118. Re-Thinking Finances - Part 1 (Total Money Makeover)

Time to re-evaluate some things based on what I’ve learned from “The Total Money Makeover” by Dave Ramsey. Here’s part 1 of what I call “Rethinking Finances”:

A. Debt Consolidation

Debt consolidation is the answer to your financial problems right? It will save you on interest and you'll have a smaller payment. But hold on a minute. The truth is by consolidating debt you are typically just extended the terms of the payments. (TMM, Ch. 2)

In other words, for example instead of paying $500 a month for 20 years ($500 x 12 months x 20 years = $120,000 in total payments) you are paying $400 a month for 30 years ($400 x 12 months x 30 years = $144,000 in total payments). Sure you lowered the monthly payment but you are paying an additional 24k in total payments...

B. Playing the Lottery

It is said playing the lottery will make you rich right? People do it every day expecting the "big payout" where they can leave their job and live the "good life" when they win. Some of my co-workers do this very thing. And they're fairly educated and financially savvy which is a little frustrating. The lottery is a tax on the poor and those who can't do basic math. 

Let's say for example that winning the lottery is one in 175 million. If I recall correctly you have about a good a chance of winning the lottery as getting struck by lightening twice in the same exact place. Very improbable.  Gambling in general offers false hope while taking people's money paycheck to paycheck. Getting rich quick doesn't work. What people need is a "Total Money Makeover". (TMM, Ch. 3)

See this article if you're a nerd like me and want to look at the numbers in more detail. 

C. Loaning Money to Friends or Family

It is said that if you loan money to friend or relatives you are helping them right? Often when loaning money to a friend or relative the relationship will be strained or even destroyed. The relationship becomes that of a master (lender) and a servant (borrower). The way I see it is best just to offer a friend or family member a gift. If they pay you back then great. If the debt or gift is not repaid there are no hard feelings. 

Also keep in mind that with friends or relatives that are constantly making poor financial choices may in fact be detrimental or enabling to them. Carefully consider if a gift will help or hinder the person by encouraging bad behavior.  (TMM, Ch. 3)


Be sure to check out part 2 here!

How have you been rethinking finances recently? Have you read "The Total Money Makeover"? 

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