Following Dave Ramsey's Baby Steps

When our finances were so bad and everything seemed hopeless, we found Dave Ramsey. Everything seemed more manageable with his plain and simple straight talk about money.

Following his advice is not going to get you rich quick. But lets face it, how many of those other get rich quick schemes have actually worked? I know I tried a few and what did I have to show for it, just more debt.

It's not going to happen overnight, it will take work and sacrifice. A lot of sacrifice, but in the end it will be worth it especially if your goal is to get out of debt and be financially free.

Financially free, now that's an ambiguous word. It means different things to different people. It might even change it's meaning in your own life. Financially free to me use to mean having enough money that I could do anything and buy anything I wanted without worrying about the cost. And I use to have big wants. Now though, being financially free to me means having enough so I'm not stressing. Our needs are taken care of and then whatever else is just icing on the cake.

I want to list Dave Ramsey's baby steps so you can see what we are working with.

1. Have a $1,000 emergency fund.

2. Pay off all debt using the debt snowball, except the house

3. 3-6 months of expenses in savings

4. Invest 15% of household income in Roth IRA's and pretax retirement

5. College funding for the kids

6. Pay off home early

7. Build wealth and give

These steps are found on Dave Ramsey's site listed at the bottom of the article.

 

Having a $1,000 emergency fund, is so important. And I mean for real emergencies, not a sale at Macy's. And if you use your emergency fund build it back ASAP, even if that means pausing your progress in another baby step. Once your emergency fund is restocked then continue in whatever baby step you are in. Our emergency fund has been a lifesaver to us, when the car has needed an unexpected repair or whatever.

Pay off all debt using the debt snowball. You need to sit down and make a list of the debt you have. Who the debt is owed to, how much, and the interest rate. And then you get to decide how you will pay it off. We chose to pay off those debts with the smallest amounts first.  Our interest rates were about the same and we wanted to feel like we were making progress. Once a debt is paid off, you do not have “extra” money to play with, roll the amount you were paying on that debt over towards another debt. Until all your debt is paid off. There gets to be a thrill whenever you see another debt paid off and the excitement grows.

Have 3-6 months expenses in savings. This is where we are, building up the savings. This is how much you would need to cover the basics if you should lose a job, become momentarily disabled, etc. We don't want to focus on the what-ifs, but we do need to be prepared in case it should happen. The basics of mortgage, food, and utilities to live for 3-6 months. Not the eating out, the shopping trips, and all the extras—just the basic needs for living.

Investing 15% of household income in Roth IRA's and pretax retirement. Okay I will admit my husband wanted to have something started for retirement so we did the max matching amount at his work for his 401K. It is not the full 15%, I think it actually comes out to 9% when you figure the amount we are putting in and how much his company matches. So, we have jumped the gun a bit here which is making saving the 3-6 months expenses take a little longer.

College funding for the kids. We don't have college funding set up for our kids yet. Sometimes when I am listening to others talk about how much college funding they have for their kids I start to feel like a bad parent and want to jump on the college funding bad wagon.

And then I look at my parents, while they didn't have college funding set up for us kids, they did try to help as much as they could. And they are now just a few years from retirement and don't have close to enough they will need to retire. I am stressed out about their retirement.

Better for you to be taken care when you are old and unable to work and have the kids work for their college. And I think they might just appreciate it more if they have to help pay for it. Not so much partying and skipping class.

Pay off home early. We are so excited to get to this point. It will be so nice when our home is ours, and not jointly owned with the bank. If something should happen, no one can take our house. Now that's security and peace of mind.

Build wealth and give. Okay, I will admit this is my favorite step. This is the step that will let me do and buy things easier! Just a quick note here, you don't have to wait till this step to give. Dave talks a lot about giving a tithing to your church, which we do. We give 10% of our income in tithing to our church. This helps us keep God in our minds and lives even the day to day decisions. And we feel that we get so many blessings in return for that 10%. You can also give of your time and talents as well. But it will be great when we can give more.

As you can see the baby steps are just that baby steps. When they are looked at one step at a time things seem a little more manageable and hopeful. Don't worry about how long you are taking in each step just start taking that step. We took a while in baby step 1, at that point $1,000 seemed like so much. And then we took even longer in baby step 2, I thought at the beginning that we were never going to get out of debt. But we are!

So take those first steps now. And if you fall get back up and keep trying!