It’s the start of new a month and time to take a look at the ol’ networth.

Cash – $40,577

Our cash reserves have been growing steadily over the past year as we have been saving for a down payment on a new home. We had a slight decline in cash thanks to the title company depositing our $2000 check made out for earnest money.

Stocks – $706

We decided two months ago to begin depositing our “car payment” into a mutual fund. I put “car payment” in quotes since we aren’t really sending the payment to a bank. We are simply saving money in an account so that we can pay cash for a car when the time arrives. You can read my thoughts on Dave Ramsey’s Drive Free Retire Rich concept here.

Retirement – $17,897

We are currently saving 15% of our gross take home pay for retirement. I contribute 4% of my gross pay to my company’s Roth 401(k) account in order to get the 4% match. The remaining 7% is deposited into mutual funds inside a Roth IRA at ING. My wife contributions are deposited into her 403(b) at work.

Cars – $11,875

The value of our cars is an estimation per Kelly Blue Book.

Student Loans – $7,493

The dreaded student loans. I can’t wait till these are gone, and they will be. Soon. It turns out I have just under $8k left which is the exact amount of the first time home buyer credit! If everything turns out as planned, we will be proud homeowners without any consumer debt by next spring.  Check out an interesting post at Financial Highways regarding this First Time Home Buyers Tax Credit.

Would you like to drive free cars for the rest of your life?  And what if I told you that you could become a millionaire while doing so?  According to a plan entitled, "Drive Free, Retire Rich" on Dave Ramsey's website, you can do just that.  Interested?  If you are like me, then I bet you are.  Who wouldn't want to drive a different car every 5 to 6 years without ever making another payment?

The first time I viewed this video I was so excited and inspired that I made my wife watch the video with me.  I sent the link to my family, and I even posted the link on my personal finance class discussion board for my classmates to view.  The video assumes that by making a car payment to yourself every month for 6 years and investing it in a mutual fund earning 12% each year, you will be able to purchase new cars off the interest earned in the fund.  It assumes that after the first 6 years of payments, you will never again have to touch your principal investment, or have to make another payment and still purchase an $18,000 vehicle every 6 years.

I first viewed this video during the summer of 2008, almost one year ago to the date.  Things sure have changed since then.

Although it appears we have rebounded from the market's bottom, the majority of investors watched their portfolios lose 50% of their values during the past 6 months to a year.  What if you had begun paying yourself that car payment, let's say $500, every month beginning in January, 2003?  You would have invested $36,000 by January, 2009.  Now if your investment had actually grown 12% for 5 1/2 years, then your total investment would have grown to $46,423!  Awesome.  But we all know what happened during the fall of 2008.  For the sake of simplicity, let's assume like many, your portfolio was roughly sliced in half by January 2009, the time when you are supposedly able to make your last car payment and drive free cars for the rest of your life.  Your balance would have fallen somewhere in the $20,000 to $25,000 range.  Now this would enable you to purchase your next car, and you will never have paid a dime in interest to the bank.  However, you would have been sorely dissapointed once you realized that you would have to continue to make car payments to purchase your next vehicle, even if the payment is to yourself. (Assuming your purchase price is near $20,000 as illustrated in the video.)

I do think this is a great idea, and one that my wife and I are working to implement.  But you must keep in mind that if something sounds too good to be true, it probably is.  This video totally ignores the risk involved when investing in stock mutual funds.  Many financial experts recommend keeping any money you will need in 5 years out of the market, because of the risk involved.  This is something to keep in mind when considering if this plan is right for you and your family.

What are your thoughts on this idea?  I would love to hear what others think regarding this one!  You can view the video here.

I just finished one of my all-time favorite Christmas movies, "It's A Wonderful Life."  My wife had never seen the whole movie, so we made a point to do it right.  Popcorn, cokes, and cuddling.  This made for a great evening, but I found my strongly growing sentiments about debt, loans, and money creeping into my thoughts.  Oh to be an adult!  It appears that I've lost my innocence and ability to enjoy this movie for what it is supposed to be.  Here are a couple of thoughts that kept running through my head, no matter how hard I tried to stop them:

All Rich People Aren't Evil
Mean ol' Mr. Potter sure was cruel.  How could he steal $8,000 from the Bailey's, call the cops, suggest that George (Jimmy Stewart) had squandered away his B&L shareholders' money on gambling and women, and still get a good night's sleep?  Now I know that greedy rich people exist in the real world, but if you've read my previous post about becoming wealthy, then you know I find it frustrating that our society is so quick to vilify the wealthy.  The wealthy often have the most to give, and although I have no statistics to throw your way, I have little doubt they do so.  Take Dave Ramsey's plan for example.  His final "baby step" is to build wealth and give.

Don't Spend Money You Don't Have
Mr. Potter made the statement that people should wait and save their money before buying a home, to which George Bailey responded, "how long should they wait and what should they wait for?"  George asked, (rather sarcastically) "if people should wait until their children grow old and leave home?"  So unlike Mr. Potter's bank, George's Building and Loan provided money to people who probably shouldn't have been buying homes in the first place. Who knew that George Bailey/Jimmy Stewart was a subprime lender!?  Of course, everything works out in the end for George Bailey.  If only real life were like the movies.

It's impossible and probably sacrilegious to like Mr. Potter in this movie, but once again, I have to agree with him.  After all, we can blame a significant portion of today's poor economy on those who took out loans for bigger homes than they could afford, with little or no money down.  We can blame another significant portion of today's poor economy on the lenders who lent money to people who couldn't pay it back.  If only people had listened to mean ol' Mr. Potter's advice and saved for a down payment on a home they could afford…

Why does society begrudge those that are successful and wealthy?  After all, the majority of the wealthy are first-generation rich.  In other words, they did not inherit their money, they earned it.  You might also be surprised to learn that the wealthy are often compulsive savers and investors.  They did not just wake up rich one day, the majority sacrificed for years to accumulate their wealth.  The truth is, anyone with a steady income and a little luck can become wealthy one day.  It is not complicated.  In fact, it is very simple.  Here are three basic steps that will set you on the path to financial freedom.

Spend less than you earn
Above all else, you must adhere to this one.  It will be impossible to accumulate wealth if you are spending more than you bring home each month.  The only way to spend more than you earn is to borrow money. If you have ever listened to Dave Ramsey or been in significant debt, then you know the dangers associated with borrowing. 

Invest 15% of your income for retirement
There is no better time to begin investing than today.  The more time you have on your side, the greater effect compound interest will have on your savings.  Be sure to take advantage of any retirement vehicles and matches that might be offered by your employer.  You should also check out a recent post by G.E. Miller at twentysomethingfinance.com to brush up on a change about to take place regarding your 401(k).

Save 10% of your income in an "I made it big fund"
As long as you are spending less than you earn and saving 15% of your income for retirement, you should strive to invest another 10% of your income into an "I made it big fund."  I first read about this concept in a great book entitled, "The Wealthy Barber."  This is the fund that you are supposed to tap to buy your dream home by the lake or vacation property in the mountains.  Make sure you invest this money for the long term by placing it in a mutual fund or possibly even real estate.  The main point is this, by taking 10% off the top of your income now, you should have a nice fat sum at your disposal one day, hopefully well before you are ready to retire.

Of course, you will need to make sure you are following a written budget in order to figure out where your money is going.  But once you have control of your spending and income, it really is quite simple to build wealth. There are two well written books that cover this topic in detail.  I reviewed the first book, "The Millionaire Next Door" by Thomas J. Stanley and William D. Danko, as part of my book review series.  The second is "The Wealthy Barber" by David Chilton.  I'm looking forward to reviewing this book in January so please be sure to return soon!