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2015SPRINGB-X-FAS331-15772-15773 - FAS 331: MARRIAGE/FAMILY RELATIONSHIPS (2015 SPRING - B)

Assignment #1 - DRAFT

Bernadette Gonzales

on Fri, Apr 03 2015, 10:20 AM

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FINANCIAL FREEDOM

1 FINANCIAL FREEDOM

Financial Freedom

Bernadette Gonzales Arizona State University Marriage & Family Relationships

FAS 331 April 3, 2015, Financial Freedom

I always make a budget on a monthly basis. Filling out this form is always one of the most challenging parts in the process of making a budget apart from following the budget. First of all, I sit down with my husband two days before we receive our pay, and we begin by reviewing our expenditure for the month that is ending. We try to find out if we were able to follow the budget the way we had planned or if there was over-spending in any category. Usually, there is always some slight deviation from the budget depending on particular situations but in most cases we always follow it. While making the budget for the next month, we factor in any target that we may not have met and budget for it. We do this by following our priorities for the month.

Budget making is very helpful because it keeps us focused on our money goals by making us avoid impulse buying when we are working on limited resources. It helps to plan on spending and saving by dividing the income into various categories of expenditure and the remaining amount of saving (Dickinson & Gutmaker, 2004). Making a budget together as a family helps to bond and increase the level of trust among spouses or groups therefore promoting teamwork (Burkett, & Armstrong, 2001). Making a budget helps one to know whether to take a loan in order to meet the shortfall in the budget. Lastly, it helps one to be able to make adjustments to avoid problems in future because they can be able to take a picture and see a potential for money problems.

I think that Dave Ramsey's "Baby steps" to becoming debt free and budgeting goals is imperative and helpful. 1 THEY GIVE A STEP-BY-STEP FRAMEWORK FOR PEOPLE TO MOVE FROM LIVING A PAYCHECK-TO-PAYCHECK LIFESTYLE (USUALLY WITH LOTS OF DEBTS) TO A LIFESTYLE OF FINANCIAL INDEPENDENCE. Following these steps will enable a person to move from a life of bondage to a life of financial freedom.

Dave Ramsey's 7 "baby steps" are; (Real Debt Help, web) Baby Step 1: 2 $1,000 TO START AN EMERGENCY FUND.

BABY STEP 2: PAY OFF ALL DEBT USING THE DEBT SNOWBALL.

BABY STEP 3: 3 TO 6 MONTHS OF EXPENSES IN SAVINGS.

BABY STEP 5: COLLEGE FUNDING FOR CHILDREN.

BABY STEP 6: 1 PAY OFF YOUR HOUSE EARLY.

2 BABY STEP 7: BUILD WEALTH AND GIVE!

I have heard of Dave Ramsey. 1 HE IS A HOST OF A WEEKLY RADIO SHOW THAT TOUCHES ON PERSONAL FINANCE TOPICS AND FOCUSES ON STRAIGHTFORWARD BUT ROBUST PLANS FOR HANDLING PERSONAL FINANCE CHALLENGES. I agree with Dave that being debt free should be everyone’s goal. When a person is debt-free, he can budget and plan for his expenses with an apparent mind. He plans for the savings and investments therefore he can plan for his future including retirement (Burkett, & Armstrong, 2001). It is okay to take on a debt only when it is an emergency and on needs not wants. Needs are the things that one needs in order to live and not for the purpose of leisure. One should not enter into debt just in order to buy luxurious things because this can mess them up financially.

I have one credit card, but don have any debt on it. I have learned not to depend on them because of the stories that I have heard about people getting into major financial trouble by depending on them. I use them only when I have to maybe during emergencies that require money when I am in a place where I can not access my money from my account. I always make sure that I pay the debt some days before it is due to avoid paying penalties and other charges associated with defaulting on payments. People who have an enormous debt have a problem of depression and in severe cases can end up committing suicide. Credit card debts are unsecured and usually carry a higher interest rate than other types of loan. It is also not tax deductible.

However, it is important to develop a repayment plan if you have a debt. You can do this by being committed to the repayment plan. A person can achieve this by asking the creditors to reduce the card’s interest rates and prioritize payments by interest rates. One needs to limit spending to basic needs in order to free up cash to pay down debt and suspend charging their cards while in repayment mode (Larson, 2010). More important is that a person should avoid spending unless it is necessary so that they can pay their debt instead of increasing it.

My husband and I are thinking of buying a home. We are in our early 40’s and I think that it is a good idea to save up a down payment on a home instead of taking a large mortgage even if that means renting for a while. We purchased our first home 15 years ago but since then sold it and now we are renting but saving money as well. It takes long time to save up for a home, but the most important thing is that you will be able to avoid the interest that you will be paying while servicing the mortgage. It is good to own a home out of your pocket. It is a bit challenging at the beginning because you will have to cut on your budget so as to meet your monthly expenditure and include the savings for the house.

Experts have a varied opinion in paying off home mortgages. Those who advocate paying off home mortgage argue that debt is always oppressive and affects the emotional well-being of a person. It can cause a heart attack, anxiety, ulcers and migraines which affect people negatively. Paying off home mortgage can reduce the risk of an individual losing their homes and the investment that they have put in that house if they fail to complete their mortgage repayment Fox Sports F1, web). If one pays off their mortgage earlier, they will be able to reduce the number of years that they need to pay off the mortgage therefore reducing the amount of money required to needed as interest.

The experts who argue against paying off home mortgage claim that one has a high-interest rate debt. It is because mortgages that run for many years have low-interest rates; therefore, it is better to pay student loans and credit cards which have higher interest rates fast then pay the mortgage slowly. A person’s assets are in retirement plans because planning to withdraw from retirement plans to pay off the mortgage may end up paying income taxes on your lump-sum withdrawal from your retirement plan (Larson, 2010). Increased income taxes takes place when withdrawing from 401(k), or IRA may end up putting them in a higher tax bracket and could negate their tax savings made on the mortgage interest. Finally, one gets a tax break on the mortgage interest because if one is in a high tax bracket and has a relatively large mortgage, he gets a break on their federal income tax for the benefit.

We have two children, and we have been saving for their college fees which we always set aside some money for their fees in my monthly budget. While it is true that college tuition and fees continue to outpace inflation, it is also true that experts expect this trend will continue. For a child who is very young, this could mean tens or even hundreds of thousands of dollars will be needed to reach their education goal. Parents will need to save almost double what they are saving today on a monthly basis in order for them to be able to meet the tuition fees (College Savings Calculator, web). I have talked with my spouse about paying for our children's fees. That is the main reason we set aside some money for the college fund for our kids on a monthly basis saving them the agony of paying part of it or sourcing for scholarships.

I have thought of my retirement, and I think that people should begin thinking about retirement immediately they get a source of income. Beginning to think about retirement as early as they start issues start working gives them sufficient time to save enough money to take care of their retirement. They can save when they are still strong so that by the time they are old and unable to work they have something that they can sustain them. The reason why one should not depend on inheritance from their parents to retire on is because one does not know what can happen in the future. Something tragic may happen, and the father loses all their wealth therefore it will be catastrophic for anybody depending on that inheritance for retirement (Dickinson & Gutmaker, 2004). The inheritance might not be sufficient for a person to depend on for their retirement depending on what it is. The options that I have for my retirement is to invest in income generating projects such as real estate so that I can be able to secure my retirement.

References

Burkett, L., & Armstrong, B. (2001). Making ends meet: Budgeting made easy. S.l. Crown Financial Ministries.

College Savings Calculator | College Costs | CollegeInvest. (n.d.). Retrieved from https://www.collegeinvest.org/tools-resources/calculators Dickinson, D., & Gutmaker, K. (2004). House on a budget: Making smart choices to build the home you want. Newtown: The Taunton Press.

Fox Sports F1. (n.d.). Retrieved from http://www.racematelive.com/news/detail/item1035349

Larson, J. S. (2010). Do I need it? or do I want it? Making budget choices. Minneapolis, MN: Lerner Publications Co.

3 REAL DEBT HELP - GET OUT OF DEBT WITH DAVE RAMSEY'S TOTAL. (n.d.). Retrieved from http://www.daveramsey.com/new/baby-step-3/ My Budget This is the exact budget that my husband and I use. We are using an income of $85,000 for a family of 4.

Category Amount

($85,000/12 = $7,083.33 a month )

Federal Taxes (15%) $764.42

State Taxes (4.9%) $241.54

Health Insurance 267.64

Dental Insurance 14.26

Vision Insurance 2.47

Rental Payment $1300

Gas Bill $80

Electric Bill $95

Santa Fe County Waste Management $50

Cable/Phone/Internet Bill $240

Cell phone bill $305

4 CREDIT CARDS $100

Car payment(s) $1000

Car insurance $221

Gas $250

Renters Insurance $22

Daycare/Preschool 0

Groceries $400

Short Term Savings $150

House Repairs $45

Car Repairs $50

Car Registration $25

New Cars $100

Vacation fund $50

Carpet cleaning fund $50

Health (co-pays, vaccines, prescriptions) $25

Pest Control $10

Christmas Fund $25

Pets $25

Birthday parties $25

Clothing $100

Hair cuts $50

Personal cash $100

College Expenses (Self) $300

Entertainment $100

Kids stuff $75

Dry cleaning $50

College Fund (2 kids) $300

Miscellaneous $75

TOTAL $7,083.33

Citations (4/4)

1. 1http://www.thesimpledollar.com/a-deeper-look-at-dave-ramseys-seven-baby-steps/

2. 2http://www.daveramsey.com/new/baby-steps/

3. 3Another student's paper

4. 4http://www.consumerreports.org/cro/2013/02/budgeting-and-saving-for-parents/index.htm

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