Financial Peace With the Prince of Peace

My favorite mantra delivered by Dave Ramsey is the one that he uses to end his radio show:

The only way to true financial peace is to walk daily with the Prince of Peace.

Our lives should be focused on primarily serving our Lord, our comfort and our King.  Today’s morning prayer from the Liturgy of the Hours speaks of the peace the Lord provides:

Alone with none but thee, my God,
I journey on my way.
What need I fear, when thou art near,
O King of night and day?
More safe am I within thy hand,
Than if a host did round me stand.

My destined time is fixed by thee,
And death doth know his hour.
Did warriors strong around me throng,
They could not stay his power;
No walls of stone can man defend
When thou thy messenger dost send.

My life I yield to thy decree,
And bow to thy control
In peaceful calm, for from thine arm
No power can wrest my soul.
Could earthly omens e’er appal
A man that heeds the heavenly call!

The child of God can fear no ill,
His chosen dread no foe;
We leave our fate with thee, and wait
Thy bidding when to go.
‘Tis not from chance our comfort springs,
Thou art our trust, O King of kings.

As we seek to improve our financial lives, let us always remember to first find peace in the Prince of Peace!

Measuring Progress – Tracking Net Worth

As we budget, save, grow our income, and practice self-control in spending, it’s important to have a method for tracking progress.  After all, if we are indeed working to improve our financial lives, shouldn’t we have a way to measure our improvement (or regression)?

I have a coworker who has turned into a terrific friend and we’ll often talk personal finance in our downtime.  He shared with me his primary method for tracking progress in his financial life:  Tracking net worth.  This was definitely a “light bulb” moment and something I started doing (in November 2012) after we had the discussion.

In summary, you list your assets, list your liabilities, and take the difference, which gives you your net worth.  I calculate (actually Microsoft Excel calculates) my net worth every month and this lets me see how I’m doing financially.  Increasing the value of my assets or decreasing debts will send my net worth in the right direction.  Alternatively, keeping monthly tabs on my net worth lets me see where I might be slipping and hurting my net worth, giving me the chance to correct bad habits.

The following is the Excel spreadsheet I use to track my net worth:

Net Worth Spreadsheet
Net Worth Spreadsheet

If you would like to download this spreadsheet, click here.  The spreadsheet includes some simple formulas, including what percentage each asset comprises of each asset category.  Columns F, G, and H detail my net worth history and columns J through P detail what comprises the net worth value.

Categorizing your assets and liabilities can turn into an exercise, as you’ll need to consider whether certain items are assets, liabilities, or both.  For example, you could list your home’s equity as an asset, but you’ll also want to list your mortgage as a liability due to it being a debt owed to the bank.

As you keep track of your net worth, I think you’ll find a sense of accomplishment if you’re growing your net worth.  This will provide added motivation to steer your financial ship properly.  If you’re going in the wrong direction, use this as a tool to help identify what’s driving your loss and what you can do to fix it.  Good luck!

The Debt Snowball

One of my favorite concepts from Dave Ramsey’s Financial Peace University (FPU) is the debt snowball.  The debt snowball is the second of Dave’s baby steps to financial peace and is a technique for paying off debt that pays off the smallest debt first, the next smallest debt next, and so forth.

The debt snowball starts with you listing all of your debts.  You then pay the minimum on all your debts except for the smallest debt.  With the smallest debt, you pour all of your excess cash to paying it off.  An example:  If you have a $40,000 student loan, a $2,500 credit card bill, and a $15,000 outstanding balance on a new car, the debt snowball technique has you pay the $2,500 bill first, the $15,000 bill second, and the $40,000 last.  While you’re paying the $2,500 credit card bill, you continue making minimum payments on the two other debts.  The end result is that you pay off the smallest debt quickly.

You may have noticed that I made no mention of considering interest rates when determining which debt to pay first.  From a mathematical perspective, it certainly makes more sense to pay off debt with the highest interest first.  Dave Ramsey teaches, though, that if personal finance was strictly a mathematical issue, hardly anyone would be in debt.  On the other hand, Dave recognizes that personal finance has a large behavioral and psychological component to it.  By paying off the smallest debt first, you receive a psychological victory that rewards your discipline.  Having achieved this small victory, you’re then more likely to stick to your debt reduction plan.  You then focus on the second debt and gaining another psychological victory.