Ask Dave: Guilt and cynicism

Dec. 31, 2011 at 6:31 a.m.

By Dave Ramsey

I've noticed that lots of people get defensive when it comes to talking about money and living on a plan. Why is this? - Tonya

Dear Tonya: I think it's because there seem to be two negative emotions connected to people who have failed with money: guilt and cynicism. They feel guilty because they're terrible when it comes to handling money, and they don't want to talk about it.

Cynicism may be more prevalent in people who feel like they've been messed over by some "money expert" out there. Maybe they got caught up in a deal that went bad, or they lost a lot of money following their adviser's advice. The results can be they end up believing that anyone connected to the financial arena is a bad, incompetent or manipulative person.

If you've made mistakes with money, that just makes you human. Everyone alive has messed up financially, and that includes me. I made mistakes with lots of zeroes on the end, but I managed to turn things around. Now, I'm running my own company based on those mistakes, how to fix them and how to keep people from making the same mistakes I did years ago.

Sometimes, people just don't want to be around others who are trying something new or different and winning in the process. Then, there are people in life - I call them losers - who just don't want anyone else to win, because it reminds them that they're not winning. Being stuck around those kinds of people is no fun for anyone.

When is it OK to have a little fun and get a boat or a motorcycle when you're doing the Baby Steps? - Jennifer

I always recommend that folks complete the first three Baby Steps before running out to buy a bunch of toys. Baby Step 1 is to save up $1,000 in the bank for a starter emergency fund. Baby Step 2 is to pay off all your debts, except the house, using the debt snowball method. Then, on Baby Step 3, we go back and fully fund the emergency fund to contain three to six months of expenses.

After you've gotten this far, it's OK to have a little fun and save up for a toy. But don't forget about Baby Step 4, which is putting 15 percent of your income into pre-tax retirement plans, like mutual funds and Roth IRAs. Don't neglect saving for college, either, if you have kids. That's Baby Step 5.

Baby Steps 6 and 7 are paying off the house early and building wealth and giving. Everyone likes having fun, and there's nothing wrong with a few toys if you can afford them. Just make sure you don't sacrifice your financial health for the shiny things.

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