Total Money Make Over and 3rd World Countries

I've been reading the book The The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness by Dave Ramsey recently.  It sure has been an eye opener in a variety of areas.
I did suspect many of the "myths" but, then I got to thinking.




I came up with an idea that  IMF acting like a credit card or line of credit to 3rd world countries is hampering their ability to build wealth.

As Dave puts it... as long as you are owing money to someone else, living beyond your means, doing the "90 days same as cash" etc you'll never get ahead.   You see he proffers and I think he is right..... if you carry a balance... just a little over every month you will eventually be owing a chunk of interest... that interest is no going to your pocket but, theirs.  Thus slowly you erode your opportunity for wealth.

So if the 3rd world countries would pay as they go..... kept to their budget they'd build wealth.  So instead of getting money from the IMF (in our case it would be the local lending institute) it actually saved up for projects it would come out ahead.   Think if they are borrowing 25 billion  at 5% for some dam project.  You might think the amount is small and the interest spread out over 30 years would be low.  However, they could save the interest payments if they took just a couple of years to save up the 25 billion.  In most cases the total amount of payments will be about double the amount borrowed.  So depending a little up front sacrifice will bring long term advantages.
For this example on this 25 billion dollar loan there would be payments of about 1.34 billion monthly over the 30 years.  So in reality they would need to wait about 2 or 3 years and would have the total they need for the project.  Granted the payments are based on the fact they have a certain amount of upfront money in say the neighborhood of 5 billion.  so they likely need about 30 billion total for the project.  So three years would do it to save if the 1.34 billion payment amount were used.




Think of that 3 years of waiting to basically save 20-30 billion.  They would by waiting have two projects in less time then it would have been to pay off the first one by taking the loan.

I discussed the concept of a stink fund in a prior post - Pay Yourself First - some thoughts on personal finance

If countries would us this method they could have some real GDP growth, as they potentially would have double the money in the long haul.

So there is my 2¢ worth of thoughts.
Applying the total money makeover could do wonders not only for average household in the USA, but, those in other countries and for the governments of those countries.




Buaidh - NO - Bas

Budgeting and getting your finances under control

I've been reading lately several books by Dave Ramsey.
What I've noticed is that if you have a budget you'll be able to get your finances under control and you will also be telling  your money where you want it to go and making it work for you.



So what is a budget?

As I understand it a budget consists of what you have to spend and then the allocations on what you want to spend it on.  Seems fairly simple right?   It basically is though many people including myself are not very good at doing a budget.

Now they mention that if you do a budget you will seem to have gotten a raise.  How could that happen?  Well it appears that as you preallocate your money you gain more control over said money.
You learn or set limits on what you want or are willing to spend your money on.  Then if you do the all cash purchase system you find you really do have more control of your money.

Budgeting works best with cash or check and not credit cards.  Why?  The tendency with a credit card is to purchase and forget about it.  You don't see the money leave your hand so you don't feel the potential pain right away.  So if you have $60 for food allocated that week and your working with cash you can't really buy $65 in food... you won't have the money at the check out.  Might now be the same if your using a credit card.  Now the Debit card acts like a credit card but, the money comes straight out of your account.  You can't go over unless you have overdraft protection.  Risk here is how that is handled.  A person here at works said she kept getting hit with a fee if she tried using her debit card with nothing in the account.  I would have run from that bank in a heart beat.  I had a bank charging a fee for not having enough movement on the account.  I was well above any typical minimum of $200-$500.  Got hit with the fee one to many times and then moved my money to a credit union.  Good old banks for you.


So what goes into a budget?  It is not simply tracking what you spend.  That is a start since you can see what you spend the most money on.  But, a budget is really much more then figuring out what you are spending your money on.
A budget is really telling your money where you want it to go.  A budget is figuring out your needs, want, and how much you have.  Then you decide where your money needs to go, how much you have left over and how much you can use now, how much you can save for a bigger purchase in the future etc.  Ultimately, if you plan right you will not over spend and can plan to pay cash for things.  You'll get stuck with little or no interest and that lack of interest coming out of your pocket will be the ultimate wealth builder.

So let us work on a sample budget.  The best idea is a zero sum budget.  That means that everything is allocated .... even savings or payments as savings for things like a car.

OK so let's get somethings down here and do a sample.  I'm going to keep things simple with this monthly budget.

Monthly Budget
Income	+$3,000
Rent	-$1300
Food	-$550
Utilities	-$150
Entertainment	-$75
Gas / Auto	-$150
Savings	-$675
Misc	-$100
Total Unallocated	0

As you see there is a specific line item for savings.  That can be actual money set aside for an emergency fund or you can line item it as if it was a car payment.   Then as you have built things up you can go and pay cash for the vehicle instead of financing.  Think of the savings over time.  Think of 4 years of payments at 5% interest.   Per bankrate.com and their calculator if the car is 15,000 you will have paid about $1,580 in interest.   That works out to be about $33 on your ~$345 monthly payment.  The idea here is that if you pay cash you can put more money back in your pocket.  It also requires that you make a wise choice on how much to spend on a vehicle.  Doubling the amount of the car to 30k gets you a double payment.  Thus ~3k in interest.  So the more you can pay up front the more you have in your pocket.  Think of the ability to pay cash for your car, and then save up what would be a car payment.  You have the car paid for in full by the time you need a new.  That is if you stay practical on how much you can afford.  Avoiding getting too much car and this principle works wonderfully.  check out the calculator here.

In a previous post I talked about a sink fund.
Pay Yourself First - some thoughts on personal finance
It's the same idea.  You pay yourself the amount you'd end up putting on your credit card.  Then you go and pay cash for the item.  Saving 15%-23% in interest.  You might think a few bucks in interest on a low cost item is nothing.  How about when you do that a few too many times?  The interest can start adding up.  I'm doing it currently for a Blu-ray player.  I'm putting aside $5 a week.  I'll have enough by the time Christmas comes around.  I'll also be able to take advantage of specials etc.


The bottom line is if you can tell your money where you want it to go you can come out ahead.  You'll actually appear to have more money because you stick to a budget and your defined limits.

So what are some of the recommended limits or percentages for a budget.
I found a reasonable chart from the Michigan credit counseling association
http://www.michigancounselingassociation.com/uploads/2/6/3/4/2634297/budget__financial_education.pdf
There definately is no hard can fast rule on all numbers.  For example housing is labeled as between 25-35%.  Food goes from 5-15%.  See a large variation in the values.  If one area is higher (housing is really expensive in California compared to Iowa) you then have to reduce another.  But, don't be such a nickle and dimer that you don't have any fun in the middle of everything.  You'll just have to find cheaper methods if you have a lot of debt your trying to get out of.   We use the library weekly for movies and more.  Pay only a few fines here and there...... saves on having Netflix, or cable.  Allows us to put that money to other categories.





I'd like to hear some of your budgeting ideas.  Things that work, things that have not, any ideas you have used to stay out of debt.
So the best thing I can say is get to work... and just do it.

Additional resources:
One for the Money
One for the Money - Low cost booklet on Finances
Dave Ramsey Budgeting forms
How to Budget - 50/20/30 Principle


Buaidh - NO - Bas