Financial Accountability

“Life was harder before I started!” I heard that quote the other day on a Dave Ramsey podcast. The speaker was someone there to do her debt free scream, and she was referencing her budget. Prior to following Dave’s Baby Steps and holding herself to financial accountability, her life was harder!

Financial Accountability

Taking Financial Accountability seriously makes cents!

How could that be? Before she sat down and created her budget, her family just spent their paycheck. Like most Americans, I’m sure they thought they were fine as long as they could pay their mortgage, car payment, credit card minimums and still pay the power bill and put food on the table, but they found themselves in debt and stressed out; they were managing their lives around their debt payments.

That’s certainly how I felt before we went on the Dave Ramsey Baby Step program!  The funny thing is that I didn’t even realize that I felt stressed out by our debt until I started to really make a plan to eliminate the debt!  I realized that up until the Keller family implemented a budget, we were really being managed by our debt payments.  I had no real idea where our money was going outside of those payments.

Every month, I would make our payments.  I would then spend the rest of the month constantly calculating how much money was left.  If it appeared that there would be a deficit, I would move money over from savings.  I felt as though I was constantly calculating, adjusting, and transferring money.  The budget stopped all of that.  It really was easier!  Now, I just update our Mint.com budget every couple of days and note how much wiggle room we still have in each category!

Now, we’re reached most of our goals and paid off everything except for the house!  BUT, that doesn’t mean that the budget is thrown out the window!  On the contrary, it’s just as important as ever.  Now, rather than pouring money into paying off cars, student loans, and zero percent credit cards, we’re pouring money into retirement accounts, savings, and college savings plans.  After sticking to the budget for a year, it’s natural for us to continue to stick to it!  Holding ourselves financially accountable has truly made life easier!

2015 Financial Review

Mr. Keller and I were talking about our 2015 financial review this morning. It was just a casual discussion as we prepared for our day, but it left me with a lot of emotions and questions. I realized that I needed to take a deeper dive!

2015 Financial ReviewThe quick discussion that we had was really empowering. I was left feeling very proud! We realized the amazing progress we had made in just the last twelve months: student loans, 0% credit cards, and car loans were all paid off! We were left with just our mortgage! In addition to that, we are now regularly funding our children’s college education funds, we started IRAs, and we increased our investment in my 401k. Those are some results!  As Dave Ramsey, would put it, we went from being normal consumers to being Weird!

As I thought more about it, I went from feeling really proud to just being a mixed bag of emotions!  I was still proud, but I was also feeling cautious as I wanted to run the numbers to double check everything.  Additionally, I felt challenged to do more!

First, I pulled up all of our bank accounts and ran the numbers.  We did, indeed, pay off about $60,000 in debt over the past twelve months.  Nearly half of that was an auto loan that we paid off by selling my super nice but excessive GMC Yukon.  We then paid for a Honda Accord, half with cash, and half with a loan, but we paid off that loan just a couple of months later with my bonus.  At this point, we were taking the Dave Ramsey Financial Peace University class, and Dave’s teachings about getting rid of all debt really started to sink in!  I took the money out of savings to pay off my student loans and 0% credit card balances!  Before, we had just been making monthly payments on those items because their interest rates were low.  It seemed silly to pay them off when we could afford the monthly payments and pay interest that was less than the typical inflation rate; however, I decided to give Dave Ramsey’s zero debt thing a try.  After all, he’s a successful guy, and we didn’t seem to be making much progress on our own.

I am sooo glad that we finally paid off those debts!  It’s so freeing to only have a monthly debt payment related to our mortgage!  Plus, by removing those monthly payments, we had the cash flow each month to finally set up 529 plans for our children!

Those things are well and good, but I also wondered if our savings had actually increased.  We had put all of this money towards debt re-payment, and much of it had come out of savings.  What was the impact of that?

We actually increased our savings by nearly $43,000!  I had increased my 401k contribution mid-year, and that helped tremendously!  We also opened IRA accounts.  Even better, part of how we reached that $43,000 number was that we were consciously putting money each month into our savings account.  We really have a lot to be proud of in 2015!

I think I’ll probably ruminate on this financial review a little bit longer.  There are lessons here that we can take into 2016 that will help us save more! Once I get those strategies down, I’ll write another post for you!  I’m hoping that by posting the Keller family’s financials, anyone who reads this will feel motivated to improve their financials, too.  Maybe rather than competing among ourselves for the best possessions, we can compete for the highest savings rates!

Saving vs. Not Spending

Kohl’s, Target, Krogers, and even IGA like to tell you on the bottom of your receipt how much money you “saved” by shopping with them.  I had no idea they could peek into my savings account!  Wait…they can’t.  So did I really save anything?  Probably not.

Saving Money vs. Spending LessUnless I missed something, when I purchase something, money leaves my pockets.  I do not believe that I have ever truly been paid to shop (credit card points and store rewards aside).  So no matter how much I “saved” according to stores like Kohl’s, I actually just traded in my hard working and hard earned green employees for something disposable, and my account balance at the bank got a little bit smaller.  I certainly did not “save” any money.  I may have spent less than planned, but then again, maybe I didn’t.  I often find myself thinking, “look!  the shoes that I needed for work are on sale!  I can afford to buy those really cute boots, too!”  So, I went from “saving” money to actually buying a little bit more.  For those of you who are disciplined enough to purchase only with the on sale shoes that you went in to purchase, did you put the funds that you “saved” in your bank account?  Or did they just kind of disappear?

Even with my goal of not shopping (still going strong by the way!), last month I did not see the savings from that goal hit my savings account.  I forgot one vital step:  I didn’t move the money in my budget from the shopping line to the savings line.  Consequently, those funds never made it to my savings account.  I suppose a few of those green employees are floating around in my checking account, but I noticed that we over spent on groceries last month.  We covered the overage by not spending my shopping money.  I strongly suspect that if I had moved the money I normally have budgeted for shopping into our savings account, we would have stayed on budget for groceries.  Lesson learned:  put green employees in savings at the beginning of the month.  Then, they might stay put and actually go to work earning me more little green employees!

This is one area where I actually disagree with Dave Ramsey.  His position is that if you completed the zero based budget, and it’s in your budget, go ahead and spend the money.  In fact, one of the stories he likes to tell is that a lady came up to him and thanked him because she no longer felt guilty for buying something for herself as it was in the budget.  I would argue that she should feel guilty if she didn’t need it and it didn’t make her life better/easier in a significant way.  Every time I open my closet, I think about how blessed I am to have so many clothes, and I feel the same way when I open my children’s closets, the pantry, or even the storage room where I keep our lesser used kitchen items.  We have so much stuff!  Additionally, Dave Ramsey’s position would be that if something is on sale, you just freed up a little bit more room in your budget to add more items.  The Keller Family’s (newly updated) position on this is that when our budget benefits from a sale, there is now more money to go into savings.

My updated no shopping challenge:  continue to refrain from buying myself clothes and accessories and put those savings into our savings account.  Not spending money on something is not the same as actually saving money. Whenever I realize that the Keller family has refrained from spending on something that we normally would have, I will move those funds into savings.  Then, and only then, will the Keller Family have actually saved.

High Earning Poor People

Turns out that America is bursting with high earning poor people.  How can this be, you might ask, or perhaps you simply have to look in the mirror to understand.  It turns out that a growing segment of the U.S. population is income rich but asset poor, according to data from the Federal Reserve’s Survey of Consumer Finances.  For details, you can view the charts here.

High earning poor peopleThe data shows that since 1995 Americans’ financial assets excluding retirement accounts have steadily declined.  In fact, today the average upper-middle class household has only $12,200 in non-pension financial wealth.  That’s not much of an emergency fund!  Even more disturbing is that about 25% of that same population only had $3,200 in non-pension wealth.  Some of America’s highest earners are living paycheck to paycheck!

In fact, not only are many of America’s highest earners living paycheck to paycheck, they are more leveraged than ever before, too!  The leverage ratio (debt/assets) has steadily increased for since the 1990s with this ratio only showing dips during 2000, 2007, and 2012.  Of course, today’s low interest rates combined with an ever increasing amount of student loans being issued means that there is very little end in sight for this trend.

Most of America’s highest earners are chained to their jobs.  As Dave Ramsey often says they are trying to “out earn their stupidity,” and they’re going to find that it almost never works.  Without an emergency fund, these people are asking for some bad luck to knock them on their arses.  It could be an unexpected medical emergency, a car accident, an unexpected lay off, or a leaky roof, but it could happen to anyone.

Mr. Keller and I have found that following Dave Ramsey’s baby steps has helped us to create personal wealth and grow our emergency fund.  The only modifications that we have made to the Baby Steps is that we continued to invest in my 401(k) at work as it seemed ludicrous to pass up the company match.  You can learn more about the Baby Steps by following this link.  I’ll admit that I thought the Baby Steps were silly and out of order.  I thought Dave Ramsey was wrong to suggest the debt snowball system rather than paying off debt by order of highest interest rate.  What Dave was taking into account was personal psychology, and, honestly, after giving it some thought I have to admit that he’s right.  His Baby Steps are much more successful than most people’s get out of debt plans.  The Baby Steps allow you to build momentum which can in turn lead to a higher likelihood of success

Living pay check to pay check is a rotten cycle to get into.  It happens to a lot of us, and it can seem impossible to escape, but it’s not.  As the Federal Reserve Data shows, many who are high earning poor people have reached that status because of debt.  They have saddled their future selves with debt because they wanted that bigger house, nicer car, better TV, etc.  We all need to quit being normal as Dave Ramsey would say, and start plugging away at those debts and building those emergency funds!