Dave Ramsey’s Baby Steps
There are many great ways to plan financially! The process that my husband and I have decided on is Dave Ramsey’s Baby Steps! I’m sure many of y’all have heard of this, but for those of you who have not, here’s a synopsis.
Dave Ramsey’s 7 Baby Steps
$1000 Emergency Fund
This emergency fund is for incidents like car troubles, an unexpected visit to the doctor, and any other crazy random thing life decides to throw at you. The goal is to do this as quickly as possible! So sell some stuff, work extra hours for a while. This is a great start to financial freedom.
Dave Ramsey suggests placing this money in a regular free checking account separate from the one you use for day to day spending.
Step 2 of the Baby Steps is to get rid of all of your debts except for your house. The debt snowball method requires you to list all of your debts in order from least amount owed to the most amount owed. Start out with your smallest debt. Once your smallest debt is paid off, take the money you were paying towards the smallest debt and begin paying off the second smallest.
Keep doing this until all of your debts are paid off.
3-6 Month Emergency Fund
This is your full emergency fund. You need this in case you were to lose your job or if something were to happen to you or a family member and you weren’t able to work for a while. Dave Ramsey’s suggested amount is between $10,000 and $15,000. But take into account your monthly budget and multiply your expenses by 3 or 6 depending on how much of a cushion you would like.
Now that your emergency fund is built up and you’re out of debt (besides your home if you have one), your cash flow should be pretty free! Take 15% of your income and start to invest it into a 401k (or a Roth IRA if your company doesn’t match your contributions or if you’re self-employed.)
A couple of hundred dollars a month today could make you a multi-millionaire tomorrow!
College Fund For Children
Whether or not the education system will be the same in the future or not is totally up in the air. But it’s better to be safe than sorry, right?! Baby Step 5 is to start a college fund for your children. Whether or not we plan on doing this, we haven’t discussed yet, but seeing as though Franklin and I are entrepreneurial, we can’t ignore the possibility that our kids may or may not be the same.
Dave Ramsey suggests investing in a 529 plan or an Education Savings Account (ESA).
You could even open a regular investment account
Pay Off Your Home Early
Many people mistake homes for assets. This is only true if you own the home and you’re making money off of the home (i.e. renting it out). Until then a house is a liability. It’s costing you money. Your house is the only thing you have left to pay off! Dave Ramsey suggests paying off your home as soon as possible and even refinancing to a “15-year fixed-rate mortgage to pay off your home faster.”
Build Wealth & Give Generously
This is the time where you can max out your 401k or Roth IRA! There could be no greater feeling than to be debt free, cash flow positive, money in the bank, and giving to people in need. Take the knowledge that you’ve gained in the journey and teach it to someone else!