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[Jan. 18th, 2008|04:52 pm] |
The Baby Steps to Financial Freedom, courtesy of Dave Ramsey. Don't begin the next step until the previous step is completed or if the previous step doesn't apply to you.
Step 0: There is an implied Zeroth Step here; it is the decision one makes to decide that one is no longer going to be in the debt cycle and constantly owe money to others. The Zeroth Step is also deciding that in order to enact a change, one must be willing to sacrifice and discard the lifestyle that got one into debt in the first place.
Step 1: Ensure you pay for the essentials only: food, water, shelter, clothing and utilities. Pay only minimum payments on all debts, and concentrate on saving up $1000 for an unexpected emergency.
Step 2: Continue minimum payments on all debts, except for the smallest debt you have, on which you pay as much as you can afford until it is gone. When the smallest debt is gone, begin to pay down the next smallest, attacking it with the money you used on the smallest. Continue until all debt (except for your mortgage) is paid off.
Step 3: Begin to save a larger emergency fund. Save up 3 to 6 months of total expenses in a savings or money market account as an emergency fund which is not to be touched except in the case of a real emergency.
Step 4: Put away 15% of your income into tax-deferred retirement accounts. When you want to make major purchases, do not go into debt to finance them; rather save up the cash you need to pay them off immediately.
Step 5: When it can fit into your budget, save up enough to pay for your children's college education.
Step 6: Pay your mortgage off early.
Step 7: Continue to build wealth and also give to charities, your church, or anyone that you feel needs it the most.
I recently saw a documentary called Maxed Out. It is available on DVD and I highly recommend it. |
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