24 Oct 2014
Create small goals that lead to the big goal of becoming and living debt free.
I encourage my clients, as Dave Ramsey does, to follow seven baby steps to assist you in becoming debt free.
The baby steps are a good overall map to follow along with:
- Prayer, and relationship with Christ Jesus
- You must commit to NEVER borrow money EVER for ANYTHING other than possibly a house.
- Talk with spouse and get him/her on the same page as you concerning finances.
- Every month do a written budget down to the penny
- Temporarily stop all retirement contributions (shouldn’t be for more than two years)
- Get current on all major bills (You MUST have Shelter, Food, Utilities, Basic transportation)
- Get health insurance NOW (chances of getting sick w/ major medical bills are larger than that of death), especially if you have children.
- Get life insurance NOW if you have considerable debt/your family couldn’t make it financially if you died. Especially important if you have children !! Social Insecurity provides only a small amount of coverage if you have dependents.
- Amputate “toys” (bikes, boats, ATV’s etc) if they will keep you from completing the snowball within 24 months
- Cut lifestyle (Cut cable tv, cellphone, land lineÂ “extra’s”, Internet, subscriptions, eating out, etc) and/or take second job if $1000 EF will take more than 30-90 days. (depending on income)
- Live below your means
Baby Steps (finish each step before moving to the next) sub-steps are recommendations while in each main step.
Baby Step 1 – Save $1000 In baby EF
- Chop up credit cards (You have an EF now, no NEED to keep those CC’s !!)
- Amputate cars that you can’t pay off within 24 months (You have an EF to fix the “cheap mobile” if something should happen)
Baby Step 2 – Do the debt snowball
- Start car replacement fund (do not PURCHASE car until step 3 is done or one time repair is more than cost of a good used car)
Baby Step 3 – Save 3-6 months EXPENSES in Emergency Fund
- Start furniture or other non-essential stuff replacement fund
- Move up in car if you still feel the need to (must pay cash for it)
Baby Step 4 – Contribute 15% to retirement
- Take your first vacation since starting this process if you can pay cash for it (no using the EF !!!)
- Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI.
Baby Step 5 – Save for kids college fund (skip to Baby Step 6 if you don’t have kids)
Baby Step 6 – Pay off house
Baby Step 7 – Start giving – Live like no one else since you have been living like no one else
For more detailed information about getting out of debt as well as some great encouragement, please read The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey.Â This book will walk you through betting out of debt from beginning to end. Whether you are a budget and money planning guru or someone who has no idea how to work a budget this book will help you and encourage you. It is like having your own personal money management coach at your finger tips, get The Total Money Makeover: A Proven Plan for Financial Fitness