My outrageous assertion is this: anyone at any income level can work Dave Ramsey’s baby steps and build wealth. I firmly believe in true capitalism and that anyone from any walk of life can change their behavior and coupled with a little head knowledge of money, can build wealth and be prosperous. It’s not easy. In my personal transformation there has been a complete re-alignment in my values, attitudes toward debt and overall way of thinking. Compared to how I used to live this newer way of life has been hard. But it’s worth it!
To the Occupiers, and for good measure for anyone that knows somebody plagued by the Occupy rhetoric I’ll say this. Jealousy is simply wanting something that someone else has. Envy is the spiritually deadly combination of wanting something that someone has, not believing that you can attain the same AND not wanting that person to have it either. You are the forefront display of envy. You are dead wrong in your accusations and assertions that demonize corporations and “The 1%.” Even in the face of government intervention that slows our economy, capitalism has still curb stomped faux socialism to provide economic opportunity for anybody across this great country to be able to climb the socioeconomic ladder. You are either poor heading towards rich, rich heading towards poor, poor going to stay poor, or rich going to stay rich. Take a wild guess at where I KNOW you occupiers are heading and are going to stay at for as long as you hold dear your socialist rhetoric! With the right head knowledge, behaviors, spirit and will power, anyone from any economic situation can win with money and build wealth, here’s how:
The Set-up
· I am a high school graduate and did not attend college
· I work full-time earning the California state minimum wage
· I live with my parents and pay them a Dave Ramsey approved rent of 25% of my take home pay
· I ride public transit and do not own a car
· State minimum wage when I graduated high school was $6.75 an hour
The best example I can draw from is my own personal life. For the ongoing scenario I draw upon my own personal life and to the best of my abilities forecast how life would have panned out if I had never gone to college and worked a minimum wage job from the time I graduated high school until now. Some events I paint as I imagine they would have realistically happened, and others I draw a parallel to how they actually have occurred. So without further adieu, here is what my budget would have looked like the year I graduated high school working a minimum wage job in California.
Net Monthly Income | $994.50 |
Bus Fare | ($75.00) |
Ramsey Rent Rules | ($248.00) |
Groceries | ($150.00) |
Clothing/Laundry | ($60.00) |
Term life Insurance | ($25.00) |
Utilities | ($50.00) |
Entertainment | ($100.00) |
Amount leftover | $286.50 |
The first thing that strikes me is the lack of wiggle room. In paying just basic expenses there’s a pretty thin needle at work. I did find it odd that I could not back track what METRO bus fares have been over the last decade in Los Angeles, so I took the monthly fare as it currently stands and charged it forward. After all, when was the last time your city LOWERED a fee? Which is why I think it would be even more important to have 6 months worth of expenses sitting in the bank and brown bag my lunch every day. Things like drinks after work and hitting the town on the weekend are suddenly very ugly and detrimental options, the same for vacations. It would take me pretty much an entire year to build a 6 month liquid emergency fund, but to me and under the circumstances it becomes that much more important to be prepared for anything that life could throw my way.
In technical terms Dave Ramsey recommends paying no more than 25% of your net income towards housing. Short of finding a co-op living space, this would be pretty much slim pickings even in my hometown, so I work out a deal with mom and dad. I continue to live with them after high school and pay them a monthly rent stipend of 25% of my take home pay. I also make contributions for groceries and utility bills.
Two huge positives in this scenario are that I do not have student loan debt AND I do not have credit card debt (which actually was true when I graduated from high school and has been true for the last 3 years). Now let’s assume I do a few smart Ramsey things, but not everything. I make it a priority to spend a year building up a 6 month emergency fund, but I’m not setting any money aside for retirement. All I do with my disposable income once the 6 month emergency fund is done is keep it in a separate and liquid savings account. The mantra that I keep telling myself is that if I live like no one else, later I get to live like no one else.
Pay raises come in 2007 and 2008 when the California state minimum wage is raised to $7.25, and then $8.00 an hour, respectively. For 7 years I work like an animal and live below my means. At best on my own the highest point my disposable income reaches is a little over $400 a month. The result of my efforts is that by 2010 I would have saved $24,600 just in a simple low-interest savings account. In 2010 I get married. According to the US Census Bureau the median household income for that year was $50,000 so let’s play with the averages and assume that “scenario me” marries someone that brings an income that levels us out with the national average. Our budget looks now like this:
Net Monthly Income | $3,125.00 |
Bus Fare | ($150.00) |
Ramsey Rent Rules | ($781.25) |
Groceries | ($300.00) |
Clothing/Laundry | ($120.00) |
Term life Insurance | ($50.00) |
Utilities | ($100.00) |
Entertainment | ($200.00) |
Amount leftover | $1,423.75 |
Now let’s say my new bride and I continue to live like no one else so that we can live like no one else. We get married on the cheap with just a civil ceremony. We also continue to follow Ramsey Rules for rent. While it’s true this doesn’t help snag a “great” apartment, but in a town literally a few miles from where I grew it, this amount finds you a studio apartment that is actually UNDER the Ramsey recommended amount, see the “as of today” real life example below:
With our newly boosted disposable income it now takes us 4 months to put together a beefed up 6 month emergency fund thanks to a few jump in expenses. All the way through February of 2012 we continue to work like animals and live like no one else. We live on our own as a couple and cut every expense imaginable, all the while saving our disposable income in a simple low-yielding savings account. By March of 2012, from what I saved since high school and what we’ve saved since our marriage began, we have saved, EXCLUDING the emergency fund, $55,900 in cash.
Sure I’ve made some assumptions like: together we take public transit to work, my spouse brings no debt to the relationship but also brings 0 existing savings to the relationship. So many variables, so little time, and at the end of the day it’s my blog so this is the way I’ll frame it J
So what do we do with $55,900 in cash you might ask? We follow the Ramsey rules and use this for 20% down on a home while finding a 15 year fixed rate mortgage where the monthly payment doesn’t exceed 25% of our take home pay…aka…what we’ve already been paying on rent. For those of you quick with a calculator $55,900 as 20% of a down payment will buy you a home at roughly $279,500 or something that looks like this 3BR place WITH A POOL near my hometown:
But wait! There’s more! With spending under control and a responsible home mortgage, let’s say we maintain the national average for household income for 2010 and neither I nor my spouse ever get a raise. We have a monthly disposable income of over $1,400 that we can use to: save for our kids’ college, save for a car, pay extra on the mortgage, save for vacations, buy homeowner’s and title insurance, and the list goes on and on. And now we decide to save 15% of our gross income towards a ROTH IRA, investing according to Dave Ramsey: in growth, aggressive growth, growth & income and international mutual funds that have been around for at least 10 years and have average annualized returns of over 12% since inception. We save for retirement this way for the next 30 years, otherwise known as our working lifetimes, and now, I am close to 60 years-old and together we have $2,206,197.06 JUST IN OUR RETIREMENT ACCOUNTS! I would have worked my entire life earning minimum wage and can retire not just a millionaire, but a multi-millionaire!
Suddenly those first seven years of living with my parents at the start, paying 15% income taxes when I was single, getting married and living below my means with my wife and paying 25% income tax along the way, taking public transit, never leasing or financing a car, never borrowing money and taking whatever work I can find by scratching and clawing, well it sure panned out didn’t it? What if I’m half wrong because I projected some costs to be too low, or my wife doesn’t make as much to bring us to the national average, or “scenario me” encounters the same unexpected health costs that “real me” has faced to the tune of a few thousand dollars out of pocket? Then I’m still a millionaire!
Collectively we’ve got to wake up and start implementing behaviors and money practices that look out for our own personal and individual greater good. We need to think for ourselves. Debt is stupid and investing and making interest is greater than borrowing and paying interest. This country truly is the land of opportunity. I just painted a verbal picture that someone who earns minimum wage their entire working lifetime can still retire with dignity, change their family tree and leave a legacy. I’ll conclude this unbelievably long assertion with a quote (loosely paraphrased) from my sage, Dave Ramsey.
“Money is not like cake, it’s more like a candle. If you slice a cake and give yourself a bigger piece there’s less for me. But if you light a candle and use it to light other candles no candle is diminished, there is even more light. Communists and socialists believe money is like a cake and if you get some, there’s less left for me. But capitalism is like candles. It doesn’t mean you lose just because I win.”
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