by Dave Ramsey
You can choose to be a little more sophisticated, but until you have over $10 million, I would keep your investing very simple. You can clutter your life with a bunch of unnecessary stress by getting into extremely complex investments. I use simple mutual funds and debt-free real estate as my investment mix—very clean, simple investments with some basic tax advantages. As you arrive at this Baby Step, if you want to own some paid-for real estate, it can be fun.
Always manage your own money. You should surround yourself with a team of people smarter than you, but you make the decisions. You can tell if they are smarter than you if they can explain complex issues in ways you can understand. If a member of your team wants you to do something “because I say so,” get a new team member. You are not hiring a daddy; you are gathering counsel. God did not give them the responsibility over this money. He gave that to you. Celebrities and pro athletes often lose their entire fortunes because they give up the responsibility of managing their own money. The money manager who loses your hard-earned investments won’t live with the regret and pain that you will. The Bible states, “In the multitude of counselors there is safety” (Prov. 11:14 NKJV). A good estate-planning attorney, a CPA or tax expert, an insurance pro, an investment pro, and a good Realtor are a few of the essential team members you should gather around you. I endorse the use of financial planners if they are team members and not the sole captains of their teams.
When selecting and working with your wealth team, it is vital to bring on only members who have the heart of a teacher, not the heart of a salesman or the heart of an “expert.” The salesman is always chasing a commission and thinking short term, and the “expert” can’t help being condescending, which is humorous because they likely have less money than you. Also, when taking advice, evaluate if the person giving the advice will profit from the advice. If your insurance pro is coming up with more great insurance ideas every week, you may have a problem. That is not to say everyone who makes a commission off you is out to get you. There are plenty of commission-only financial people who have extreme levels of integrity. Just be aware of possible conflicts of interest. For a full list of tax, insurance, and real estate providers I endorse in your area, visit daveramsey.com/elp. To find a qualified investing professional, visit daveramsey.com/smartvestor.
As a schoolteacher, everyone knows that the pay isn’t great. With an income of less than $40,000, one adopted son, and no plans for our financial future, I knew we had to make some changes. We heard about Dave Ramsey’s plan at our church, and we were so inspired that we set a goal to pay off our $50,000 mortgage in five years. We knew that to have a Total Money Makeover, vacations and fancy toys were out, and we would have to tighten our budget considerably. But we were excited about what was at the finish line.
I started a few side businesses—tax prep and eBay—and was able to add about $15,000 extra income to our payment. With all of this extra income, you might think that paying off a $50,000 mortgage would be easy to do in five years, but our plans to adopt a little girl from China were priority. The adoption costs were around $17,000, and just when we didn’t think we would be able to get pregnant . . . Surprise! Our health insurance did not cover childbirth, so we had an additional $5,000 added to our payments.
With a growing family, we were more determined than ever to get rid of the house payment. And praise the Lord! We did it in just less than four years! We beat our goal by a full year. That just proves if we can do this, anyone can.
Now that we are on the other side, it is so awesome. It is such a peaceful feeling to know that money does not control us. Even though I am still a teacher, and my wife stays home with our kids . . . NOW we can take those vacations and buy fancy toys. PLUS, we’ve adopted another girl from China, making us a family of four on a teacher’s salary. We’re able to give freely to people and organizations we believe in that focus on orphaned children in China.
We give like never before; we save like never before; and, most important, we live life the way God intended us to like never before.
Keith (age 40) and
Karen (age 42) McGinty
Math Teacher; Stay-at-Home Mom
Within Baby Step Seven (Build Wealth), there is a Subsection B, another milestone. The second milestone within becoming wealthy is the “Pinnacle Point.”
Growing up in the suburbs in Tennessee, I grew accustomed to riding a bike and facing hills. To a seven-year-old with one gear, a huge hill looked like Mount Everest. I don’t know which kid in history did it first, but the technique for small-guy bike hill climbing has been passed down for generations—the switchback. Instead of pedaling straight up, we would painfully go side to side, taking a small bite at a time of our Tennessee mountain. The unpopular players’ baseball cards made a slow click, click, click through the spokes as we made our ascent. The heat seemed oven-like, and the beads of sweat turned to rivers. This is the time a seven-year-old pushes with every muscle in his being. The strain and determination show on your face like last year’s Halloween mask. You pull on the handlebars with all the power your arm muscles will produce to push your legs down on the pedals one more time. Push, push, breathe, breathe—until you finally reach the top.
What do you find at the top? The cynical among us just said, “Another hill to climb.” Those of us with a kid still alive inside know what was at the top. Those of us who still have a kid inside who can dream, who can believe, and who can hope know what we found at the top. Those of us who have pushed up some unbelievable hills know what I found that Tennessee summer day at the top of the hill. I found that perfect moment. The perfect moment when you push the pedal the last time before going down a huge hill on the other side. The perfect moment when you hang in the balance, after all the sweat, the work, and the agony, and a smile breaks across your face. That moment just before you take the glorious ride down is the “Pinnacle Point.”
And the ride down is glorious. The wind blows through your hair, and your feet are not on the pedals anymore but on the handlebars. The click, click, click of the baseball cards becomes a chattering with a sound like thousands of crickets. You are now enjoying the ride; the coasting is the fruit of your labors. Memories of strain, sweat, and repeated near failure fade as the sun shines and the wind tickles your ears, whispering, “You are the king! You did it! You climbed the hill! You didn’t quit! You paid the price to win!” The smile in your soul says, “Accomplishment.”
If you are beginning to think I’m being a little overdramatic, so be it. It is hard to describe reaching the “Pinnacle Point” without some emotion. This Baby Step takes us to the point at which your money works harder than you do, the “Pinnacle Point.” It is the instant in time where focused gazelle intensity has reached critical mass, and your money takes on a life of its own.
This point is not that you are going to quit life when you get there; you will still manage and direct, but the money thing will have its feet up, and you will be coasting downhill. Wealth will find its way to you. Mistakes on your tax return will be in your favor; the IRS will discover them and send you the money back with interest. Well, that’s probably an impossible dream, but you get the idea.
When your money makes more than you do, you are officially wealthy. When you can comfortably live on your investment income, you are financially secure. Money is a hard worker, harder than you. Money never gets sick, never gets pregnant, and is never disabled. Money works twenty-four hours a day, seven days a week. Money gets its job done, and it asks for only directions and a firm master.
You have reached the Pinnacle Point when you can live off 8 percent of your nest egg. Go ahead, multiply your nest egg by .08, and if you can live on that number or that number is more than you make, you are coasting downhill. Congratulations! Your money makes more than you do! By doing this calculation, you will discover how close you are to hitting this major financial security milestone. You will be able to calculate what your Pinnacle Point nest egg is, and then, using all your available income, s
ee how many years it will take you to climb that hill. Believe me, everything is downhill after that. Enjoy the ride.
Giving Is the Biggest Reward of the Entire Workout
The most mature part of who you are will meet the kid inside as you learn to involve yourself in the last use of money, which is to GIVE it away. Giving is possibly the most fun you will ever have with money. FUN is good, but you will tire of golf and travel, and if you eat enough, lobster starts tasting like soap. INVESTING is good, but going around and around that Monopoly board eventually loses its appeal—especially after you reach the Pinnacle Point. Every mentally and spiritually healthy person I’ve met has been turned on by giving as long as it didn’t mean his own lights got cut off. I can promise you from meeting with literally thousands of millionaires that the thing the healthy ones share in common is a love of GIVING.
Only the strong can help the weak, and that is true of money too. A toddler is not allowed to carry a newborn; only adults who have the muscular strength to ensure safety should carry babies. If you want to help someone, many times you can’t do so without money. The Bible states that pure religion is actually helping the poor, not theorizing over why they are poor (see James 1:27). Margaret Thatcher said, “No one would remember the good Samaritan if he’d only had good intentions; he had money as well.” The good Samaritan had a good heart and a heavy enough purse to pay an innkeeper to help take care of the injured man. Money was involved. Money was at its best that day. Money gives power to good intentions. That’s why I’m unashamedly in favor of building wealth.
My father died when I was five years old, so it was just me, my two sisters, and my mom for most of my life. She did the best she could, but I never really had anyone to talk to about financial issues. So I ended up going deeply into debt buying a lot of stupid things.
After getting married and having a daughter, my wife and I decided that we needed to get out of debt and start saving for the future. It took a while for us to get on a plan because we were each going our own way with our money. But eventually we decided to get rid of our debt once and for all!
We’ve paid off $50,000, and with no new credit activity, our FICO score has taken a hit. But we don’t care—we don’t worship the almighty credit score anymore! We cut up all our credit cards, put $10,000 into our emergency fund, and we’re now debt-free except for the house!
Now that we’re doing well financially, we have money to give when we feel called to. Last year our daughter’s friend lost her father right before school started. Her mother was on temporary disability with little income coming in, which made her private school tuition a huge burden. Because I knew the pain of losing a parent, I didn’t want our daughter’s friend to deal with the loss of her father and the trauma of changing schools. So my wife and I decided to step up and help by paying the girl’s school tuition for the year. She was able to stay with her friends during that hard time in her life, and we were blessed to be able to help!
Buying things may feel good, but giving always feels right. We’re thankful that God has taught us how to handle our money because now we can look for ways to bless others financially. All the “stuff” in the world can’t compare to the feeling of helping others in need.
Ron (age 44) and
Teresa (age 46) Brewer
Sales; Staff Children’s Clinic
Let Go
Sadly, I meet people who try to avoid this third use of money, mistakenly thinking they will end up with more. Eric Butterworth tells of an interesting system used to capture monkeys in the jungle. The captors use heavy glass bottles with long necks. Into each bottle they deposit some sweet-smelling nuts. The aroma of the nuts attracts a monkey to the bottle. When the monkey puts its hand into the bottle to get the nuts, the neck of the bottle is too small for its fist to come back out. The monkey can’t take his hand out of the bottle without dropping the nuts, which he is unwilling to do. The bottles are too heavy to carry away, so the monkey becomes trapped by nothing more than greed. We may smile at these foolish monkeys, but how many times has our freedom been taken away by nothing more than our greed?
Most of us have given something at some time or another, but I have seen some really fun things happen when good people become wealthy. When you have your Total Money Makeover, you can do some things with scale. I have one friend who buys seventy-five brand-new bikes for an inner-city ministry every year. He gets these bikes at Christmas and, in conjunction with a missionary group that knows the families in the area, gives them out one at a time to kids in a subsidized housing project. The project is drug-infested and crime-riddled, but for one day a year, those young people see someone who wants nothing in return.
Another pastor friend of mine is involved in a project called Seeds of Kindness. An anonymous member of his congregation gave $50,000 to the congregation members to give away, one $100 bill at a time. The member must not use the gift, the member must receive nothing in return, and it should be given as personally as possible. These $100 bills are given human to human across the city with fabulous results. People who had completely lost faith in God and in the human race are shaken to the core by a simple $100 gift. The givers often report having more fun than the receivers.
Secret Santa
We all have seen these powerful examples of giving. USA Today followed a guy who called himself Secret Santa at Christmas for several years. Secret Santa walked the streets around Christmastime and gave away $100 bills. Nothing required, nothing expected. Sometimes he gave to people in need, and other times he just gave. Every year he gave away around $25,000 in $100 bills. He started this tradition years ago in his hometown of Kansas City and moved out across America. He gave in New York after 9/11 and in the Virginia/Washington, D.C., area after the sniper attacks. He just walked around and handed people $100 bills. He got some fabulous reactions and heard some wonderful stories.
In late winter of 1971, he worked as a salesman, and when his company went broke, Santa found himself broke too. He had slept in his car for eight days and hadn’t eaten for two days when he went to the Dixie Diner. He ordered and ate a big breakfast. He waited for the crowd to clear, then acted as if he had lost his wallet. The diner’s owner, Tom Horn, who was also the cook, came over near the stool where Santa had been sitting, picked up a $20 bill, and said, “Son, you must have dropped this.” Santa realized later that Tom had planted that twenty to let him out of a sticky situation with his dignity intact. As he drove away, Santa said, “Thank You, Lord, for that man, and I promise if I ever have money, I will do the same.”
In 1999, Santa, now a very successful businessman, looked up Tom Horn, now eighty-five years old, in his home of Tupelo, Mississippi. Santa recounted the story of the hungry young man of 1971 while standing on Tom’s porch in a Santa hat. He asked Tom what he thought that $20 would be worth by that time, and Tom laughingly said, “Probably $10,000.” Santa then handed Tom $10,000 cash in an envelope. Of course, Tom tried to hand it back, but finally Santa won out, so Tom deposited the money in the bank. He said he might need it to take care of his wife, who has Alzheimer’s.
Horn said of Secret Santa, “He doesn’t want any thanks or praise for what he does. He does it out of the goodness of his heart.” After giving to dozens of people a few Christmases ago, Santa said, “Isn’t it fun to lift people up and see the smiles on their faces?” I think I know why this Santa gave. He gave because it is the most fun he can possibly have with money, and you will never know until you try.
A few years ago Secret Santa’s identity was revealed. He was Larry Stewart from Kansas City. Larry revealed his identity because, after giving away over $1.3 million, he had been diagnosed with cancer. Larry’s wish was that we all continue his legacy of being Secret Santas. Talk about paying it forward!
Do All Three
There are only three uses for money: FUN, INVESTING, and GIVING. You cannot claim Total Money Makeover status until you do all three. You don’t have to buy a Harley, invest millions, or give away $25
,000 cash, but you do have to do some of each. And as I said earlier, you should begin doing some of each as you go through the steps. Giving something, even if it is just giving your time by serving soup to the homeless, should start from Baby Step One. Fun also begins there, although it has to be inexpensive fun in the beginning; the fun gets bigger and better as we get higher in the steps. Investing, of course, begins at Baby Step Four (Invest 15 Percent of Your Income in Retirement). You are not getting the full use and enjoyment of your money unless you do all three.
Someone who never has fun with money misses the point. Someone who never invests money will never have any. Someone who never gives is a monkey with his hand in a bottle. Do some of each, and if you are married, let your spouse have some slack as soon as there is some. After you get past the emergency-fund step, let each other function in the areas you like best. My wife, Sharon, is a natural saver, so she always cheats toward investing. I am a natural spender, so I make sure she has fun. We both enjoy giving.
Please push that pedal one more time. Switchback if you have to; failure is not an option. Push, push! I promise, and the tens of thousands who have reached their Pinnacle Point in their Total Money Makeover promise, at the top of the hill is a glorious ride down. Take that ride with us!
