Tuesday, December 1, 2009
Now that I have gotten the reasons why out of the way, let me talk to you about how I'm doing it!! I joined financial peace university January 17,2008 during the tax season. The class was $100 bucks and honestly I didn't even have the money at the time. However the church hosting the event had been blessed enough to buy books and allow everyone to make payments on the materials (go figure right lol). I honestly believed this was some big rip off plan. The only real reason I chose to go was because I knew filing bankrupt would cost way more than $100, so I figured if this don't work nothing would right.....
Little did I know it was the best $100 bucks I would ever spend my whole life, Yep I said my WHOLE LIFE! Not only did I get to meet the most amazing families, I was able to let go of the thoughts of suicide Yep I SAID THAT TOO. I will say as I write this blog that no amount of debt or problems are worth taking your life over, but people must also realize that these statistics do exist among college age adults. It is not to be taken lightly, I was able to survive but some people don't.
I learned a lot in the class and so I am going to share the basics of each step in case anyone reading wants to get started on this plan. Matter of fact you don't even need to buy anything, you just have to want to change your life for the better and say no to debt. Ok so maybe your not convinced just yet, so again let me tell you what I learned.
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 and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen. This beginning emergency fund will keep life’s little Murphies (anything that can happen will) from turning into new debt while you work off the old debt. 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! (I used my income tax refund for this)
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. (I worked 2 jobs for over a year, and took in as much over time as possible at my 1st job)
Baby Step 3 - 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 “extra” money into investments quite yet. It’s time to build your full emergency fund. Ask yourself, “What would it take for me to live for three to six months if I lost my income?” Your answer to that question is how much you should save. 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.
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! (if you don't have children yet skip this step until ya do!)
Baby Step 6 - Pay off your house early (SAY WHAT!!)
Now it’s time to begin chucking 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! (MY PERSONAL FAVORITE TOO)
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. You can do all three at the same time
So those are the steps all laid out for you to follow. If you need help feel free to contact me and I will answer any questions you may have in order to help you get started or you can visit DAVE RAMSEY.COM Ready, Get Set, Go!!!!