Sunday, January 27, 2013

Investing in Our Future

Lots of decisions we make every day impact our immediate and distant future.  Today's financial peace university lesson was about some of the things we do today that impact the legacy we leave for our family through our retirement and college planning.  

After paying off all debt (but your mortgage) and having a 3-6 month emergency fund you are ready for babysteps 4 and 5.  Baby step 4 is to invest 15% of your household income into a Roth IRA or pre-tax retirement plans.   Baby step 5 is to save for your child(ren)'s college using tax-favored plans.  

Keys to Investing:
When investing you should use the KISS rule.  Keep It Simple Stupid!  You should never invest in something you don't understand.  

One of the keys to simple investing it to diversify your investments to lower risk by spreading around your investments.  This principle is biblically based, in Ecclesiastes 11:2  says "give portions to seven, yes to eight, for you do not know what disaster may come upon the land".  The standard diversification plan that Dave Ramsey recommends is:
  • 25% in growth and income mutual funds
  • 25% in growth mutual funds
  • 25% in international mutual funds
  • 25% in agressive growth mutual funds
Another key principal of investing is to use tax-favored plans.  Tax-favored plans means that you are either using pre-tax money (not taxed now) or paying your tax now and your investment will grow tax free.  

Retirement Planning: 
One of the best tools for investing for retirement is the Roth IRA that currently allows you to invest up to $5500 a year of post-tax money that will grow tax free. 

Dave Ramsey's suggestion for reaching your 15% retirement saving investment is: 
  1. Fund your 401(k) or 403(b) equal to amount of any employeer match.
  2. Above the match fund Roth IRAs for you (and your spouse) up to $5500 each a year.
  3. If you still have not completed your 15% then go back to your 401(k) or 403(b) to finish your 15 percent. 
College Savings: 
Rachel Cruze talked to us about college savings.  She mentioned the best tool for investing for college is the Education Savings Account (ESA) that currently allows you to invest up to $2000 of post-tax money that will grow tax free.  If you are able to save more than $2000 a year, Dave recommends using a 529 plan that allows you to control the mutual fund at all times. It is recommended that you never us insurance, savings bonds or prepaid tuition to save for college.  Both the above options in good mutual funds will preform much better for you.  

The goal I have for my son and for your child(ren) is for them to be able to go to college debt-free.  Some tips, beyond beginning to save now, to make a debt-free college a reality for our kids are:
  • Pick in-state or community college
  • Compare the cost to living on-campus vs. off-campus
  • Apply for as many scholarships as possible, get SAT/ACT tutoring, work hard in high school.
  • Realize that it is okay (some studies even say preferred) that your child works their way through college to pay for their education as they go.  


  1. I would be interested in your reaction to the following post

    I've listened to Dave off and on for years and have very mixed feelings at times.

  2. That was a long post. Do you have certain parts you want me to respond to? I don't think Dave Ramsey is right 100% of the time and there are definitely times I disagree with him. Here are a few of my initial thoughts on the post.

    I think the "Live like no one else today" comments are to as motivation to use gazelle intensity to get out of debt. To many people live beyond their means today and then end up with not enough to live on or to give later.

    Dave Ramsey puts giving as a priority throughout his plan making the tithe to the church the first part of any budget even if you are still working on babystep 1. The idea is that once you are out of debt you will be able to give above and beyond to others because you are no longer a slave to your debtors. The average Christian in America is only giving 2% of their income, if everyone would listen to Dave and give 10% to their church our churches could put the government out of business. Have I followed this completely? No, I have given above my tithe when I felt God wanted me to.

    God doesn't say money is evil he says the love of money is evil. I agree with the writer that it is your heart not your possessions that matter. I think that Dave Ramsey is helping people get out of bondage and people that follow his advice are going to be in a position to do great good for the world if they don't fall in love with money, which is why we need to guard our hearts.

    People can disagree with the order of the steps or to skip things they disagree with. As for me, I have seen the Biblical truths of debt being evil, the importance of helping those in need and understanding that it is my responsibility to take care of my family. I believe Dave Ramsey has helped millions of people move toward financial freedom and that if all Christians would follow his steps we could all get out of debt and completely change this world for the better.