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THE 7 BABY STEPS
Following Dave Ramsey's Plan:Step 1 $1000 in Starter Emergency Fund.
Save $1000 in an emergency fund. This money is for Emergency Use ONLY. Not for buying Christmas presents, new tires, etc...you need to expect those expenses. Put this money in a secure place but NOT in your checking account.
Step 2 Pay off all debt using the "Debt Snowball" (Except the house)
Pay off your debt SMALLEST to largest-regardless of the interest rate. Paying off the small ones will give you maximum motivation to keep you going strong throughout this debt elimination process. The interest rate difference will not really amount to much in the long run and if you were good at math you wouldn't be in this mess in the first place.
Step 3 Finish Full Emergency Fund (3-6 months living expenses)
Save 3-6 months of living expenses. This is in case of a big emergency such as a job loss. For most people, 3-6 months of bare bones expenses will probably be between $10,000 to $20,000. This step takes a while and you need to be careful not to get antsy and jump ahead.
Step 4 Invest 15% of household income into Roth IRAs and pre-tax retirement savings (Steps 4, 5, & 6 can be done at the same time)
Save for your retirement. This is one area that is hard to catch up on, so start getting intense unless you plan on working until you are quite old.
Step 5 College Funding
Helping your children with college expenses is a great way to ensure they don't repeat your debt mistakes. Try to instill a debt free lifestyle with your children by helping them graduate debt free! I recommend that they help pay for part of their college expenses.
Step 6 Pay off the House!
My Favorite Step! How great will it be to be 100% DEBT FREE, including the house? Some people will scoff at the notion of funneling extra payments to your mortgage because of the tax advantage (yea, right) and the cheap interest rate. Stay strong and think of all the ways you can use the "mortgage money" once you are debt free.
Step 7 Build wealth and Give
Continue building your retirement wealth. Be generous. Teach others to become debt free. You have WON!
