My Getting Out Of Debt (GOOD) Plan.
Back in March 2010, I was ready to get into better financial shape. Having to finance my own way through college, I left in my wake a financial mess including everything from college loans to credit card debt totaling $51,674.13. That’s a lot of debt!
I knew I wanted a change but my financial plan wasn’t working. I needed a new strategy.
I came across Dave Ramsey and his work by accident one day as I was shopping at Costco. I didn’t buy his book on that trip but the title of his book, The Total Money Makeover: A Proven Plan for Financial Fitness, really got me thinking. I did some research on him and his work. It was his no-nonsense, common sense approach to personal finance that won me over. Plus, his plan is not complicated.
- 5 reasons to be debt free. (2012/1/17)
Seven Baby Steps to Financial Peace
Here is a look at Dave’s plan to financial peace. And it’s only seven steps!
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.
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.
Baby Step 3: Build the emergency fund
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.
Baby Step 4: Invest 15% of household income for 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.
Baby Step 5: College fund 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 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.
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!
Learn more about Dave Ramsey and The Total Money Makeover: A Proven Plan for Financial Fitness at his website daveramsey.com.