Financial Peace University – Week 1

As you may recall, two weeks ago BF and I went to the preview night for Financial Peace University (FPU).

This week we went to week 1. The title of week 1 is “Super Savings”. And it starts right out at the very beginning: emergency funds.

Now, I’m old hat to emergency funds. Mine has saved my butt so many times that I can’t even tell you. I’ve used it to pay for car repairs twice and to help fund my move to Kansas. (Oh.. hmm… I guess I can tell you…)

There were two stories that Dave told that really resonated with me.

Story #1 involved him asking the audience to imagine that there was a deadly virus going around and the only way to save your child from this virus was to pay $5,000 in the next year to get the vaccine. If the choice was to have your child die or to get $5,000 would you be able to change your habits so that at the end of a year you have that money?

Of course everyone in the audience agreed. Given the choice between the death of your loved one and some of my spending habits I could definitely get $5,000 in a year. Easy.

It’s all about priorities. And of course at this point Dave took the opportunity to reinforce to us how important a priority it is for us to get an Emergency fund. He talked about what an emergency is, why it is important to prepare for it, the security that comes from having an Emergency fund.

Which brings me to Story #2.  It involves a woman who was going to one of Dave’s book signings and on the way there something happens to her truck. She is distraught and stressed over how much money it is going to cost her. She tells Dave that she’s on Baby Step #3 (save 3-6 months of living expenses) and currently has $12,000 saved. To which Dave asks her: “Then why are you upset? This isn’t a crisis, you have the money to fix your truck.” The woman suddenly realizes that this was the very reason why she was saving money. Lightbulb!

Now, that story isn’t so great, but the implications are.

I have a Pavlovian response. I’m trained to go in to stress and worry and crisis mode whenever anything happens to my car. I panic. I flip out. Even though I save $720 every year that is DEDICATED to maintenance on my car, it still worries me when I go to the mechanics. But you know what: Everything is a crisis when you don’t have money.

And while I’m better with money, I’m still not in a fantastic spot. So things are still a crisis. Apparently though, according to Dave, at some point I’ll have enough money saved that I won’t have a crisis anymore. I’ll just have a problem that can be easily fixed by using my Emergency Fund and getting on with my life.

Wouldn’t that be nice? Wouldn’t it be great to go to the mechanic, find out you have to replace your alternator, write a check for the amount and not have to worry about it? Wouldn’t that be just an amazing feeling?

The first step in Dave Ramsey’s program is to save $1,000 to an emergency fund (or $500 if your income is less than $20,000/year).

I’ve never done my E-fund like this. I’ve always been the type of person to pay off debt and save at the same time. For the past 2.5 years I’ve consistently put $100/month in to my Emergency Fund and then $150-400 over my minimum on my debts.

But, I want to be true to this program. So I’ve decided that I’m going to compromise.

(Yah, I bet you didn’t expect to see those two sentences going next to each other did you?)

As many of you know, I keep a yearly savings account. I put away $235 per month into paying for expenses that I know will happen every year. This is how I save $720/year for car maintenance.

In the history of my adult life I have only once had an “emergency” that wasn’t car related. All the rest have involved my vehicle. So because I’m already saving $720/year for maintenance I’ve decided that I’m going to tweak the Baby Step #1 to apply to my life and only save up to $500 to my E-fund.

But, contrary to what I’ve done in the past, I’m not going to just pay my $100/month until it gets to that point – I’m going to attempt to get there as fast as possible. So I’m backing down and paying minimums of my accounts for the next month (or two) until I get $500 in my E-fund.

And then… I stop contributing to the E-fund. Period. I stop. (I’ve never stopped before, I always just keep saving.)

After I get to $500, well, it is on to Baby Step #2 for me…

Reflections On Week #1

I never thought I would get a whole lot out of going to FPU, to be honest. Being a PF blogger I think about money all the time. But the energy of Dave in contagious. Also, plugging away at this debt thing for so long has gotten me to a point where I feel quite passe sometimes about savings and debt. After 2.5 years a lot of that initial fire has been lost, and the FPU is helping me get that back.

Also, BF is still totally in to the process with me. We’re planning on both doing the homework for the course (this week is doing a budget). He even says he’ll go through the steps with me as well.

If nothing else, it provided us with another great opportunity to talk about personal finance together. We talked afterward about what we considered emergencies and also talked about how long it would take for each of us to individually complete Baby Step #1.

I can’t wait till next week!