Have you ever wondered why I am not getting any traction with my finances? You think to yourself, “I make decent money, but where is it all going?”
This is why I use the Dave Ramsey seven baby steps as the road map on how to get out of debt and build wealth. It gives you the step by step plan you need to take control of your money.
The Seven Baby Steps:
- $1,000 beginner emergency fund
- Debt Snowball
- Emergency fund of three to six months of expenses
- Invest 15% of your income for retirement
- Save for your children’s college
- Payoff the house early
- Build wealth and give a bunch of it away
Baby Step 1: $1,000 starter emergency fund
This beginner emergency fund is the beginning to the road of getting your financial house in order. The goal is get $1,000 as fast as you can get it. This should be done in a month or two. This will help catch any of those, “gotchya’s” while you are getting out of debt. (Note: if you’re household makes less than $20,000/year you only need to get $500 in the bank).
Baby Step 2: Debt snowball
The debt snowball is where you make a list of all your debts smallest to largest by balance, with the exception of your house. You start by paying minimum payments on everything but the smallest debt. Then using any of your extra dollars you can squeeze out each month and payoff the smallest debt. Once that debt is paid, add what you paying on the debt that has now been paid off to the next smallest debt. Repeat this until all of your debts have been paid off (except your house). Then you are DEBT FREE!!
Baby Step 3: Emergency fund of three to six months of expenses
With that same level of focus, take every extra dollar and apply that to your starter emergency fund until you have saved up three to six months of expenses. Once you have completed the first three steps, you have laid the financial foundation to now be able to invest for the future and live in financial peace.
Baby Step 4: Invest 15% of your income for retirement
Now it is time to start building that nest egg for retirement. Invest 15% of your income into Roth IRA’s and pre-tax retirement plans.
Baby Step 5: Save for your children’s college
While you are doing baby step four, you should also be doing baby step five and six together. Baby step five is where you use good Educational Savings Account (ESA’s) and Section 529 plans to save for your children’s college education.
Baby Step 6: Payoff the house early
The final piece of the puzzle before you reach the finish line. Take all of the money you have left over and pay off the mortgage on your home early.
Baby Step 7: Build wealth and give a bunch of it away!
Imagine what it will be like to owe nothing to anyone. Think about not only how much peace you will have in life, but also how much will you be able to bless others.
If you would like to find out more on how to use these baby steps to get control of your money click here and sign up for a FREE 30 minute consultation.