¿uʍop ǝpısdn sǝɔuɐuıɟ ɹnoʎ ǝɹɐ

Nearly 7 years ago our finances were totally out of whack!  I had gotten out of the Air Force and had taken a big pay cut while making the transition.  I also had a huge quota increase (98%) in my second full year of the new job.  All of this equated to a $60,000 pay cut that year.  Overnight our finances were upside down!  Since then, we've slowly but surely worked our way back to where we are a month away from being out of debt.  Today we have multiple streams of income with several thriving businesses on top of a full-time paycheck.  While much of the beginnings of this "upside down time" in our life were caused by outside factors, it was our thought process that kept us in this situation much longer than necessary.  Dave Ramsey's 7 Baby Steps gave us a step-by-step plan to follow in order to get us on track.  His books Financial Peace Revisited and The Total Money Makeover: A Proven Plan for Financial Fitness helped us completely change our thought process and set us up to win for the long term!

Here's Dave's Seven Baby Steps:

Step 1: $1,000 Emergency Fund

It seemed like it took us forever to get to this point.  The minute we got $1000 saved, some emergency would come up!  This money should be kept easily accessible and is NOT an investment.  It's purpose is to sit in the bank ready for any emergency that comes up so you can pay cash for it instead of throwing it on a credit card.  It's an awesome feeling to have a car repair that has to be done and not have it cause major stress because you've got anEmergency Fund in place.  Just write a check and be done with it!

Step 2: Pay Off All Debt With The Debt Snowball

Pay your debts off smallest balance to largest.  As soon as the smallest one is paid off, use the money that was going to this one and add it to the next smallest debt.  Many planners talk about paying off the highest interest rate first, but Dave believes that a bit of extra interest paid by using this method isn't that important in the whole scheme of things.  It's all in the psychology of getting debts paid off and seeing progress as quickly as possible by eliminating the smallest ones first.

Step 3: 3 to 6 Months Expenses In Savings

This finishes up your Emergency Fund savings and significantly improves your situation in the event of emergency to include job layoff, etc.

Step 4: Invest 15% Of Income Into Roth IRAs and Pre-Tax Retirement Plans

Once debt is paid off and your Emergency Fund is fully-funded, it's now time to go nuts on the retirement savings.

Step 5: College Funding

Save what's necessary for helping your kids out with college.  Notice all the steps (1-4) that should come BEFORE this step.  If you can't get your own finances in order, you don't have any right to worry about school for your kids.  They can always get scholarships or put themselves through school if necessary.

Step 6: Pay Off Your Home Early

Dave talks about financing your home with a 15 year fixed-rate mortgage instead of a 30 year. 

Step 7: Build Wealth and Give!

Imagine having your home paid off and no debt!!  How quickly could you then build true wealth and financial independence?  How many people or organizations could you help at this stage because you've gotten your own financial house in order.

Dave's teachings may seem radical to many, but I've found no simpler plan to follow.  Next month we complete step 2 and look forward to completing step 3 by the end of 2009!

Stumble It!

Comments

[Ang.]

Its nice to finally know someone who has used his plan. Thanks for the inspiration!

[Roman @ FinancialJesus.com]

Great advice!
That's exactly how you should turn your finances around.
I especially love the personal touch your own story adds to it!

[C. Dwayne Shafer]

When we first got debt-free, an insurance company demanded in my contract (physician) a 30% discount. It was nice to say, "NO. I don't owe anyone anything, and I don't HAVE to work. If I do, I don't want my services undervalued." They paid the full contract value.

[zeugirdor]

thanks for sharing..thumbs up!