Before we got married – out pastor then recommended that as part of financial counseling we were to go through the Financial Peace University (FPU) with Dave Ramsey. Something that became a household name and a timeless gift to us which was to change the way we viewed money and debt.
Today I want to revisit the 7 Baby steps as a reminder to myself and others still working on getting out of debt that it’s possible to get out of debt and live a debt free life.
Baby Step 1
$1,000 to start an Emergency Fund
An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen. Dave Ramsey Usually says “Go crazy and get this money in the first month of your plan… pay minimum on everything until you get this cash in savings.”
Baby Step 2
Pay off all debt using the Debt Snowball
List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first. From experience- this is the step you start realizing that you can actually get out of debt. When the cards start getting paid, one by one, the adrenaline start to kick in. This is also the step where most people stay, and people sometime get a burnout depending on the amount of debt you are tackling.
Baby Step 3
3 to 6 months of expenses in savings
Once you complete the first two baby steps, you will have built serious momentum. But don’t start throwing all your “extra” money into investments quite yet. It’s time to build your full emergency fund. On this stage the only debt that you should have is the house.
Baby Step 4
Invest 15% of household income into Roth IRAs and pre-tax retirement
When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth. Use your matched 401(k) 403(b) and if you are not getting a match, Dave Ramsey advice is to fully fund the Roth IRA. He also says that this is the time to review the insurances to make sure you have enough insurances of all types.
Baby Step 5
College funding for children
By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now.
Baby Step 6
Pay off home early
Now t’s time to begin chunking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments. A sound advice of patience from Dave Ramsey is “it may be two, three even four years to get to this step, but when you do you will be able to knock that house debt very quickly.”
Baby Step 7
Build wealth and give!
It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It’s really the only way to live!
Hope that this baby steps as stated by Dave Ramsey help you to jumpstart your journey into debt-free life or will re-ignite that passion that you once had when you started these steps.
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