good for the longhaul.Itisn’twhatI’drecommendfortheshort-term.

Whygrowth-stockmutualfunds?

Thestockmarkethasaveragedjustbelowa12percentreturnoninvestmentduringthelastforty-threeyears.Mutualfundsareagreatwayforregularpeopletoparticipateinagreatlong-terminvestmentlikethestockmarket,eveniftheywanttolowerriskanddon’thavealotofmoneytostart.

Here’s how I approach the investment of retirement funds: MatchingAdvantages

Takeadvantageofanymatchingprogramsavailabletoyou.Alwaysstartwhereyouhavea“match.”Ifyourcompanywillgiveyoufreemoney,takeit!Ifyour401(k)matchesthefirst3percentyouinvest,putyourfirst3percentofyour15percentinthatfund.

TaxAdvantagesUseanytaxadvantagesavailable.Inotherwords,fundyourRothIRA.ARothIRAwillallowyoutoinvest$5,500ayear($6,500ifyou’refifty-fiveorolder),per person, depending on which year you read this book. There are somelimitationsastoincomeandsituation,butmostpeoplecaninvestinaRothIRA.TheRothgrowstax-free.Letmegiveyoualittleexampleofhowvaluablethiscan be: If you invest $3,000 a year from age thirty-five to age sixty-five, andyourmutualRoth IRA funds average 12 percent a year over the long-haul ofthosethirtyyears,youwillhave$873,000tax-freeatagesixty-five.Overthosethirtyyears,youwillhaveputinonly$90,000...therestisgrowthandyoupaynotaxes.

In a Roth IRA, you can choose where you put the money. Here’s how Ichoosethegrowth-stockmutualfundsformyRothIRAinvestment:

• Ilookforagoodtrackrecordofwinningformorethanfiveyears,preferablyformorethantenyears.(Idon’tlookatone-yearorthree-yeartrackrecords...rather,Ithinkintermsoffive-yearandten-year.)

• Ibreakdownmyretirementinvestingevenlyacrossfourtypesoffunds:1. Growth and Income Funds (these are sometimes called Large-Cap or

BlueChipFunds).

2. GrowthFunds(thesearesometimescalledMid-CaporEquityfunds;anS&PIndexFundwouldalsoqualify).

3. International Funds (these are sometimes called Foreign or Overseas

Funds).

4. Aggressive Growth Funds (sometimes called Small-Cap or EmergingMarketFunds).

AND THEN . . . The total you put into your matching-fund companyretirementplan (401[k])and themoneyyouput intoRoth IRAfundsneeds tototal15percent.YoumaybefundingaRothIRAandbeself-employed,orhavean income thatallows the15percent tobegreater thanacompanymatchplusIRA.Inthatcase,gobackandinvesttheremainingamountupto15percentina401(k),403(b),457,orSEP(self-employedplan).

Letmegiveyouareal-timeexample:Youearn$54,000ayear.Investmentamountof15percentwouldbe$8,100ayear.Let’s say your 401(k) matches the first 4 percent. Four percent of your

$54,000incomeis$2,160.Thatgoesintothe401(k).YoucanfullyfundaRothIRAuptothecontributionlimitof$5,500.The401(k)andRothIRAamountsaddedtogether=$7,660.Thereisstill$440tobeinvested.Gobacktothe401(k).Bumpupyourcontributionto5percentinsteadof4

percent.Thatputs$2,700ofyoursalaryintoyour401(k).Nowthetotalof401(k)andRothIRAcontributionsis$8,200.That’satleast

15percent—just$100above!Note: If you are married, you can also fully fund a Roth IRA for your

spouse,regardlessofwhethertheybringinincome.

WhatAboutYou?So,whatareyourretirementinvestmentfigures?

Exercise#60CalculatingforRetirementInvesting

Whatisyourannualincome(personalorfamily)?X.15(15percent)=

$[YourNotes]

Amounttobeinvested(the15percentfigureabove): $[YourNotes]INVESTMENT

DOLLARS

Doyouworkforacompanythatmatches401(k)contributions?Ifso,atwhatrateandamount?Howmuchinrealdollarsisthat?

$[YourNotes]

SubtractthisamountfromtheINVESTMENTDOLLARSfigureabove:

$[YourNotes]READYFORROTHamount

HowmuchcanyouputintoaRothIRA(personalorcombinedwithspouse)?

$[YourNotes]

SubtractthisamountfromtheREADYFORROTHfigureabove:

$[YourNotes]STILLTOINVESTamount

Thenumberaboveistheamountyouneedtoputintoa401(k),403(b),457,orSEP.

BreakingDownYourInvestment:TotalamountyouareputtingintoaROTHIRA:

$[YourNotes]

X.25(25percent)= $[YourNotes]

ThisishowmuchofyourRothIRAshouldbeputintoeachofthefourtypesofGrowth-StockMutualFundsdescribedabove.

$[YourNotes]inGrowthandIncome(Large-Cap,BlueChip) $[Your Notes] in Growth (Mid-Cap, Equity, S&P Index) $ [YourNotes] in International (Foreign, Overseas) $ [Your Notes] inAggressive-Growth (Small-Cap, Emerging Market) Your company401(k)maynotallowyoutochooseamonginvestmentoptions.Ifitdoes,youcandoasimilarcalculationforchoosingyourGrowth-StockMutualFunds.

Ifyouhaveanothertypeofretirementfund(suchasaSEPaccountifyouareself-employed),calculate:

TotalamountyouareputtingintoyourPersonalRETIREMENTFUND(suchasSEP)

$[YourNotes]

X.25(25percent)= $[YourNotes]

This is how much you should allocate to each of the four types ofGrowth-Stock Mutual Funds within your personal RETIREMENTFUNDING vehicle: $ [YourNotes] inGrowth and Income (Large-Cap,BlueChip) $ [YourNotes] inGrowth (Mid-Cap,Equity,S&PIndex) $ [Your Notes] in International (Foreign, Overseas) $[Your Notes] in Aggressive-Growth (Small-Cap, Emerging Market)Whenyou finish calculating all these stock and401(k) investments, gobackandcheck:Didyouinvest15percentofyourBEFORE-TAXgrossincome?

KeyConcept#4

CalculateWhatItWillTakeforYoutoRetireYousetsomedreamsattheoutsetofthischapter—experiencesandeventsyouhope are part of your retirement years. In addition, you most likely want tomaintain your current standard of living—the same house and neighborhood,sametypeof transportation,andsoforth.Thefollowingcalculationsheetswillhelpyoudeterminehowmuchyouneedtoretirewithdignityandsecurity.

Let’srunthroughsomebasicmath.Although I indicated that the stock market has an overall track record of

earning 12 percent a year, for the purposes of calculating retirement, Irecommendapersonusethefigureof8percent.Youshouldaimatlivingoff8percent. (Actually, this 8 percent is based on your funds earning 12 percent ayearandinflationstealingabout4percentayear.Iftherateofinflationturnsoutto be less, you’re better off. If your funds earn more, you’re better off. Ifinflationishigherandyourfundsearnless,youmayneedtoscramblealittleasyou near retirement . . . but if you are following the TotalMoneyMakeoverfully,you’llbeabletodothat.)WhatAboutYou?

Let’sgetintoreal-timeplanninghere...

Exercise#61

HowMuchintheRetirementKitty?

Whatincomewouldyouliketohaveeachyearasyourbasicretirementincome? This probably is the annual income you have today: $ [YourNotes]AYEAR

Tohaveenoughforthisamount,youwillneedanestegg.Dividethenumberaboveby.08=

$[YourNotes]NESTEGGNEEDED

Now, this nest egg is based on your savings growing at a rate of 12percent and inflation stealing 4 percent, for a net of 8 percent afterinflation.Thetargetnesteggiscalculated,therefore,at8percent.Togettheamountneeded,youalsoneed to factor in thenumberofyearsyouhave left to save that amount. A chart labeled “8-Percent FACTOR”follows.

NESTEGGNEEDED $[YourNotes]

XFACTOR $[YourNotes]

(from8-PercentFACTORchartbelow) $[YourNotes]

MONTHLYSAVINGSNEEDEDNOW $[YourNotes]

8-PercentFACTORChartSelecttheonethatmatchesyourcurrentage.Ifyouwaitfiveortenyearstostartretirement investing, you will need to calculate at the age you plan to startinvesting.(Comparethistoyourcurrentage,evenifyoudon’tthinkyou’llstartinvesting until later. You may change your mind.) Retirement is assumed atsixty-fiveyearsofage.

AGE YEARSTOSAVE FACTOR

25 40 .000286

30 35 .000436

35 30 .000671

40 25 .001051

45 20 .001698

50 15 .002890

55 10 .005466

60 5 .013610

Donotpanicifyouseethatyoushouldhavestartedsavingtwentyyearsagotomeetyourgoal!Donotpanicifyoucan’tstartsaving15percentrightnow.Later steps in the Total Money Makeover will allow you to accelerate yourinvestingwhilestillhavingalife.

No, don’t panic, but do be concerned enough to start investing for yourretirementnow.

Is it doable? Dream with me for a minute. Joe and Suzy Average are atwenty-seven-year-old couple who make a combined total of $50,000 a year.That,bytheway,istheaveragehouseholdincomeinAmericaaccordingtothelastUSCensusBureaufigures.

Theyinvest$7,500ayear(15percent)inaRothIRA—$625amonth.Theylivewith intensityandnodebt—thingsaren’tflushfor them,but theymakeit.They have nomatching funds from a company. They invest only in the RothIRA.Theydon’tretireatagesixty-five,butatageseventy.

Atageseventy,JoeandSuzyAveragewillhave$7,588,545tax-free!That’salmost $8 million. If they live off the interest on that money, at 8 percentearningsthey’llhave$607,084ayeartospend.

That’s with having the national average income today and not getting asingle raise in the next thirty-three years, which is highly unlikely. That’sstartingatagetwenty-sevenandputtingonly$625amonthintoaRothIRA.

It’sdoable!If, however, you aren’t twenty-seven and aren’t making $50,000 a year,

don’tbetotallydejected.Startwhereyouare.Workthestepsoftheplan.Getoutofdebt.Have$10,000inanemergencyfund.Startinvestingforyourretirement.Anddon’tdelay!

10

MakeSuretheKidsAreFitToo:COLLEGEFUNDING

TotalMoneyMakeoverProgressCheckAtthispoint:

• Youaredebt-freeexceptyourhouse;• youhavethreetosixmonthsofexpenses(usuallyabout$10,000minimum)inanemergencyfund;and

• youareinvesting15percentofyourbefore-taxgrossincomeinretirementfunds.

Youareonthepathtowardbuildingwealth.Youhaveyourfinancesundercontrol. You no doubt have a growing sense of security that you have anemergency fund, are debt-free, and are starting to invest in your own goldenyears!

SimpleQ&AQ: According to a Gallup poll, [YourNotes] percent of those who file forbankruptcy feel “depressed” after goingthroughabankruptcy.

A:75

ThischaptercoversBabyStepFive.

KeyConcept#1

HelpYourChildGetaCollegeEducationHere’sachapteryoumaynotneed.Yourchildrenmayalreadybepastcollege.Oryoumaynothavechildren(andwon’thavechildren)tosendtocollege.

If, however, you have childrenwho are younger than college age, or youanticipatethepossibilitythatyoumighthavechildren(acquiringthemeitherbygiving birth, through amarriage, through adoption, or from a familymemberunabletocareforthem)...youneedthischapter!

Idon’tknowofanygoodparentwhodoesn’twantasmuchormorefortheirchildren than what they themselves enjoy in life. In our culture, college isimportant.IconsideritsoimportantthatIexplainedtomychildrenthatiftheydidn’tgotocollege,mywifeandIwouldhirepeopletodomeanthingstothemuntil theywent.Asolideducationhelpsayoungpersonbeginhisorheradultlifeandcareerwithmuchmoreconfidenceandquality.

You do need to understand, however, the purpose of a college educationbeforeyoufundit.Thereareanumberofmythsaboutacollegeeducationthatyouneedtoconfront.

COLLEGEMYTHSinclude:

• Acollegedegreeensuresajob.No,itdoesn’t.

• Acollegedegreeensureswealth.No,itdoesn’t.

• Acollegedegreeprovessomeonehassuccessfullypassedaseriesoftests.Notnecessarily.

We all know college-educated people who are broke, unemployed, andsomehowgotadegreewithoutreallydoingtheworkwethinktheyshouldhavedonetoearnthedegree.Collegeiswhatayoungpersonmakesofit.

College can teach only knowledge—not wisdom. It also doesn’t teachattitude, character, perseverance, vision, diligence, or goodwork habits. Yourchildhastogetthoseonhisown.

I have a college degree. I’ve been amillionaire starting with nothing twotimes (before I was forty). I attribute 15 percent of that success to a college

education,0percenttoacollegedegree,and85percenttoattitude,perseverance,diligence,andvision.

College does offer a young person a unique opportunity for friendships,which can result in networking later. It can provide a knowledge base. It cangive your child the “calling card” degree to get him into an interview for ajob...butitisnottheanswertoallyourchild’sproblemsorchallenges.Itisaluxuryinlife—notanecessity.

Givenallthat,Idohavesomefinancialadviceforyouonceyou’vedecidedtofundyourchild’scollegeeducation.

HereareDave’sRulesforCollege:1.Researchthecostofattendingvarioustypesofschools.Findoutwhatyouralmamatercoststoday.Findoutwhatthebigstateschoolinyourareacosts.Findoutwhatsmallerstateschoolscost.Findoutwhatprivate,smallerschoolscost.Comparethecosts.

Insomeareasofstudy,andinaveryfewcareers,whereyouattendcollegemattersagreatdeal.Thereligiousaffiliationandthespirituallifeatthecollegemaymatter toyou.Butwhen itcomes toacademicknowledge,manycollegesoffer basically the same courses at vastly different prices. “Pedigree” from aname-brand college means less and less in our work culture today. If you’regoing to go into debt to send your child to a school that will require you toborrow$75,000extracash,comparedtopayingcashforadegreefromamuchlessexpensiveschool,askyourselfwhy.

Lookforsomeofthedifferencesincosts:• Tuition.Thiscostisgreatlyreducedatstateschools.• Livingandeatingoff-campus.Doyourhomeworkaboutthecostoflivinginthecollege’sarea.Cafeteriafoodmaynotbethegreatest,anddormlifemaynotbeallthatappealing,butitcansave$20,000overafour-yeardegreeprogram.

2.Paycash. Ifyouhave thecashora scholarship tocover theexpenses—nomatterhowexpensivetheschoolofyourchoice—byallmeans,gotothenumberoneschoolofyourchoice.

3. Avoid student loans. They may seem smart when you are sitting in thefinancial-aidoffice,buttheystickaroundforwhatseemslikeforever.TheWallStreetJournalreportedin2016thatalmost70percentofstudentstookoutloanstopayforcollege.Andtheiraveragestudentloandebtisover$37,000!1

4.Consider all your options.Work is good for college students.They tend tovalue their classroomexperiencemore andparty less.Youmayhave relativesnearthecampuswhowouldliketorentoutaroomandprovideaneveningmealforyourchild.Youmaywant toopt for twoyearsatacommunitycollegeforgeneral education and then transfer to a bigger ormore prestigious school formajorcourses.

WhatAboutYou?Areyoureadytosendyourchildtocollege?

Exercise#62GearingUpforCollege

This isaveryshortexercise tounderscore justonepoint.According totheCollegeSavingsFoundation:1. [YourNotes]percentofAmericanswithkidsdon’tsaveadime

towardcollege.a. 10b. 17c. 28d. 35

2. [YourNotes]percentofparentshavesavedlessthan$5,000towardacollegeeducationfortheirchildren.a. 2b. 4c. 12d. 24

3. [YourNotes]percentofparentshavesaved$5,000to$10,000towardacollegeeducationfortheirchildren.a. 8b. 17c. 25d. 31

Answers:1. (d.)TheCollegeSavingsFoundationfoundthat35percentof

Americanswithkidsdon’tsaveadimetowardcollege.22. (b.)Twenty-fourpercentofparentshavesavedlessthan$5,000

towardacollegeeducationfortheirchildren.33. (b.)Seventeenpercentofparentshavesavedbetween$5,000and

$10,000towardacollegeeducationfortheirchildren.4

These figures reportedby theCollegeSavingsFoundation indicate that76percentofparentswithchildrenhavesavednothingornexttonothing(even$10,000isnotalotwhendealingwithcollegecosts)!

TheamountYOUhavesavedforYOURchild’scollegeexpenses:

$[YourNotes]

Please note that it is very important that you not think of your emergencyfund as a college fund. If you don’t have an emergency fund, you’ll think ofcollegeasanemergency,but it isn’t. Ifyousaveforcollegebutdon’thaveanemergency fund, you will raid the college fund to keep the house out offoreclosure when you get laid off. If you save for college while makingpaymentsoneverythingunder thesun,well . . .youwon’thaveanymoneytosaveforcollege!

Buildastrongfoundationforyourfinancesandthensaveforacollegefund.

KeyConcept#2GetSmartAboutESAsand529sCollege tuition goes up faster than regular inflation. Inflation of goods andservices averages about 4 percent a year. Tuition inflation averages about 8percent. (Baby Life insurance programs average less than 2 percent return ayear,5 while savings bonds average about 3.5 percent.6 Regular savingsaccountsonlyaverage0.06percent,andmoney-marketfundscanaverageabout3percent,7but in recentyearshavehadmuch lower returns.)Somestatesandcollegesofferprepaidcollegetuition.Iftuitiongoesup8percentayear,andyouprepayit,youbasicallymake8percentonyourmoneyandbreakeven.That’s

not too bad. But if your money is in a decent growth-stock mutual fundaveraging12percentwheninvestedlong-term,youhaven’tbeenassmartwithaprepaid plan as youmay have thought. Also consider the possibility that youmight move, and the “state” fund you prepaid may not apply to out-of-statetuition.

Here’smyrecommendation:TheESA.Fundcollege,or at least the first stepof a college fund,with an

EducationSavingsAccount (ESA) invested ingrowth-stockmutual funds.TheESA,nicknamed theEducation IRA,grows tax-freewhen it isusedforhighereducation.

TheESA allows you to invest $2,000 a year, per child, if your income isunder $220,000 a year ($110,000 if you’re single). That $2,000 amounts to$166.67amonth.Trustme,ifyourchildisyoungandyoudothisright,you’llhavecollegeundercontrol;ifyouwait,$166.67amonthisn’tgoingtobeadropinthebucket.IfyourincomelevelallowsyoutodoanESA,doit.

YoucaninvestESAfundsinanymixoffundsandchangethemixatwill.Itisaveryflexibleplanandyouhavethemostcontrol.

Ifyouinvest$2,000ayearfrombirthtoageeighteeninprepaidtuition,thatwouldpurchaseabout$72,000intuition.InanESAinmutualfundsaveraging12percent,youwouldhave$126,000tax-free.

IfyourchildisoverageeightwhenyoustartanESA,oryouaspiretosendyourchildtoamoreexpensiveschooloranticipateyourgiftedchildmaygoontograduateschool...theESAisjustabeginning.

The529.IfyouneedtosetasidemorethantheESAallows,oryouryearlyincome is more than the allowed amount, you’ll want to look at a 529 plan.Thesearestateplans,butmostallowyoutousethemoneyatanyinstitutionofhigherlearning(whichmeansyoucansaveinNewHampshirebutgotocollegeinKansas).Thereare several typesof529plans—makesureyouget the rightkind!

Onetypeiscalledthe“lifephase”plan,whichallowstheplanadministratortocontrolthemoneyandmoveittomoreconservativeinvestmentsasthechildages.These tend toperformpoorly (at about8percent) because they areveryconservative.

Another typeis the“fixedportfolio”plan,whichsetsafixedpercentageofyour investment in agroupofmutual fundsand locksyou into that funduntilyouneed themoney.Youcan’tmove themoney,whichmeans ifyouget intosomebadfunds,you’restuckwiththem.

“Flexible”plansallowyoutomoveinvestmentsaroundperiodicallywithacertain“familyoffunds,”afancynameforabrandofmutualfunds.Thisistheonlytypeof529Irecommend!

WhatAboutYou?Isallthatclear?Let’ssee...

Exercise#63CollegeFundQuiz

Checkyourunderstandingofcollegeinvestmentfunds.

1. IfmychildisundereightandImakelessthan$220,000ayear,thebestplaceformetostartaninvestmentforcollegeisa. 529planb. 401planc. ESAd. IRAe. IRS

2. Ifmychildisoverageeight,orImakelessthan$220,000ayear,thebestplaceformetoinvestforcollegeis:a. 529planb. 401planc. ESAd. IRAe. IRS

3. IfIanticipatesendingmychildtoanexpensiveschool,andtheamountsavedunderanESAisnotenough,Ineedtoinvestin:a. 529planb. 401planc. ESAd. IRAe. IRS

4. ESAfundsshouldbeinvestedin:a. savingsbondsb. money-marketfundsc. growth-stockmutualfundsd. whole-lifefundsforbabiese. passbooksavingsaccount

5. Thebesttypeof529planis:a. a“lifephase”planb. a“fixedportfolio”planc. a“flexible”pland. aplanthatrequiresachildtoattendcollegeinthestatethatprovidesthefundAnswers:

1. (c.)TheESAisthebestplacetostartinvestingforcollegeifyourchildisunderageeightandyoumakelessthan$220,000ayear.

2. (a.)The529planiswhereyouneedtoinvestifyourchildisoverageeightoryoumakemorethan$220,000ayear.

3. (a.)TheplacetoinvestifyouwillneedMOREmoneythantheESA

willprovideisa529plan.4. (c.)Agrowth-stockmutualfundisthebestplacetoinvestESA

funds.5. (c.)A“flexible”planallowsyoutoinvestinmutualfundsofyour

choice,periodicallyalteringyourchoiceifyoufindyouhaveyourmoneyinafundthatisn’tperformingverywell.

KeyConcept#3

GetCreativeIfYou’reRunningOutofTime!If you have only a couple of years left before your child starts college, getcreative!Considertheseoptions:

• Thechildcouldattendacheapercollege.

• Dependingonthecostoflivinginthecollege’sarea,yourchildcouldsavemoneybylivingoncampusandeatingcafeteriafood.

• Thechildcouldworkforacompanythatwillhelppayhisorherwaythroughcollege.(Manycompaniespaytuitionfortheiradultemployees...Askthemtopayinadvanceandrequireyourchildtoworkforthecompanyforayearortwofull-timeaftergraduation.Notallcompanieswillsayyestothisplan,butitonlytakesonethatwill!)

• Lookintocompaniesthathavework-studyprogramsthatpayachild’stuitioninexchangeforthechildworkingatnightorpart-timeduringtheday.

• Checkoutwhatthemilitaryhastooffer.Themilitaryisn’tforeveryone,butsomeyoungpeoplegetfouryearsoffreecollegeeducationforservingfouryearsinthemilitary.

• CheckouttheNationalGuard.Itpaysapersontogotobootcamponesummerbetweenhighschoolandcollegeandthenpaysforenoughtuitionandbookstogetachildthroughtherestofthetime.Ofcourse,thechildwillservehisorhernationintheNationalGuardinreturn.

• Takeahigh-rejection,high-payingsummersalesjob.Ifayoungpersonworksreallyhardinasalesjob,hecanmakegreatmoney.Iknowoneyoungmanwhomade$40,000sellingbooksinonesummer!

• Checkinto“underservedareas”programs.Intheseprograms,thegovernmentwillpayforschoolorpayoffstudentloansifastudentorgraduatewillagreetoworkinan“underservedarea,”typicallyaruralorinner-cityarea.Mostoftheseprogramsareforlawandmedicine.Theprogramsalsoapplytonursingandsomeeducationdegrees.

• Checkintoscholarships.Thereareallkindsofscholarshipsavailable.Someofthesearesmallerscholarshipsfromcommunityclubs.Somearebasedonrace,sex,orreligion.Someareforhighlyspecialized“traits”inastudent.Iknowoneyoungwomanwhoappliedforathousandofthesescholarships.Shewasturneddownfor970ofthem,butshegotthirtyofthem,totaling$38,000!Softwareprogramsareavailablethatcovermorethanthreehundredthousandofthesescholarships.Thinkofsearchingoutthesescholarshipsasapart-timejob,orasummerjobbetweenthechild’sjuniorandsenioryearsofhighschool.

WhatAboutYou?Howcreativeareyou?Howmotivatedareyoutopayforcollegeincashratherthantakeoutstudentloans?

Exercise#64PayingforCollege

Listthreethingsyou—oryourhighschoolstudent—canlookintotodayforfundingcollege,beyondanESAor529plan:1. [YourNotes]

2. [YourNotes]

3. [YourNotes]

11

BeUltrafit:PAYOFFTHEHOMEMORTGAGE

TotalMoneyMakeoverProgressCheckAtthispoint:

• Youaredebt-freeexceptyourhouse;

• youhavethreetosixmonthsofexpenses(usuallyabout$10,000minimum)inanemergencyfund;

• youareputting15percentofyourbefore-taxgrossincomeintoretirementsavingseachyear;and

• youareinvestingforyourchild’scollegeeducation.

If you are doing this, you’re doing much better than many Americansbecause you have some wealth, have a plan, and have your finances undercontrol!Justlookatthenumbers.AccordingtoCNBCandtheHuffingtonPost,the following things are true: only 15 percent of Americans surveyed have$10,000ormoreinsavings,33percenthavenofinancialplanatall,andabout70percentofAmericansarelivingpaychecktopaycheck.1You’redoinggreat!It’stimetopressonthrough!

ThischaptercoversBabyStepSix.

KeyConcept#1

StartanAcceleratedPaymentPlantoPayOffYourHouseLoanFormanypeople, thelargestsinglepayment theyhaveeverymonthisahousemortgage (or condominium mortgage). Imagine what it would be like not tohave that payment! Imagine what you could begin to do with that money intermsofinvesting,makingcontributions,orjustplainol’havingfun!

The principle behind this step in the TotalMoneyMakeover is that everydollaryoucanfindinyourbudgetabovebasicliving,retirementinvesting,andcollegefundingshouldbeputintomakingextrapaymentsonyourhome.Again,Ichallengeyoutoattackthathomemortgagewithgazelle-likeINTENSITY!

Therearelotsofmythsassociatedwithhomemortgages.Let’stakethemon!

WhatAboutYou?Do you feel a special excitement about the possibility of owning your ownhome? Hold on to that excitement. You’re right to be excited about thatpossibility!

SimpleQ&AQ: According to the Federal ReserveBoard, consumers’ outstanding debt oncreditcardsandotherrevolvingloanshasgrowncontinuouslyoverthelastdecade,hitting[YourNotes]in2017.

A:$1TRILLION2

Exercise#65ManagingaHomeMortgageWisely

CheckbelowwhetheryouthinkeachstatementbelowisaMYTHortheTRUTH:

MYTH TRUTH

1. Itiswisetokeepmyhomemortgagetogetataxdeduction.

2. IshouldborrowthemaximumamountIcanonmyhome(refinancingtogetcashout)becauseofthegreatinterestratesrightnow—andtheninvestthemoneyatahighrate.

3. It’ssmarttotakeoutathirty-yearmortgageandthenpayonitasifit’safifteen-yearmortgage.

4. Afifteen-yearmortgageisbetterthanathirty-yearmortgage.

5. It’sbettertohaveafixed-ratemortgage,eveniftherateishigher,thantohaveanadjustable-ratemortgage(ARM)orballoonmortgage.

6. Iwouldbesmarttotakeoutahome-equityloanasmy“emergencyfund.”

7. Nowisagreattimetorefinancemyhome.

Answers:1. (MYTH)There’snothingwiseaboutkeepingahomemortgagejust

togetataxdeduction.Taxdeductionsarenobargain!Let’sdosomesimplemath.Ifyouhaveahomepaymentof

around$900,andtheinterestpartofthatis$830amonth,youhavepaidaround$10,000thatyearininterest.That’syour“taxdeduction.”Thebankorotherlendingorganizationgetsyour$10,000.

Ontheotherhand,ifyouhaveadebt-freehome,that$10,000ispartofyourincome,andyou’llhavetopaytaxonit.Ifyouareinaboutthe30percentbracket,you’llpayabout$3,000onthatincome.You’llstillhave$7,000tospendasyouwant.

Itdoesn’tmakeanysensetometosend$10,000ininteresttoabanksoyoudon’thavetosend$3,000totheIRS.

2. (MYTH)ItisNOTwisetoborrowthemaximumamountyoucan

borrowonyourhome(refinancingtogetcashout)inhopesofinvestingthatmoneyinsomethingthathasahighinterestrate.Thetruthis,youreallydon’tmakeanythingwhenthesmokeclears.

Thiscanbealittlecomplicated,sostaywithme.Iknowyoucan!Themyth-speakersclaimit’ssmarttoborrowmoneyataround8

percenttoinvestitina12percentmutualfund.Let’strythatmythonrealdollars.Let’ssayyouborrow$100,000onyourhometoinvest.Ifyou

borrowedthemoneyinthefirstplaceat8percent,youpaid$8,000onthatamountinyourmortgage.Ifyouinvestthe$100,000at12percent,you’llmake$12,000.Thedifferenceis$4,000...orisit?

Ifyou’reinthe30percenttaxbracket,you’llpay$3,600intaxesatordinaryincomerates,or$2,400ifyouinvestatcapitalgainsrates.Youwon’tnet$4,000.Morelike$400to$1,600...sofar...butthere’smoretoconsider.

IfI,asyournext-doorneighbor,have$100,000equityinmyhomethatyoudon’thavebecauseyoutookitoutto“invest,”whichoneofusismoresecure?Ifyougetsick,haveacarwreck,oraredownsizedoutofajob,youcanrunintomajorproblemswithanextra$100,000onyourmortgage.Debthascausedyourrisktoincrease.Themoneyyouhaveinyourmortgageisnotatrisk.

Ifyoutakeintoconsiderationbothtaxesandrisk,youdon’treallycomeoutahead.

3. (MYTH)Theideabehindtakingoutathirty-yearmortgageandpromisingtopayyourselfasifit’safifteen-yearmortgageisthatyouwillhavesomewiggleroomifsomethinggoeswrong.Inalllikelihood,somethingwillgowrong.

Thetruthis,veryfewpeoplehavethedisciplinetopayonathirty-yearmortgageasifit’safifteen-yearmortgage.Themajorityofpeopledonotsystematicallypayextraontheirmortgage.Nevertakemorethanafifteen-yearmortgage.OnethingI’venoticedthroughtheyearsisthatfifteen-yearmortgagestendtogetpaidinfifteenyears.Thirty-yearmortgagestendtogetpaidinthirtyyears.

4. (TRUE)Afifteen-yearmortgagewillsaveyouconsiderabledollarsoverathirty-yearmortgageeverytime.Theshorterthetermofaloan,thelessinterestpaid!Letmegiveyouanexample.

Let’sassumethatBobandAnnbuya$130,000house.Theymakeadownpaymentof$20,000,whichleavesthema$110,000mortgage.

Ifamortgageloanisat7percent,attheendofthirtyyears,theywillhavepaidatotalof$263,520fortheir$130,000house.

Atthesameinterestrate,butattheendoffifteenyears,theywillhavepaid$177,840fortheir$130,000house.

That’sadifferenceof$85,680!Thatmoneyinvestedfortheextrafifteenyears(thedifferenceinyearsbetweenthefifteen-yearmortgageandthethirty-yearmortgage)canbetremendous!

“But,”yousay,“there’sabigdifferenceinmonthlypayments.”BobandAnnwouldpay$732amonthinathirty-yearloan.Theywouldpay$988amonthinafifteen-yearloan.That’s$256

amonth—whichisn’talotformostpeopleiftheyaredebt-free.Plus,thesefiguresarecalculatedatthesame7-percentinterest

rateforbothloans.Fifteen-yearloansareoftenatalowerinterestratethanthirty-yearloans,whichwouldmakethedifferenceeachmonthlessthan$256.

Ifinterestratesarelowandyouhavemorethanfifteenyearstopayonyourexistingmortgage,itmaybeagreattimetorefinanceyourhomeatafifteen-yearrate.

Ifyouhaveaverylowinterestrate(lowerthanthegoingrate),oryouhavelessthanfifteenyearstopayonamortgage,youmaypayoffyourmortgageatsignificantsavingsbypayingoffyourmortgagefaster.

Ihaveamortgage-payoffcalculatorchartonmywebsite,daveramsey.com,whereyoucancalculatedifferentpaymentsorevenrunanamortizationschedule.

5. (TRUE)Itisbettertohaveafixed-ratemortgage,eveniftherateishigher,thantohaveanadjustable-ratemortgage(ARM)orballoonmortgage.ThemainargumentusedtotrytogetyoutobuyanARMorballoonmortgageisprobablythis:“Ifyou’llbemovinginafewyearsanyway,thisisthebetterdeal.”Thetruthisthatyouwillbemoving—whentheyforeclose!

AdjustableRateMortgages(ARMs)wereinventedintheearly1980s.Priortothat,allofusintherealestatebusinessweresellingfixed-ratemortgagesat7and8percent.Theeconomywentsouth,

andmortgagessuddenlyskyrocketedto17percent.Therealestateworldfroze.Lenderswerepayingout12percentoncertificatesofdeposit,buthadmoneyloanedoutat7percentonmortgages—multiplythatfactbymillionsofdollarsinmortgagesandCDs,andyouseetheproblem!TheARMwasbornsointerestrateswouldgoupastheprevailingmarketinterestratesrose.Theriskwastransferredfromthelendingorganizations(banksandsuch)toyou,theconsumer.

Itisneverwisetogetsomethingthatadjustswhenyouareatthebottomofrates.TheARMwillgoupasinterestratesgoup.

Balloonmortgagesareworse.Peoplewhothinktheyaregoingtomovebeforetheballoonmortgagekicksinareoftenverysurprisedathowfastthatfive-yearballoonnotecomesdue!Balloonstendtopop.

6. (MYTH)Ahome-equityloanbecomesaDEBT.Theverytimeyoudon’tneedmoredebtiswhenyouhaveanemergency!

Home-equityloansandhome-equitylinesofcreditareadreamcometrueforlenders,astheyearnadditionalinterestandfeesontopofthehomeowner’sfirstmortgage.TheseloanshavealsobeenpopularwithhomeownersbecausetheyplayintoourI-want-it-nowmind-setasaculture.Bytheway,thebankingindustrycallstheseloansHELsforshort...IthinktheyjustleftoffanL.

MostHELsarerenewableannually,meaningthatyoumustrequalifyforthisloanonceayear.Ifyouhaveamajoremergencyduringthattime,youmayverywellloseyourhouseifyouhaveborrowedasignificantamountagainstitandthenloseyourjoborhaveaseriouscarwreckthatnotonlydemolishesyourcarbutlandsyouinthehospital.Mostofthetimetheveryemergencythatcausesyoutousethehome-equityloanistheonethatwillcauseyounottobeabletoqualifyfortheannualrenewal.“Stepuponthisrugsowecanpullitoutfromunderyou.”

7. (MaybeMYTH,MaybeTRUE)Idon’tknowwhen“now”is—asin,Idon’tknowwhenyouarereadingthisormakingthisargument.Icantellyouthisaboutrefinancing...

Thebesttimetorefinanceiswhenyoucansaveoninterest.Thechartsonthefollowingpagescanhelpyoudecideifnowisthetime.

ShouldIRefinance?HowtoFiguretheChangeinYourARM

Whenrefinancing,payingpointsororiginationfeesisnot inyourbestinterest.Pointsororiginationfeesareprepaid interest.Whenyoupaypoints,yougetalower annual percentage rate (APR) because you’ve already paid some of theinterestupfront.WhenIhavecalculated themoney thatpointssave,andusedthattopaymebackforthepoints,itaveragesabouttenyearstogetmymoneyback.TheMortgageBankersAssociationsaystheaveragelifeofamortgageisonlyaboutthreetofiveyears,soonaverageyoudon’tsaveenoughtogetyourmoney back before you pay off the loan by moving or refinancing.3 Whenrefinancing, ask for a “par” quote, which means zero points and a zerooriginationfee.Themortgagebrokercanmakeaprofitbysellingtheloan.Theydon’tneedtheoriginationfeetobeprofitable.

CaseStudy:MarathonMan!I have a good friendwho runsmarathons. I listen in awe to his stories of themarathons he has run. To a guy who sees 2.6 miles as a real dailyaccomplishment, the very idea of running 26.2miles is nearly overwhelming.Marathonersareamongthemostphysicallyfitpeopleontheplanet.

In the realm of finances, thosewho own their homes are like experienced

marathonrunners!Mymarathon-runningfriendtellsmethatmarathonersoftenhita“wall”at

abouttheeighteen-milemark.Nastythingsbegintohappentotheirmusclesandmind.Myfriendsaid,“Youbegin to think things like,Eighteenmiles isprettygood.Fewpeoplecanaccomplishthat.Ifyouaren’tcareful,the‘goodenough’thinkingbecomestheenemyoffinishing.”

That’sgoodwisdomtorememberwhenitcomestopayingoffyourhouse.

KeyConcept#2IfatAllPossible,PayCashforYourHouseI’veactuallyhadpeopletellmetheydidn’tknowitwaspossibletopaycashforahouse.Trustme,itis!

Now, letme quickly tell you that I am not opposed to a person having ahomemortgage.ItistheonlykindofdebtIdon’tyellabout,inpartbecauseahouseisgenerallyaninvestmentthatincreasesinvalueratherthandecreases,inpart because a house generally gives a person a feeling of security andwell-being,andinpartbecausehousesareexpensive,andit’sveryrarethatapersoncanpaycashforahouseattheoutset.

WhatIdotellpeopleisthattheyshouldnevertakemorethanafifteen-year,fixed-rateloan,andthattheirpaymentshouldneverbemorethan25percentoftheirtake-homepay.

Asformepersonally,Idon’tborrowmoney...ever.Mywife,Sharon,andIhavewhatwecall“The100-Percent-DownPlan.”Wepaycash.

Inmyexperience, I’vefound that familieswhostaygazelle-like intenseonpayingoffamortgageachievethatgoalinaboutsevenyearsfromthedatetheybeginaTotalMoneyMakeover.

That isn’twhat rich people do. It’swhat ordinary couples do.One coupletold me they had an annual $70,000 income. When they started their TotalMoney Makeover, they had $20,000 in student loans, $10,000 in car loans,$3,000increditcarddebt,anda$85,000mortgage—agrandtotalof$118,000indebt.Butinsixyears,theyhadpaidoffeverycent!

I’ve seen it done thousands of times by ordinary people with anextraordinarydesire.Theyarepeoplewhoarewilling to livenow likenobodyelselives...sotheycanlivelaterlikenobodyelse!

WhatAboutYou?Are you willing to live like nobody else now . . . so later you can live likenobodyelse?

CaseStudy:LukeIhadacallernamedLukeoneday.Hestartedhisplanattwenty-threeyearsold,making$50,000ayear.Hemarriedayoungwomanmaking$30,000ayear.Heand his bride lived in a small apartment over a rich lady’s garage—they paidonly$250amonthfortheapartment.Theychosetoliveonnexttonothing,didvirtuallynothingthatcostmoney,andtheysaved.Theysavedwithgazelle-likeintensity!Theywere able to save $50,000 each year for three years, and theypaid cash for a $150,000 home. They closed on the home on Luke’s wife’stwenty-sixthbirthday.

Luke’sfamilyandfriendsthoughtheshouldbecommitted—theymadefunofhiscars,hislifestyle,andhisdream.Theydidn’tmakefunofLukewhenhepaidcashforsuchabeautifulhome.

YoumaynotmakeasmuchmoneyasLukeandhisbride.Itmaytakeyoufiveyearsof sacrifice . . . or seven . . . topay cash for ahome.On theotherhand, youmaynot need a $150,000house as a starter home.Ask any eighty-year-oldiffiveyearsofsacrificeisworththesatisfactionofknowingyouhavechangedyourfinancialdestinyfortherestofyourlife,andIdoubtyou’llheara“no”answer.

Exercise#66PayingOfftheHouse

Takealookatyourmonthlybudget.Assumingbynowthatyouhavenodebt to pay in your monthly budget, you have an emergency fund inplace,youhavealreadyallocated15percent to retirement, andyouarefunding or have already funded a college fund for your children, howmuch money can you set aside every month to pay against thePRINCIPALofyourmortgage?

$[Your amonththatcanbepaidagainsttheprincipalonthe

Notes] homemortgage

Takealookatyourmortgagestatement.WhatdoyoustilloweonyourhomeinPRINCIPAL?

$[YourNotes] principalstilloutstanding.

Dividewhatyoustillowe inprincipalby theamountyoucansetasideeachmonth to pay on the principal. Howmanymonths away are youfrompayment-freehomeownership?

[YourNotes] monthsofpayinguntilthehomeisFULLYYOURS!

13

LiveLikeNoOneElse:REACHTHEPINNACLEPOINT

TotalMoneyMakeoverProgressCheckIfyouarelikemostpeopleIencounterintheday-to-dayroutineofmylife,youbegan thisTotalMoneyMakeoverworkbooka littleskepticalandyethopeful.You probably felt financially flabby and out of shape—overweightwith debtandwithoutany“muscle”ofsavingsorinvestments.

Ifyouhaveworkedallthesteps,youarenolongerinthatsadshape.Atthispoint:

• Youaredebt-free;

• youhavethreetosixmonthsofexpenses(usuallyabout$10,000minimum)inanemergencyfund;

• youareputting15percentofyourbefore-taxgrossincomeintoretirementsavingseachyear;

• youareinvestingorhavefundedyourchild’scollegeeducation;

• youownyourhome;and

• youarebuildingwealthandareonyourwaytoreachingthePinnaclePoint,whereyoucanliveoff8percentofyourinvestments.

Ifyoufollowthissystem,itwillwork.It’sa“provenplan”—provennotjustby me but by tens of thousands of people who have worked the plan andcontinuetoworkit.Itisaplanthatwillworksowell,youaregoingtobecome

wealthyoverthenexttwentytofortyyearsifyoufollowthisplan.There’sadangerinthat,andit’swhatIwanttoaddressinthisfinalchapter.

KeyConcept#1

Don’tFallVictimto“Affluenza”Author Randy Alcorn says in The Treasure Principle that “Affluenza” is anailmentthatstrikesthosewhobegintoseekhappiness,solace,andfulfillmentintheir consumption of STUFF. They begin to place so much priority on theirmoneythattheyare“ruled”byitsmanagement.Theybecomejustasmuchruledby“stuff”—includinganinvestmentsportfolio—asapersonwhoisdebt-ridden.AsAntoineRivarolihassaid,“Therearemenwhogainfromtheirwealthonlythefearoflosingit.”

Youmayhaveassumedsomewherealongthelineindoingtheexercisesinthisworkbook that Ibelievewealthand“stuff” tobe theanswer tohappiness,emotionalwell-being,andspiritualmaturity.Ifthatisyourconclusion,youarewrong.Iknowthatisn’tthecase.Tothecontrary,Iseearealspiritualdangerinhavinggreatwealth.Thedangerisold-fashionedmaterialism.

Materialismistheconceptattheheartofthebumperstickerthatproclaims,“Hewhodieswiththemosttoyswins.”Ilikethenewbumperstickerthatsays,“Hewhodieswiththemosttoysisstilldead.”Stuffiswonderful.Ihopeyougetsomegoodstuff inyour life toenjoyandgiveaway.But I stronglyencourageyou:don’tletthepursuitofwealthbecomeyourgod.

Mywife,Sharon,andIareconcernedthatourwealthbeablessingandnotacursetoourchildren.Wearetoughonourkidsregardingwork,saving,giving,andspending.Weexpectalotfromthemandhavesincetheywereveryyoung.I’m proud of the character of our children. They aren’t perfect, but they aredoingwell. The same is true for us as their parents. True character regardingmoneyisknowingthatwealthisnottheanswertolife’squestions.Wealthbearsgreatresponsibility.

WhatAboutYou?Whatcharacterissuesdoyouassociatewithwealth?

Exercise#74LastingCharacter

What character qualities doyoubelieve to be important; stated anotherway, what character qualities do youwant to develop in your life andneverlose?Writeoutthosecharacterqualitieshere:

[YourNotes] [YourNotes]

What do you believe to be the character qualities you would NEVERexchangeforwealth?

Discussthesetraitswithyourspouseandothermembersofyourfamily.

Nameseveralthingsyouandyourspousebelieveyoucanandmustdotoinstillthesecharactertraitsinyourchildren:

[YourNotes]

KeyConcept#2RealizeWealthWillMakeYouMoreofWhatYouAreAparadoxofwealthisthatitmakesyoumoreofwhatyouare.Letthatsoakinforamoment.Ifyouareajerkandyoubecomewealthy,youwillbecomekingof the jerks. If you are generous and you become wealthy, you will be mostgenerous! If you are kind, your wealth will allow you to express kindness inimmeasurableways.Ifyoufeelguilty,wealthensuresyouwillfeelexceedinglyguiltyfortherestofyourlife.

Ifyouaregreedy,wealthwillmakeyouamiserytoeverybodyaroundyou.AsaChristian,Iamamazedathowmanypeoplethinkmoneyistherootof

allevil.That isn’twhat theNewTestament teaches. It teaches that the loveofmoney,notmoneyitself, is therootofallevil.(Ifyouquestionmeonthis,goread1Timothy6:10inyourBible.)Whenpeoplebegintolovemoney,terriblethingshappenintheirsoul.

ManyofthegreatheroesoftheBibleanddownthroughworldhistoryhave

beenpeopleofwealth.Abraham,KingDavid,Solomon, Job, andmost of ournation’sFoundingFatherswerewealthy.ThewomanconsideredtobetheidealwomaninProverbs31wasawomanwhoknewhowtoturnaprofitandmanagehermoneywell.

Wealth is not evil. People who are wealthy aren’t evil by virtue of theirwealth.There are rich jerks and poor jerks . . . evil rich people and evil poorpeople . . .spirituallywholerichpeopleandspirituallywholepoorpeople . . .therearebothpoorandrichpeoplewhoareobsessedwithmoneyandhavenothoughtofGod . . . and therearebothpoorand richpeoplewhoareobsessedwithobeyingGodandgivelittlethoughttohowmuchtheirportfoliosareworthonanygivenday.

WhatAboutYou?Moneycausesapersontolookinthemirror.Itrustthatwhenyoudo,youtrulylikethepersonyousee.

Exercise#75DangerSignals

Inthepreviousexercise,younotedthequalitiesyouwanttodevelopinyourlifeandinyourchildren.Nowgetreallyhonestwithyourself.

What do you see as the potential dangers of your having greatwealth?Whatistheforemostwayyoubelievewealthmightbedamagingtoyourcharacter,your reputation,your integrity,oryour relationships?Whatisityoubelieveyoumayhaveto“guardagainst”?

[YourNotes]

Exercise#76ThoughtstoPonder

Completeasmanyof thesentencesbelowaspossiblebeforeconsultingtheWordPool.Andthenponderthesetruths!

1. AccordingtoDallasWillardinSpiritoftheDisciplines,to[YourNotes]richesistocausethemtobeconsumed.

2. AccordingtoWillard’sbookSpiritoftheDisciplines,to[YourNotes]inrichesistocountonthemforthingstheycannotprovide.

3. AccordingtoWillard’sbookSpiritoftheDisciplines,to[YourNotes]richesistohavetherighttosayhowtheywillorwillnotbeused.

4. IfyouareaChristian,itisyourspiritualdutytopossesrichessoyoucandowiththemthingsthatbringgloryto[YourNotes].

5. Ifwealthisspirituallybad,then[YourNotes]peoplecan’thaveitandonlybadpeoplegetit.

6. Itisthe[YourNotes]ofgoodpeopletokeepwealthfrombadpeople.

7. Wealthisnotthe[YourNotes]tolife’squestions.8. IfyouareaChristian,itisyourspiritualdutytopossessrichesfor

thegoodof[YourNotes].

SimpleQ&AQ: According to the AmericanBankruptcy Institute, nearly every yearfor the past twenty years, [Your Notes]percent of the bankruptcies filed eachyearhavebeenpersonalbankruptcies.

A:971

9. Perhapstheforemostproblemofhavingmoneyisthetendencyto[YourNotes]moneyandto[YourNotes]itasagod.

10. IfyoufollowtheprinciplespresentedinTheTotalMoneyMakeover,youwilleithermakeyourlifeoverorendupmiserable—itisthe[YourNotes]aspectofyourlifethatisthevitallyimportantaspect.

WordPool

God•mankind•answer•worship•dutyuse•spiritual•possess•love•trust•good

Answers:1. use2. trust3. possess4. God5. good6. duty7. answer8. mankind9. love;worship10. spiritual

Iencourageyoutogobackandreadaloudeachoftheabovestatementswiththecorrectwordsintheblanks,andthensayahearty,“Amen!”

AbouttheAuthor

America’s trusted voice on money and business, Dave Ramsey is a personalmoney-management expert and extremely popular national radio personality.His company, Ramsey Solutions, offers a message of hope, through variousmeans,toanyonewhowantstobetterunderstandtheprinciplesofpropermoneymanagement.Ramseyhasauthoredsevenbestsellingbooks.TheDaveRamseyShow is heardbymore than13million listeners eachweekonmore than585radiostationsanddigitallythroughpodcasts,onlineaudiostreaming,anda24-houronlinestreamingvideochannel.

Notes

CHAPTER1:THETOTALMONEYMAKEOVERCHALLENGE1. “43%ofAmericansFindItDifficulttoBeHealthyasPartofaModern

Lifestyle,”Mintel,January27,2016,http://www.mintel.com/press-centre/social-and-lifestyle/43-of-americans-find-it-difficult-to-be-healthy-as-part-of-a-modern-lifestyle.

2. MatthewFrankel,“TheAverageAmerican’sCreditCardDebtMayShockYou,”TheMotleyFool,contentpartnerwithUSAToday,October12,2016,https://www.usatoday.com/story/money/personalfinance/2016/10/12/average-credit-card-debt/91431058/.

CHAPTER2:I’MNOTTHATOUTOFSHAPE1. JimForsyth,“LivingPaychecktoPaycheck:Two-ThirdsofAmericansAre

StrugglingtoGetBy,”HuffingtonPost,September20,2012,http://www.huffingtonpost.com/2012/09/20/living-paycheck-to-paycheck_n_1899685.html.

2. KatherinePorter,“BankruptProfits:TheCreditIndustry’sBusinessModelforPost-BankruptcyLending,”IowaLawReview94(2008),27,PDFavailableatSSRN:https://ssrn.com/abstract=1004276orhttp://dx.doi.org/10.2139/ssrn.1004276.PagenumberreferstoPDF.

3. Basedonthedataobservedinthepastdecade,wecanprojectthatthetrendinthelivesofmostAmericansistowardgreaterdebtinthenextfiveyears.DatafromErinElIssa,“2016AmericanHouseholdCreditCardDebtStudy,”NerdWallet,accessedJuly11,2017,https://www.nerdwallet.com/blog/average-credit-card-debt-household/.

CHAPTER3:DEBTIS(NOT)ATOOL1. Thiswasdemonstrablythecaseintheearlynineties:“Sears’sagingstores

andbelovedbutoutdatedcataloguewereperformingsoweaklythattheretailerwasgettingnearlyallofitsprofitsfromthefinancechargespaidbyits38millioncredit-cardcustomers,”fromBarnabyJ.Feder,“TheHarder

SideofSears,”NewYorkTimes,July20,1997,http://www.nytimes.com/1997/07/20/business/the-harder-side-of-sears.html.Penney’sSECfilinginMarch2017statesthatJCPenneyreceived$347millioninincomefromtheircreditcardprograms.“SG&AExpenses,”JCPenneyCo.SECFilingForm10-K,JCPenney.com,filedMarch24,2017,31,accessedathttp://ir.jcpenney.com/mobile.view?c=70528&v=202&d=3&id=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTExNDg5NzgwJkRTRVE9MSZTRVE9JlNRREVTQz1TRUNUSU9OX0JPRFkmZXhwPSZzdWJzaWQ9NTc%3d#s6F7B5DF590035F0AAF2A825200680AE8.

2. JCPenneyCo.SECFilingForm10-K,31.3. “SelectedFinancialData,”FordMotorCompanySECFilingForm10-K,

fortheyearendedDecember31,2015,26,accessedathttps://www.sec.gov/Archives/edgar/data/37996/000003799616000092/f1231201510-k.htm#sA337D56F9E645B8C3DAF0B0740C31E4B.

4. BethanyMcLean,“PaydayLending:WillAnythingBetterReplaceIt?,”Atlantic,May2016,https://www.theatlantic.com/magazine/archive/2016/05/payday-lending/476403/.

5. CarmenChai,“6DebtConsolidationTrapstoAvoid,”Money,Time,June3,2015,http://time.com/money/3906508/debt-consolidation-traps/.

6. “AutoLoanstoSubprimeConsumersDroppedtoRecordLowsinQ3,”Experian,December5,2016,https://www.experianplc.com/media/news/2016/auto-loans-to-subprime-consumer-dropped-to-record-lows-in-q3/.

7. PhilLeBeau,“NewCar,NewReality:AutoLoanBorrowingHitsFreshHighs,”CNBC.com,June2,2016,http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-and-for-longer-on-their-auto-loans.html.

8. “ProsandConsofLeasingaCar,”ConsumerReports,October2014,http://www.consumerreports.org/cro/2012/12/pros-and-cons-of-leasing/index.htm;PhilipReed,“LeasingorBuyingaCar:WhichCostsMore?,”NerdWallet,May12,2016,https://www.nerdwallet.com/blog/loans/leasing-buying-costs/.

9. CateyHill,“CarSalesmenAren’tasSleazyasYouThink,”MarketWatch,July8,2014,http://www.marketwatch.com/story/car-salesmen-arent-as-sleazy-as-you-think-2014–07–08.

10. PhilipReed,“WhereDoestheCarDealerMakeMoney?,”Edmunds,December3,2013,https://www.edmunds.com/car-buying/where-does-the-car-dealer-make-money.html.

11. ClarkHoward,“ShouldYouEverLeaseaCar?,”Clark.com,May1,2016,

http://clark.com/cars/car-leasing-back-does-it-make-sense-you/.12. “Q:WhatIsCarDepreciation?”KelleyBlueBook,December17,2013,

https://www.kbb.com/what-is/car-depreciation/.13. EthanWolff-Mann,“TheAverageAmericanIsinCreditCardDebt,No

MattertheEconomy,”Money,Time,February9,2016,http://time.com/money/4213757/average-american-credit-card-debt/.

14. DrazenPrelecandDuncanSimester,“AlwaysLeaveHomeWithoutIt:AFurtherInvestigationoftheCredit-CardEffectonWillingnesstoPay,”MarketingLetters12no.1(February2001),5–12.

15. PeterGreenberg,“Use’EmorLose’Em:Frequent-FlierAirlineMiles,”TODAY.com,February13,2008,http://www.today.com/news/use-em-or-lose-em-frequent-flier-airline-miles-wbna23137092.

16. AlinaComoreanu,“MarketSharebyCreditCardNetwork,”NerdWallet,March7,2017,https://wallethub.com/edu/market-share-by-credit-card-network/25531/.

CHAPTER4:THE(NON)SECRETSOFTHERICH1. MichaelCorkeryandJessicaSilver-Greenberg,“ProfitsfromStore-Branded

CreditCardsHideDepthofRetailers’Troubles,”NewYorkTimes,May11,2017,https://www.nytimes.com/2017/05/11/business/dealbook/retailer-credit-cards-macys-losses.html.

2. DanMangan,“MedicalBillsAretheBiggestCauseofUSBankruptcies:Study,”CNBC,June25,2013,http://www.cnbc.com/id/100840148;“Under#ACA,MedicalBankruptcyContinues,”AmericanJournalofMedicine(blog),January12,2016,http://amjmed.org/under-aca-medical-bankruptcy-continues/.

3. MarkP.Cussen,“Top5ReasonsWhyPeopleGoBankrupt,”Investopedia,March19,2010,http://www.investopedia.com/financial-edge/0310/top-5-reasons-people-go-bankrupt.aspx.

4. JeffReeves,“PlanAhead:64%ofAmericansDon’tHaveaWill,”USAToday,July11,2015,https://www.usatoday.com/story/money/personalfinance/2015/07/11/estate-plan-will/71270548/.

CHAPTER5:IGNORANCEANDKEEPINGUPWITHTHEJONESES1. “WhenIsEnough...Enough?WhytheWealthyCan’tGetOffthe

Treadmill,”UBSInvestorWatch,2015,

https://www.ubs.com/microsites/ubs-investor-watch/en/still-striving.html#sectionheader-sectionheader_0.

2. JessicaDickler,“AmericanExpressOfferedaCreditCardtoMy3-Year-Old,”CNNMoney,January13,2011,http://money.cnn.com/2011/01/13/pf/credit_cards_for_kids/index.htm.

CHAPTER6:WALKBEFOREYOURUN1. “2016U.S.ConsumerPaymentStudy,”TSYS,2016,

http://tsys.com/Assets/TSYS/downloads/rs_2016-us-consumer-payment-study.pdf.

2. “TheRoleofEmergencySavingsinFamilyFinancialSecurity:HowDoFamiliesCopewithFinancialShocks,”PewCharitableTrusts,October2015,3–4,www.pewtrusts.org/~/media/assets/2015/10/emergency-savings-report-1_artfinal.pdf.

CHAPTER7:LOSEWEIGHTFAST,REALLY1. JimForsyth,“LivingPaychecktoPaycheck:Two-ThirdsofAmericansAre

StrugglingtoGetBy,”HuffingtonPost,September20,2012,http://www.huffingtonpost.com/2012/09/20/living-paycheck-to-paycheck_n_1899685.html.

CHAPTER8:KICKMURPHYOUT1. “HalfofAmericansCouldLastJustOneMonthWithoutIncome,”CountryFinancial,July21,2009,https://www.countryfinancial.com/en/about-us/newsroom/year2009/half-of-americans-could-last-just-one-month-without-income.html.

2. “AdvertisingSpendingofSelectedCreditCardIssuersintheUnitedStatesin2016(inMillionU.S.Dollars),”Statista,accessedJuly18,2017,https://www.statista.com/statistics/308842/ad-spend-credit-card-issuers-usa/.

CHAPTER9:BEFINANCIALLYHEALTHYFORLIFE1. ChristineDugas,“HealthCareCostsRisingforRetirees,butManyAren’t

Preparing,”USAToday,May10,2012.2. “EducatePubliconSaving,”Opinion,DailyHerald,Chicago,Illinois,

October31,1999.3. “17thAnnualTransamericaRetirementSurvey,”TransAmericaCenterfor

RetirementStudies,December2016,10,https://www.transamericacenter.org/docs/default-source/retirement-survey-of-workers/tcrs2016_sr_retirement_survey_of_workers_compendium.pdf.

4. CameronHuddleston,“69%ofAmericansHaveLessThan$1,000inSavings,”GoBankingRates.com,September19,2016,https://www.gobankingrates.com/personalfinance/data-americans-savings/.

5. “IsWorkinginRetirementtheNewNormal?,”USAToday,May7,2015,https://www.usatoday.com/story/opinion/2015/05/06/traditional-retirement-work-jobs-your-say/70910532/.

6. ElyssaKirkham,“1in3AmericansHasSaved$0forRetirement,”Money,Time,March14,2016,http://time.com/money/4258451/retirement-savings-survey/.

7. RomeNeal,“SeniorsPilingOnMoreDebt,”CBSNews,December10,2002,http://www.cbsnews.com/news/seniors-piling-on-more-debt/.

8. JoyceMaroney,“82MillionUSWorkersHaveExperiencedPaycheckErrors,”WorkforceInstitute,March27,2017,http://www.workforceinstitute.org/blog/82-million-us-workers-experienced-paycheck-errors/.

9. “Nonretirees:WillSocialSecurityPayYouaBenefit?”(chart)inFrank

Newport,“ManyAmericansDoubtTheyWillGetSocialSecurityBenefits,”Gallup,August13,2015,http://www.gallup.com/poll/184580/americans-doubt-social-security-benefits.aspx?g_source=expect+to+get+social+security&g_medium=search&g_campaign=tiles;WillDahlgreen,“YouAreNotAlone:MostPeopleBelieveThatAliensExist,”YouGov,September28,2015,https://today.yougov.com/news/2015/09/28/you-are-not-alone-most-people-believe-aliens-exist/.

CHAPTER10:MAKESURETHEKIDSAREFITTOO1. JoshMitchell,“StudentDebtIsAbouttoSetAnotherRecord,butthe

PictureIsn’tAllBad,”RealTimeEconomics(blog),WallStreetJournal,May2,2016,http://blogs.wsj.com/economics/2016/05/02/student-debt-is-about-to-set-another-record-but-the-picture-isnt-all-bad/.

2. “2010ParentsSurvey”bytheCollegeSavingsFoundationcitedinBarryLenson,“PushComestoShove:MoreAmericanParentsWouldLikeUncleSamtoRegulateCollegeCosts,”Straighterline(blog),August17,2011,http://www.straighterline.com/blog/push-comes-to-shove-more-american-parents-would-like-uncle-sam-to-regulate-college-costs/.

3. “CollegeSavingsFoundation’sNinthAnnualSurvey:ParentsMotivatedtoSave,”CollegeSavingsFoundation,August4,2015,4,http://www.collegesavingsfoundation.org/wp-content/uploads/2015/11/CSFExecSummaryParents2015–20161.pdf.

4. Ibid.5. AsBabyLifeinsuranceisatypeofwhole-lifeinsurancepolicy,theaverage

annualrateofreturnisbetween1.5and3.5percent,andthat’sbeforebringinginflationintothepicture!“IsWholeLifeInsuranceRightforYou?,”ConsumerReports,April6,2015,http://www.consumerreports.org/cro/news/2015/04/is-whole-life-insurance-right-for-you/index.htm.

6. JimProbasco,“U.S.SavingsBonds:BestLongTermInvestmentAvailable?,”Investopedia,October13,2016,http://www.investopedia.com/articles/investing/101316/u-s-savings-bonds-best-longterm-bond-investment-available.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186.

7. BarriSegal,“Here’sHowtheAverageSavingsAccountInterestRateComparestoYours,”GoBankingRates.com,March23,2017,

https://www.gobankingrates.com/savings-account/what-average-savings-account-interest-rate/;“HowMuchMoneyCanIMakeUsingMutualFunds?,”TheMotleyFool,accessedJuly22,2017,https://www.fool.com/knowledge-center/how-much-money-can-i-make-using-mutual-funds.aspx.

8. KathleenElkins,“Here’sHowMuchAmericansatEveryAgeHaveinTheirSavingsAccounts,”CNBC,October3,2016,http://www.cnbc.com/2016/10/03/how-much-americans-at-every-age-have-in-their-savings-accounts.html;AnnaRobaton,“Study:33%ofAmericansHaveNoFinancialPlan,”CNBC,April29,2015,https://www.cnbc.com/2015/04/29/one-third-of-americans-lack-a-future-financial-plan-study.html.;JimForsyth,“LivingPaychecktoPaycheck:Two-ThirdsofAmericansAreStrugglingtoGetBy,”HuffingtonPost,September20,2012http://www.huffingtonpost.com/2012/09/20/living-paycheck-to-paycheck_n_1899685.html.

CHAPTER11:BEULTRAFIT1. KathleenElkins,“Here’sHowMuchAmericansatEveryAgeHaveinTheir

SavingsAccounts,”CNBC,October3,2016,http://www.cnbc.com/2016/10/03/how-much-americans-at-every-age-have-in-their-savings-accounts.html;AnnaRobaton,“Study:33%ofAmericansHaveNoFinancialPlan,”CNBC,April29,2015;JimForsyth,“LivingPaychecktoPaycheck:Two-ThirdsOfAmericansAreStrugglingtoGetBy,”HuffingtonPost,September20,2012,http://www.huffingtonpost.com/2012/09/20/living-paycheck-to-paycheck_n_1899685.html.

2. “ConsumerCredit—G.19:ConsumerCreditOutstanding(Levels),”BoardofGovernorsoftheFederalReserveSystem,lastupdatedJuly10,2017,https://www.federalreserve.gov/releases/g19/hist/cc_hist_sa_levels.html.

3. IraCarnahan,“MortgageTricks,”Forbes,June9,2003,https://www.forbes.com/forbes/2003/0609/126.html.

CHAPTER12:ARNOLDSCHWARZEDOLLAR,MR.UNIVERSEOFMONEY1. “SeetheNumbers—GivingUSA2017Infographic,”GivingUSA,June12,

2017,https://givingusa.org/see-the-numbers-giving-usa-2017-infographic/.2. StephenFoley,“CreditCardProvidersFighttoStayTopofYourWallet,”FinancialTimes,December22,2016,https://www.ft.com/content/a7e29482-c5e2–11e6–8f29–9445cac8966f.

CHAPTER13:LIVELIKENOONEELSE1. “AnnualBusinessandNon-BusinessFilingsbyYear(1980–2016),”

AmericanBankruptcyInstitute,2017,accessedJuly25,2017,https://s3.amazonaws.com/abi-org/Newsroom/Bankruptcy_Statistics/Total-Business-Consumer1980-Present.pdf.