Many of you probably don’t know, but part of the reason I began this website was due to the simple lessons discribed within Dave Ramsey’s book, “Financial Peace“. With the proper education, anyone can get themselves out of debt and live a rich life!
1) Save Up an Emergency Fund of $1,000 – before you start paying off that debt in record time, you must first prepare yourself for the unknown expenses. You never know, your car could break down tomorrow, and if you don’t have any money set aside, you’ll start racking up debt on that credit card again!
We saved up our $1,000 back in January 2010 when we started paying down our student loan debt. Since we also budgeted for “unexpected expenses” we actually never had to dip into our emergency fund.
2) Pay Off All Debt (except the mortgage) – I think this is the toughest step for everyone. Somehow, no matter how much debt you have, you just assume that it will be a breeze to pay off. But, when you start, that debt doesn’t seem to budge! It’s easy to get discouraged, but if you follow the debt snow-ball method (explained on the site and in his book), those little payments will make a big impact!
Unfortunately, my wife and I are still in this stage of our 7 step plan. It seems like we’ve been paying down debt forever, but we can finally see the light at the end of the tunnel, and we’re starting to make plans for the next step! We should be out of debt by the end of March! 🙂
3) Save the Rest of Your Emergency Fund – now it’s time to save at least 3-6 months expenses for your emergency fund. You may want to save even more if you are uncertain about your job security. If you lose your job now, chances are that you won’t find one for quite a while!
4) Save 15% of your Gross Income in your Retirement Plan – This could be a 403(b), a 401(k), or a Roth IRA. I would even consider a rental unit to be part of this category. Basically, put 15% of your income toward some sort of investment that will be beneficial to your future.
Right now, my wife and I are actually investing about 4% of our gross income in our retirement plans (our 401(k) plans at work. I know we’re not on step 4 yet, but I feel like we should be contributing something. Plus, my work matches $0.50 for every dollar I invest!
5) Save for the Childrens’ College Fund – There are plenty of ways to save for thier education. Take a look at all of your options and choose the one that’s right for you.
We don’t have any children, so I figure we don’t need to save up for this category. We’ll probably choose to invest more in our retirement accounts.
6) Pay Your House Off Early – Since you are now debt-free, there should be plenty of excess cashflow to pay down that home mortgage. You’d be surprised how fast you could get rid of that loan!
If all goes exactly to plan, we’ll pay off our house within 3 years of our purchase. If it were a perfect world, we could do it in 2 years and 1 month, but we all know that things happen, so I just put a little cushion in there.
7) Get Rich and Give Money Away – Think about it. You have no debt whatsoever and you’re still making a consistent income (maybe even more than you did earlier in life). At this point, you’ll have plenty of money going into your investments. It’s time to give your money away! This would certainly be a fun stage to get to.
Give us about 4 or 5 years, we’ll be here, and I’ll make sure to share all of our experiences along the way. Stay tuned! 🙂
Are you following these steps? What do you think is the hardest step?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.