act2create: The Total Money Makeover by Dave Ramsey

Today, I will be sharing an important book on Financial fitness. Irrespective of whichever country you may be living in, this book will make total sense to you. If you apply the principles outlined in this book, it will change and surely improve your financial life and your concern on the big question “MONEY“. How do I know? This book has sold 300 million copies worldwide and I have followed the principles outlined which work.

act2create - total-money-makeover
act2create – total-money-makeover

We all go through school, college and education to find a well paying job, profession or a business. Once we begin to earn, we see and feel money which was not available to us earlier while we were a student. When the money is available, our spending increases and our desires have no bounds. Apple Inc. releases the newest phone in the market and the thought that comes to the mind is to be the first one to grab it. We party in costly restaurants, buy the fancy clothes and shoes out of the money which we have earned. Once the money is no longer available, we have the option of credit cards and doom, you are now in debt. While you may be submerged in small debt, your habits do not change and over a period of time the small debt has compounded to a big one. Now there is more month than money in your pocket.

By the time you are living your life and working, marriage approaches and now you need a house. A new one basically. You now have a credit card loan, a home loan and a family to feed. So there is still more month than money. Once you are 40, you see that you haven’t saved much and now you wish to address that problem as well. So now there is a question about Retirement and saving enough for future. Fast forward 20 years and you are retired but you have less money and you are more worried. Post your retirement, you seem to be short of money and you are now looking for ways to earn money or you decide to rely on your kids. BUT will they help? If not then what will you do?

If the above story seems similar to you even in the slightest case then it is time to wake up. This book has step by step guidance on how to build your financial health. It is not about any shortcut but all about a proven plan for financial fitness. Once you follow the steps in this book, you will yourself see the difference and sleep peacefully. I found this book when I read about the description on one of the blog’s. I immediately rushed to see the reviews and there were all praises. I ordered the original book which was shipped to me from USA after spending a small fortune and I have been following it religiously. The money I have spent on this book has been worth it and I would highly recommend you to apply the principles as well. I have already shared in my earlier post why I hated credit cards (link). That was one of the step which I followed from this book. It has been more than 4 years and I do not have a single credit card today. All thanks to this book.

Conclusion: This book is highly recommended for your financial fitness. There are seven steps mentioned in this book and each step requires time ranging from 3 months to 2 years. I am still at step number 4 since I began about 3 years ago but I am less concerned today than I was earlier. This book should be made a part of school/college syllabus. 

act2create: Why you should stay away from credit cards. Financial Fitness Part 2

What if I were to tell you to stop using your toothbrush and toothpaste right away. I am sure that the thought of a stinking mouth and germ buildup in your teeth would be the immediate cause of concern. Neither would you take my advice of sacrificing the toothbrush nor the paste.

In the early 3500 BC, chew sticks served the purpose of cleaning the teeth. It could clean your teeth and people lived with the solution for years until the industrial revolution struck and toothbrushes were manufactured which proved to the people that it was the best alternative to your oral problems. Before the modern day toothbrushes, a solution existed to the people’s oral problems. Somebody sold the oral care products citing them as the necessity of the modern day life by showing added advantages of ease and improvement in technology.

The credit card is one such product which has been sold to you like many other products. If I were to ask you for an amount say, 50000 as a loan but I would never disclose the reason for why I was asking it from you then would you lend me the money? In case I gave a reply that I needed the money for fun, costly gadgets, restaurants, shopping and anything luxurious then would you still give the money to me? Not unless you trusted me blindly. Unless you were pretty sure that I would repay you the money with interest then we could possibly reach an agreement.

The cunning institutions who issue them to the people have understood the human psychology. Lets admit, we all look forward to money beyond our necessities to fulfill our desires. For our desires, we are mostly short of money. You browse through that famous online shopping site and see a beautiful binoculars. It is black, shiny and you think its priced fairly. You see that it is being sold exclusively by one seller on the shopping portal and there are only 10 units left. You do not have the money right now but you do not want to miss the deal. You are short of money…grrrr…..Your mind starts to look for ways and then you realize that a solution exists! The “Credit Card“. You already have outstanding amount on your credit card payments but you say to yourself, “I can manage it!” Like earlier, you say to yourself that its the last time and yippeeeee….you purchased those shiny binoculars which are lying in your cupboard within two days of purchase. A month later you don’t remember where you kept it but the credit card bill does not let you to forget what you had purchased 🙂

While you can argue with me that a credit card need not necessarily mean using for luxury and it can be useful for emergency situations as well but there is a better solution. Its called handy CASH.

In the words of the financial planners, this is called as a small emergency fund. If you wish to improve your financial condition then follow with me. I had last used my credit card in 2012 and never needed any since then. I am sure you may still disagree with me on this point but trust me that a better solution does exist.

small emergency fund = a fund small yet powerful enough to fund your critical emergency expenses.

An amount equivalent to $1000 or 50000 INR or even more qualifies to be a small emergency fund. Keep this money in a savings bank account but keep the debit card at home and not in your wallet. You can also keep it  in an envelope at your home which is not easily accessible to you. This is not a savings fund for which you should worry about earning interest. It is a fund created by you to dissolve the tension of an urgent money.

An emergency means a real emergency. A new iPhone, gadget or a google glass does not qualify to be named as an emergency. Before spending this amount, just breathe and stay calm to answer this question “Is it being spent for a valid emergency purpose?”. If the answer is NO then its time to hold yourself back and if YES then you were smart enough to plan for this day.

Anytime this money is spent, you should immediately refill the amount. Instead of a credit card, it can give you the peace of mind and a good sleep which the credit card cannot. I created the small emergency fund in 2012 and in June 2014 I utilized a small portion of it when the real emergency came my way. At that moment in June 2014, I was not thinking about how can I borrow the money as I was well prepared and well educated to solve a situation which can possibly also come your way anytime.

Let me tell you what I did with my credit cards once I created the emergency fund back in 2012. This is the actual photo which I shot back in 2012:

credit-cards-cut

act2create: Beginning with Financial fitness simultaneously: Part 1

I graduated from the field of finance around 12 years ago. A graduation degree in any field does not necessarily mean that you are expert and a reliable person in that area. Same is the case with me. Although I completed my graduation with accounting as the specialization yet I did not understand the subject at all. I was only looking forward to the degree certificate and there was no seriousness nor sincerity to truly grasp the subjects and its meaning. While some of my friends became certified financial advisers and a few managed to become chartered accountants, I had diverted my attention to creative fields and never managed to work as an accountant in any of the job profile. I knew I would become a terrible accountant if I were recruited. Financial subjects were not meant for me.

Like many, I chose to spend my money in a random manner to buy costly cell phones, eating in malls and restaurants or gifting it to my parents to buy anything they wished for. After all it was my money and it was my decision to decide, where the money should go. For somebody who has always wished for money to be spent ASAP will only spend the money once he gets it. My father who was then a retired bank officer was observing my behavior and he kept asking me to start saving for my retirement. I was 21 back then and the words to “start saving for retirement” seemed like my father had retired at the right time before he could say anything insane like that. I thought I am just 21 and I have just started earning. Let me enjoy my life. I never saved a single dime till I was 26. Whatever little I had saved accidentally, was diverted to funding my Management degree which I did not complete it either.

If you are somebody who is earning and in his prime 20’s or even 30’s then the best advice which I can give you is this:
Income-Savings=Expenditure 

For most of us it is the below formula
Income-Expenditure=Savings 

I will address more on this topic of how much to save and how to multiply your money in the upcoming posts but at the moment if you are looking forward to building a sound financial health for your life then I would ask you to read more on this subject. If you are looking for a good book on this topic then you can go through the “The Total Money Makeover by Dave Ramsey“. The book lays a good foundation for building an understanding for savings, getting out of debt and creating wealth. It has already sold a million copies worldwide and it is also easily available. Alternately you should try to read newspapers which cover such topics i.e. Financial Times or Economic Times Wealth. Initially you may not understand a word but just browsing the headlines and choosing topics which may interest you is also a good start.

Remember, its your money and you are the sole decision maker as to where it should go. You make the ultimate choice. The sooner you begin, the earlier you will get healthy. 30 years from today if you were to look back at your life then would you feel happy that you made the difficult choice and did well financially or would you repent for sleeping over an important topic to be addressed and still working for money instead of your money working for you at the age of 60 while you are resting along a beautiful beach and watching the sunset with cup of hot coffee and smiling 😀