Financial Peace Revisited By Dave Ramsey Part 2
Every week here at Ask Mr. Credit Card.com I review a personal finance book. This week I continue the review of “Financial Peace Revisited” by Dave Ramsey. If you missed last week’s review, you can read it here.
Chapter Three: The Basics (a Foundation)
Ramsey begins this chapter with a reflection:
As a culture we are ignorant of what money is and how to handle it. Ignorance is not lack of intelligence; it is lack of knowledge on a particular subject.
If I were put in a chemistry lab, I would probably blow up something. But I am not unintelligent. I am ignorant of Chemistry.
It is almost impossible to get out of high school today without knowing what an amoeba is – now there is a really valuable piece of information – but few high school seniors can keep a checkbook balanced.
They are taught virtually nothing about the real world of money. I am not talking about Wall Street. I am talking about money on your street.
We are not taught basic principles of managing and making financial decisions for our own family.
I do agree with his conclusions here. Not everyone is taught how to manage money. The schools do not teach money management because it is the parent’s job to teach it.
After my bankruptcy I swore to myself that I would teach my kids how to manage money. If I don’t teach them, then life will. I didn’t learn my lesson until I hit bankruptcy. I’d like my kids to learn it a lot earlier than that.
Ramsey goes on to discuss the consequences of a lack of financial intelligence.
We come out of high school or even college and set up housekeeping. We don’t have knowledge of leases, but we sign one.
We don’t have knowledge of cars and car financing, but we one and sign the loan papers. We don’t have knowledge of the implications of credit cards and high interest rates, but we get five pre-approved cards in the first two years out of school and we use them.
We don’t know about the Rule of 78s or prepayment penalties, so we finance our waterbeds, stereos, TV’s, washers and dryers. It was all so innocent and happened so slowly that the monster in the closet was not noticeable.
Well, I’d say the situation has definitely gone from an unseen “monster in the closet” to an elephant in the room. The credit crunch is definitely on.
It’s become so normal to now and pay later that many, many people are in trouble. I know, I did it too. I even carried a balance on my new credit cards for a while after my bankruptcy. Something that I know now is the last thing in the world I should have done, (or ever do) financially.
Ramsey’s right, it really is education. Once I learned what compound interest was, and how long it really takes me to pay off a credit card, well, impulse spending was a lot less attractive.
I (slowly) learned that how well I managed my money was directly affected my my degree of financial education. The more I learn, the more money I have and the easier it is to hang on to it. It really does matter.
Money Is Active
I have found that money has two properties that most people don’t acknowledge or understand.
First, Money is active. Finance and money are always moving. Time, interest rates, amounts, cash flows, inflation, and risk all intermingle to create a current that is ever flowing.
Whether you choose to impact the current is irrelevant, they still go on.
If you took $10,000 and buried it in the back yard for ten years, will it as much when you dig it up as it does now? Obviously not. We must learn that the current or flow of the mathematical process is always effecting our money. It never stops.
Money in this sense is like a beautiful thoroughbred horse – very powerful and always in action, but unless this horse is trained when very young, it will be an out of control and dangerous animal when it grows to maturity.
The point is this: You must gain control over your money or the lack of it will forever control you.
If you don’t take action continually on your money, it, or the lack of it will take action on you. Finance is not passive, it requires you to take the imitative to control it.
In his popular book, The Seven Habits of Highly Effective People, Dr. Stephen Covey says the number-one habit of highly effective people is that they are “pro-active”. They “happen” to things, things don’t happen to them.
That is extraordinary advice, isn’t it? To stop letting life pass us by? To gain control of our situations, whatever they are, and be pro=active about them.
Money Is Amoral – No Morals
Second, money is amoral. Money has no morals. That is, it is neiter good nor bad. First Timothy 6:10 does not say, “Money is the root of all evil.” What is does say is, “The love of money is the root of all evil.”
Money in and of itself has no more moral quality than a brick. So just because you are poor does not mean that you are good, or spiritually superior; neither does it mean that you are bad or spiritually inferior.
You decide what you are. The way you act through your money or your lack of it, will show us whether you are good or evil, but the money itself is neither.
Well, I do suppose a look at our bank statements would say a whole lot about our priorities in life. One of the things that I had to do when I continually found that I was poor, was to take a hard look at what my priorities were.
Blowing money left and right indicates a skewed sense of the world and a total disregard for the future. Once I sat down and thought about my real priorities (having money in savings, investing for the future, being able to retire one day, etc.) my spending habits changed drastically.
I think Ramsey is hitting the important points here. People that manage their money well were either taught how to do it, or they sought out the knowledge on their own.
Growing your wealth and managing your family’s finances is a learning experience, not an innate ability. One thing that I do like about Financial Peace is that it does start with the common-sense beginnings of money management. I don’t feel stupid reading them, It feels a bit like talking to an older, wiser relative. He has a comfortable and congenial style.
Please come back for a visit next week when I review the next chapter of Financial Peace. If you’ve read it, and it made a difference to you, please leave a comment below.
I’d also like to send out a big thank you to the carnivals that featured our article this week:
- The Carnival of Personal Finance @ Stock Trading To Go
- Carnival of Financial Planning – March 14 2009 Edition @ The Skilled Investor’s Blog
- “How to administer your money” carnival – 03/14/2009 @ Dayamn
- The Money Hacks Carnival Thank You Edition @ Money Ning
- CoTV part whatever… @ Dodgeblogium
- March 14 Carnival of Economic Stories @ Ways to Survive Life
