Dave Ramsey, the man behind The Total Money Makeover and The Financial Peace University, is a Financial Guru.
(Links lead to DaveRamsey.com and fellow PF blogger posts)
- $1000 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.
- 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.
- 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 â€œextraâ€ money into investments quite yet. It’s time to build your full emergency fund.
- Invest 15% of household income into Roth IRAs and pre-tax retirement
When you reach this step, you’ll have no paymentsâ€”except the houseâ€”and a fully funded emergency fund. Now it’s time to get serious about building wealth.
- College funding for children
By this point, you should have already started Baby Step 4â€”investing 15% of your incomeâ€”before saving for college. Whether you are saving for you or your child to go to college, you need to start now.
- Pay off home early
Now it’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.
- 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!
I know many of us have implemented the steps in various ways or have taken a different approach to snowball our debt. But if you are just starting on your debt free journey or are in need of a refresher, Dave Ramsey’s 7 Baby Steps is a good place to start (as many of you already know).
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What step are you on?
And if you’re out of debt – how long did Step 2 take you to reach all debt PIF’d (Paid In Full)?