I guess you could say I am a person who seeks balance in life, whether it is mental, physical, spiritial, or even financial there is always a way to make things work and work well.
I have been listening to Dave Ramsey for a while now on XM Radio and I have to admit he gives out some good, sincere advice to people who are looking for help with money.
I have been throwing around the ideas I get from listening to his show with my wife and she is open to discuss things, but it is difficult to get things going. I guess the biggest obstacle we face is ourselves. I know it isn’t easy to keep everything in perspective sometimes, but Dave has his baby steps which make the process very simple to follow. Here they are:
1. Build an Emergency Fund of $1000. This is used for emergencies, cause we all know they come up when we least expect them and will keep you from resorting to credit cards.
2. Pay off your debt from smallest to largest amounts. (Snowball effect) Basically you will list your debts from smallest to largest and pay the minimum payments on everything except the first debt. For that debt you will throw any extra money you can place your hands on at it until it is paid off. Then you follow suit with the next debt, and the next until they are all paid off. The secret here is when you pay off one debt, apply the amount you were paying on it to the next debt in line. That is what causes the snowball and allows you to pay off debts quickly.
3. Build a Fully Funded Emergency Fund of 3-6 months of expenses. This emergency fund should be kept in a liquid, readily accessible account and will be used in case of true emergencies like job loss, medical crises, etc.
4. Invest 15% of your income for retirement. Your income, for the purposes of this step, should be pre-tax and the money should be invested growth-stock mutual funds. Don’t count your employer’s contributions in the 15%.
5. Save for college. It is important that this step come after saving for retirement. There are other ways to pay for college: scholarship, work, etc. but no one is going to give you a scholarship for retirement. Ramsey’s suggestion for saving for college is to use an ESA (Educational Savings Account), invested in a growth-stock mutual fund.
6. Pay off your mortgage. Now is the time to focus on paying off your home mortgage and becoming completely debt-free. Ramsey rejects arguments about keeping your mortgage for the tax deduction or the low interest rate, opting instead for the guaranteed return and risk reduction that come with paying off a mortgage early.
7. Build wealth. Here’s the fun part. According to Ramsey there are three good uses for money: Giving, Investing, and Having Fun. That’s what this step is about.
I know it all looks so simple here and there are so many factors involved in each step, but if you look at the big picture and focus on each step at a time things don’t seem so bad and financial peace can be a reality.
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