Wednesday, March 14, 2012

March Money Madness: The Baby Steps

Good day ladies...i thought i would continue the March Money Madness.

Since Dave Ramsey has been pretty influential in my financial peace walk, 
i wanted to share his Seven Baby Steps.  
The steps are basically a way to help you:
use your own money to build wealth,
 get out of debt, 
save money, 
and give back as much as you can.

I have only read the book but never taken his Financial Peace classes.  

All this information can be found at Dave Ramsey's book 
and website if you need more information.

Baby Step 1: $1,000 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. 
It’s not a matter of if these events will happen; it’s simply a matter of when they will happen. 
If a real emergency happens, you can handle it with your emergency fund. No more borrowing. It’s time to break the cycle of debt!

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. 
The point of the debt snowball is simply this: 
You need some quick wins in order to stay pumped up about getting out of debt!
 Paying off debt is not always about math. It’s about motivation. 
Personal finance is 20% head knowledge and 80% behavior. 
When you start knocking off the easier debts, 
you will see results and you will stay motivated to dump your debt.
(Seriously, this can take FOREVER if there is no focus!!)

Baby Step 3: 3 to 6 months of expenses in savings.  

Ask yourself, "What would it take for to live for three to six months if i lost my income?"  Use this money for emergencies only: incidents that would have a major impact on you and your family.  Keep these savings in a money market account.  Remember, this stash of money is not an investment; it is insurance you're paying to yourself, a buffer between you and life. 

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. 
Dave suggests investing 15% of your household income 
into Roth IRAs and pre-tax retirement plans. 
Don’t invest more than that because the extra money 
will help you complete the next two steps: 
college savings and paying off your home early. 
Why shouldn’t you invest less than 15%?  
Some people choose to invest a small amount, if anything, because they want to get a child through school or pay off the home in a hurry. 
But the kids’ degrees won’t feed you at retirement, and if you throw all your money into your mortgage at this point, you’ll end up having to sell the house.

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.
In order to have enough money saved for college, you need to have a goal. 
Determine how much per month you should be 
saving at 12% interest in order to have enough for college. 
If you save at 12% and inflation is at 4%, 
then you are moving ahead of inflation at a net of 8% per year!
Never save for college using:
Savings bonds (only 5-6% growth)
Zero-coupon bonds. (only 6-8% growth)
Pre-paid college tuition (only 7% inflation rate)

Baby Step 6: Pay off your house 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.
As you attack this last debt, you will gain momentum much 
like you did back in the second step of the debt snowball. 
Remember, having absolutely no payments is totally within your reach!

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!
Golda Meir says, “You can’t shake hands with a clenched fist.” 
Vow to never hold your money so tightly that you never give any away. 
Hoarding money is not the way to wealth. Save for yourself, save for your family’s future, 
and be gracious enough to bless others. 


Honestly, the Baby Steps are long term money plans, 
so no worries if you are far away from the first baby step.  
Mr. Pancakes and i are in between Baby Steps 2 and 3 because he wants to pay his student loans on his own so hopefully by the end of the year, we will be at Baby Step 3.
I can't wait. 
 It's all about focus, 
and  remaining motivated to the goal!!


Anna Catherine said...

I love Dave! Listen to the free hour long podcast of the show most every day. I recently finished the 3-6 mos. expenses fund, and now I'm currently working on paying down the house (no kids to save for). Just last month I reworked my budget to move the amount that was going toward the 3-6 mos to the house, I love watching the house balance go down!! Great post. To me it's been amazing to see God's blessing financially when I'm taking care of business and giving.

kyna... said...

I love Dave Ramsey! His advice is so simple and logical!
♥ Kyna

Ioana-Carmen said...

Lovely post dear! :X

Lindsey said...

We are doing Dave Ramsey right now and it is so good. He does make it easy to follow and seem manageable!


Great tips! Dave Ramsey is fabulous. It all seems achievable, doesn't it? xoxo

Heather said...

More great advice! Dave Ramsey is definitely on point.

Alicia@ Mommy Delicious said...

I've never heard of this book, I'm always reading something that Suze Orman writes or this other woman financial literacy writer whose name escapes me right now. But I like these baby steps and they are quite attainable if we do it, well, step by step.

Krysten @ Why Girls Are Weird said...

Really great advice, I need to get this book!

P.S. I'm hosting a Shabby Apple giveaway, come enter!

CeCe @Frugalista Married said...

Great tips! If only I made more money I could start doing all of this!

THE mom said...

So I copy and pasted all this GREAT info and printed it out. Emergency fund...we are working on ours at the moment too.
I've heard a lot of things about how Dave Ramsey's ideas are awesome!
P.S. I have a little something for you on my blog :)

girl daydreaming said...

O what a beautiful post! So often in our walk to get closer with God, we forget the peace that is needed in the everyday practical things in life. Money is a great area for peace. I'm so happy you shared this post. And I appreciate your gentleness, reminding us to take baby steps. Lovely! Thanks!

Lauren said...

we did FPU in the fall & while we're not following it down to every last detail it's definitely making a difference for us & our new family of 3! Great post!

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