Thursday, June 26, 2008

The Money Answer Book

I posted earlier about Dave Ramsey's Total Money Makeover... and here is yet another gem from this money-guru: the Money Answer Book.

It's small, it's concise. It answers all of the important questions about everyday finances. Of course a lot of it has been said before but the format of this book makes it a super quick and easy read for those that may be intimidated (or just lack the time/focus) of reading one of the thicker books in his collection.


I'll go ahead and share two of my own personal take-aways (yeah, stuff I've already known but am actually focusing on during this point in my life):

Take Away One: Buy Used Vehicles with CASH

"Americans have a 'love-fest' going on with their cars. Where else can you find people flat broke, living paycheck to paycheck, with two vehicles in their driveway less than two years old?

The average monthly car payment is $378. If you only have one car payment you're shelling out almost $5,000 in one year. Investing $378 per month in a good growth stock mutual fund from age 25 to 65 will be worth more than 4.4 million!! A one-time investment of $25,000, leaving it sitting for 30 years (same terms) would net you more than $495,000. Hope you like your SUV!!"

Advice: Buy a car 2-3 years old with CASH instead of financing a new vehicle. Ramsey stresses the point that cars loose most of their value in the first two years so only the SUPER RICH should buy new cars.

I grew up thinking only new cars were good because I never knew much about maintenance or cars in general but my car is 5 years old now (it was paid off early) and it's still runs like new! I figure if I can keep a car like-new than other more car-knowledgeable folks must have amazing 1-2 year old cars! Plus thousands of leased-cars are turned in each year often with very low mileage and in superb condition.

Action Plan: I really do plan on driving my current paid-off trustworthy Honda for as long as I can (hopefully another 5 years!?) but in the meantime I'm going to build up that cash-for-car fund so when the time DOES come that it needs some TLC and/or I need to throw in the towel and purchase another ... then I can pay cash for something pre-owned.

Take Away Two: Invest in ROTH IRAs

"Because the Roth IRA growth is tax-free, you'll get to keep all the money in your Roth IRA"

Of course, the benefits of Traditional IRAs vs ROTH IRAs may be different for individuals (for example if you are not self-employed and your employer matches your investment aka Free Money... it may be worth investing in the company IRA before the ROTH).... but in the case for most of us investing in a ROTH IRA is a win-win because it's likely we're going to be in a higher tax bracket as we get older and closer to withdrawal time it would be beneficial to pay taxes up-front instead of on a huge lump-sum later.

The great thing is the government is increasing the amount we're allowed to invest each year so in 2008 we can put up to $5,000 in a ROTH IRA as long as we've made at least that much income. You can even get someone a ROTH IRA as a gift... that could eventually grow to hundreds of thousands of dollars if they leave the $ in there! Now THAT is the gift that keeps on giving!!

Action Plan: Finish rainy-day emergency fund then fully-fund a ROTH-IRA this year and every year following at the maximum amount. Research and think about gifting ROTH-IRAs vs giving gifts that depreciate and do not hold value :)

Well... there's MUCH much more in this little book packed with straight-forward $ advice.... so pick up a copy for yourself and pass it around when you're done!


Chris Enzaldo said...

A to the Men, sistah! I actually just paid off my 2004 Jetta this week. More cash each month to pay off other debts. I have my own list of personal finance books on Amazon, so (with your permission, Liana) check it out for more books that seriously, everyone in our generation should know about. Young or old, rich or broke:

I'd read Dave's other books, but I've switched to books on public finance, namely the US national debt. Whoa. All the more reason to get our houses in order. Save for the future, folks! Seriously seriously save :)

truthinlight said...

Thanks, Liana...I am putting the book on hold at the library! My husband and I went through the Dave Ramsey Financial Peace University and re-learned a lot. We paid cash for our vehicle 2 years ago, we only currently have one vehicle (besides my husband's work van that his company pays for) and it has been tough with two kids. But it feels amazing. I love not having a car payment hanging over our heads. We drive our cars into the ground before replacing them. I have just set a goal to purchase a renewable resource car...not a gas using car as our next vehicle purchase. Using Dave's method we can save up and pay cash again and feel really good about our purchase.

Thanks for the head's up on the book...oh and I can't wait to meet you at the BBC this winter!


Liana said...

That's SOOO awesome Chris and Darcie!! I can't wait to have that paid-in-cash-for-car feeling myself one day too!! Oh but yes it SURE is nice not having a payment now still :)

Can't wait to meet u too Darcie!

Roth IRA Rules and Limits said...

Roth IRA is some of the most popular saving schemes today. There are a few roth IRA limits set by the Congress regarding contributions. However, the advantage of this plan is that the tax payer, after passing the eligibility criteria, is able to contribute with a part of his or her compensation income directly to the Roth IRA account, while the savings that grow in this account will be tax-free.

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