Emergency Fund Why I disagree with Dave Ramsey, Suzie Orman, and Everyone Else

Let's be clear I absolutely think you should have an Emergency Fund, this should be part of the beginning of every road to debt freedom, early retirement, or Murphy's Law that's around the corner.

What I think is dead wrong is where you should place your money.  Dave Ramsey recommends a Money Market account, Suzie Orman says a Checking with Interest account, guess what I totally disagree. There is a few factors that in this,  but I believe the best place to keep your emergency fund is in an individual stock that you know and trust.  Here's how I got here.

When first starting out to build your emergency fund, whether it's the initial $500, $1000, or arbitrary amount that you see fit, this should go to an account that you have limited to no access, whether it's only online at a separate bank or you have to physically step into a branch to get your money, play Hide and Seek with your Emergency Fund.  So you are building up your emergency fund on a weekly, monthly basis congratulations and you have to climb up Mt. Everest to get those funds, not make a transfer from Savings to Checking.

I'm quite sure not everyone is going to read this article and say this guy is brilliant I'm listening to every word this guy's the smartest man alive.  Ok now here's the risk tolerance for your Emergency Fund, Las Vegas Style, see where you are at, since as of right now you have already made the Hide and Seek choice.

• Low-You think going to Las Vegas involves going to see a show and eating  the Buffett(non-seafood)Open a Checking or Savings at a Local Bank/Credit Union that's separate from your main account, you might not even do that your probably just putting it over to your savings you already have, less risky that way.
• Medium-You go to Vegas with ready for a show, some slots, and maybe even a drink at the casino, who knows I might be feeling crazy.  Chances are you are still going to put it a money market of some sort and probably online after you checked out the best online accounts available.
• High-You go to Vegas with cash in your pocket and only the clothes on your back, because you will be buying new ones with the money you will be making.  This is me in a nutshell, I have a little gamble to me, I'd rather double down than and risk it then take a small win.  I suggest and use investing in direct company stock, here's GRS read on How to Invest Using Direct Stock Purchase Plans.  

I started many months ago and found I was able to set aside $50 month towards my emergency fund into a company I felt comfortable with and in this case absolutely love, Nike.  I have since upped my contribution to a little over $100 month.  I find that having money in an online account that is separate from my everyday expenses and automatically drawn monthly from my checking is the best plan for me.  It gives me that little gamble of a my stock purchase going up or down(my money is on up, literally).  This also gives me the liquidity to sell my stock and receive the funds in about 3 business days.  There's a small risk in every aspect of my choice, but if you used to play poker online, enjoy fantasy football or a good survivor pool, or even buy a lottery ticket when it's 350 million dollars you probably agree with every word I'm saying.  I can't be boring, I have to have some risk and if this is the most risk I'm taking, I think I'm going to be just fine.  

Here's something to think about if you think I'm the craziest man alive after reading the last paragraph(also possible).  Here's a quote from Insurance Industry Basics: Float  and Motley Fool "The great thing about premiums is that the insurer collects the money up front but doesn't have to pay out claims until later down the road. In the meantime, the company "floats" these unpaid premiums. This float is invested in stocks, bonds, and other securities, and the insurance company pockets the profit."  

So let me get this straight they use the Insurance Premiums or Emergency Fund equivalent and try to make a profit off of this money until they have to pay it out?  That's exactly what I am suggesting, run your emergency fund like you are an insurance company!!!!

My 7 Year Plan-Owning the Bucks or Retiring Early

About a year ago I wrote on how I believed Dave Ramsey was a genius, but I wanted my own plan, the Automatic Plan.  I’m happy to report I’m following my own steps pretty well.  I know where my money is going, I have everything set up to savings (I manually pay extra on debt with this amount, not as automatic, but it feels great), and investments. Credit cards are gone, I make payments to my student loans (which I detest), and in a combo deal we are also working towards paying off our home early from rental income.  So as of right now I am on step 4 and I am charging ahead. 

What I mentioned in the notes was “My 7 year Plan” but I never really talked about it.

http://financeandfitnessdreams.blogspot.com/2012/08/why-i-think-dave-ramseys-genius-but-i.html

Automatic Plan

1. Figure out Where all of your Money is Going
2. Make things Automatic-Debt, Savings, and Investments
3. Make paying off Credit Cards a Priority
4. Add additional payments to the Debt you like the least
5. Pay off home early
6. Make sure you and your loved ones are taken care of
7. Build wealth and give!
   
   

I always thought I wanted to be a millionaire, own yachts, the Milwaukee Bucks, and own houses all over the world.  I soon came to realize this takes a lot of hard work throughout your life, plenty of time, and some luck. Do I always want to be grinding it out looking for that next deal; do I want to be 60 or 70 and just now ready to enjoy my retirement?  That just doesn't sound that great to me.   I love to travel, enjoy a morning coffee or evening beer in different places, I love Chicago March-November, but winter gets old pretty quick. So I decided that the best way to truly have the option to do what I want at an early age is to be debt free and have passive income. 

 

So being on our automatic plan and having 2 houses that provide rental income, we have a plan to complete our 7 year plan and well RETIRE!!!  So I have student loan debt, which I am working on.  We have 2 houses, one which we live in, both receive rental income.  I am tackling the student loan debt, while we take the extra rental income and pay off each house as quickly as possible.  I ran some rough numbers  a few months ago and figured out if we took what we made and the rental income we could pay off both of our houses in 7 years!  I got pretty excited, because then we would have $0 debt, 7 years worth of investments in stocks(401K, Roth IRA, Individual  Brokerage Acct), and passive income from 2 houses.  So based on everything we would have $0 debt and 2 passive incomes coming from rental income.  

We could retire/semi-retire/do something we really like to do whether it’s volunteering or making 100K, so I would be 38 and living on a small income with my wife, available to travel freely which we really love to do, Miami could be our base home(happy wife, happy life), I could visit friends and family for weeks at a time(your couch will be my couch, your guest bedroom, my bedroom).  I could travel to Nicaragua(shown on the right) and hang with the wife’s family, maybe see if I can be a beach bum for a week, go to every single college basketball game in a 50 mile radius for a month, play golf with my Dad every day for a month, I don’t know but that sounds EXCITING to me!!!!  My goal is to make it work, little step by little step, sprint by sprint, paycheck by paycheck, I hope you will join me on the ride, because in many ways you already have by reading a blog or two and of course this one.

Follow the Leader, If Someone Walked Off a Bridge, Would You?

I feel like many of us out there copy what there parents have done with there money good or bad.  I believe it goes the same for friends, TV shows, people you live by.  I'm not claiming this as fact but if your parents have bad financial habits, your best friend has 20 credit cards, you love Housewives of Miami, and your neighbor has a BMW that you look at with envy, chances are you are currently, well screwed!

How do we break bad financial habits?  Read about personal finance, listen to a good podcast, stop watching Keeping up with the Kardashians!(Please everyone stop, only bad things come from that show)  Unless you plan to have a sex tape make millions, marry an Olympian, NBA player, come out with a clothing line, then let's get back to reality a little here and actually care about our own lives.  On a "I hate saying this note"  they are great entrepreneurs, man I feel worse for saying that.

So what do I love, hate, obsess over?  Great question I just asked myself.  Here's a couple books I really enjoyed and would even read again, Super Nerd, i know.

1. The Richest Man in Babylon by George Clason.  This book is by far my favorite book it eases you into personal finance by telling short stories or parables and how it relates to money. 

2. Total Money Makeover by Dave Ramsey.  By far the most known personal finance book out there, he keeps it simple and has had millions follow his how to steps of getting rid of debt and creating wealth.



3. The Millionaire Next Door by Thomas Stanley and William Danko.  This book has great research that shows who the millionaires are and how they made and keep there money.  They are not driving BMW's or living in mansions, do not keep up with Jones', because they are stupid.  Great insight, great book.

These are great books and there are many more out there and I have read many, many more that are very good, just didn't make the Top 3.  Should you buy these books?  I wouldn't why spend and extra $10-$30 on books that the library lets  you use for free.  Now if you love one of these books or plan to follow the guidelines in one of the books and want it for reference, please go ahead and purchase this book used from Amazon or eBay.

So you haven't walked off a bridge, you are not educating yourself if that person is indeed crazy or if the bridge is going to collapse.  I encourage you to read up and tell me about a great personal finance book you really like(Suze Orman excluded, she hurts my ears even on paper).   

Money is Always on Mind, Every Morning at Least-Thanks Dave Ramsey

I like many of you out there are a creature of habit.  Some must have that morning coffee, bowl of cereal, leave at exactly in between 7:00 and 7:05, or in my case I change my routine to create some sense of spontaneity, but it's still a habit.

Right now I have been going with the morning coffee, made at home(trying to save that $10 a week and I prefer to be all jacked up by the time I get to work) and Dave Ramsey podcast every morning on the train.  I like Dave Ramsey and my other options are listening to Pandora cut in and out like a bad DJ or staring outside(p.s. the buildings or walls don't change much).  So about Dave Ramsey..................

I like to listen to someone telling me to pay items with cash, stay away from credit cards, and that he has made mistakes but here is why you should not do what I did.  It creates a mindset that if you spend money with bad decisions, you are going to pay for those bad decisions.  He is a strong believer in debt makes you a slave to the lender, I couldn't agree more.  I struggle everyday to get in this mindset, this is another reason why I listen to Dave Ramsey every morning.

Here's what I want to do with my money.  Put tons of money in my 401K, pay off every cent of debt I have today, fix up my house, pay off the house, and invest in stocks, other houses, take tons of trips.  This morning dose of Dave Ramsey reminds me to keep things in check, Rome was not built in a day, cliche yes, but very true.

I have a budget, I have a plan.  I don't want a 30 year mortgage, I want my mortgage to be paid off in 7 years, is it possible, absolutely I ran the numbers to know.  I read something by Zac Bissonnette said and I'm summarizing here, but poor people think about how financial decisions affect them this month or this week and wealthy people think in 5, 10 and 20 year blocks.  That makes sense to me, when buying a car the poor guy is thinking can I afford the payment of $200 month, the wealthy guy is paying cash and thinking how much money per month he is saving over a 5 year period.

So in summary every day is a battle with money, but the key thing is I may lose a battle today and go buy my lunch or spend money on something I don't need, but I will win the war, with God's help and with great influences around me.  Right now my biggest influences on money are my wife(smart lady and cute to), her family(they have great advice that gets funneled through my wife),  and personal finance blogs, podcasts, and books.  Make sure to surround yourself with great influences, if your brother likes to drive his leased BMW on his Wal-Mart cashier hourly wage, you might want to find a better influence. 

Why I think Dave Ramsey's a Genius, But I Want My Own Plan!

I agree with Dave Ramsey, his way works, but why can't others.  I instead of going with his steps I am going with my own priorities.  I think that you need to live and enjoy things while you are young.  I believe that you need to pay for items in cash or have money saved.  For example if I want to go on a trip and it costs $2,000, then I will have $2,000 in the bank before I take that trip.  I will put together a couple of steps showing what I believe and what I am currently doing.

http://www.daveramsey.com/new/baby-steps/

Here's the process:

1. $1,000 to start and Emergency Fund
2. Pay off all debt using to Debt Snowball
3. 3 to 6 months in savings
4. Invest 15% of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give!

I have a plan, but Dave Ramsey has a proven plan so he wins.  But here has been my working plan.

Automatic Plan

1. Figure out Where all of your Money is Going
2. Make things Automatic-Debt, Savings, and Investments
3. Make paying off Credit Cards a Priority
4. Add additional payments to the Debt you like the least
5. Pay off home early
6. Make sure you and your loved ones are taken care of
7. Build wealth and give!

I'll go into more details as the blog moves on, but my approach is geared more towards the person who has all there bills online, the person who gets online statements.  Be Young, Have Fund, Drink My Kool-Aid.