Dave Ramsey's Financial Peace University

CBN.com From Rags to Riches to Rags

After college, Dave found a niche in foreclosure bargain real estate. With a formal education in finance, a family background in real estate, and a burning desire to succeed, Dave had a head start in life. By the time he was 26, Dave had a net worth of over a million dollars and was making $250,000 a year -- that’s more than $20,000 a month in net taxable income. His real estate portfolio was worth more than $4 million, and everything seemed to be moving perfectly.

Then banks decided to trim back on real estate lending due to the 1986 real estate tax act. Most of Dave’s borrowing was in short-term notes (because most of the property he resold was for profit), so the banks invoked their right to call the notes. Dave had 90 days to find $1.2 million. He paid virtually all of it, but doing so destroyed his business and he ended up losing everything but his house and literally the clothes on his back.

“I remember the strain on my marriage,” says Dave. “It took three-and-a-half years for paradise to completely unravel and for me to end up broke.”

From the nightmare of losing everything and the emotional pain it caused, Dave got the idea to counsel the average consumer through debt problems. In 10 years, Dave says he has seen more than 10,000 foreclosures come across his desk. “I believe it is time for the typical American family to get out of financial bondage,” says Dave. “I believe that through knowledge and discipline, financial peace is possible for all of us.”

Take Baby Steps

Once Dave was sitting in on a meeting about personal finance held at a church. The speaker asked everyone to raise the envelope containing their bills over their heads and to pray for their financial predicaments. After the prayer, the speaker asked everyone to make the noise that they would make the day they are no longer in debt. There was a roar that Dave says would rival the Super Bowl. This experience reiterated to Dave the amount of pain our society is in regarding personal finances. “It is time we started controlling our money instead of our money, or the lack of money, controlling us,” says Dave.

As a society, Dave says we have forgotten how to delay pleasure. The Consumer Reports Money Book states that the typical household has $38,000 in debt and that consumer debt has almost tripled since 1980.

He says there is a way to get control of our finances. He does this through baby steps:

Baby Step #1: Pay the minimum on all debt until you are able to save $1,000. This is the emergency fund.

Baby Step #2: Pay off all personal debt except the home. Get mad and stay mad until you get out of debt.

Baby Step #3: With no personal debt, it will be easy to save three to six months of your expenses.

Baby Step #4: Save 15 percent of your gross household income in retirement plans/mutual funds.

Baby Step #5: Start saving for college.

Baby Step #6: Scrape any extra money to pay off the mortgage early.

Baby Step #7: Build wealth and give it away.

Dave created the Financial Peace University (FPU), a 13-week program that helps people dump their debt, get control of their money, and learn new behaviors around money that are founded on commitment and accountability. More than 100,000 families have attended FPU classes at their workplace, church, military base, and community group and have benefited from the program. The average family pays off $5,300 in debt and saves $2,700 in the first 91 days after beginning the program. In 18 to 24 months, they are completely out of debt except for their mortgage.