WHAT: Improve your financial goals this year with Dave Ramsey’s simple and effective baby steps.
Baby Step 1: Save $1000 to start an emergency fund. An emergency fund is a fund for urgent, unplanned situations or unexpected circumstances. It should be in form of cash or type of bank deposit that can be withdrawn without penalty anytime.
Baby Step 2: Pay off your debt. According to Dave Ramsey, pay off your smallest debt first. Other financial experts have different opinions on this matter. For example, Suze Orman suggests that you payoff the debt with higher interest first.
Baby Step 3: Increase your emergency fund from $1000 to 3-6 months worth of expenses in the emergency fund. Dave suggests that you increase your emergency fund to 3-6 months worth of expenses in case of bigger unplanned situations or unexpected circumstances. Again, in contrast Suze Orman suggests more. She wants us to save at least eight months worth of emergency funds. In other words, the longer you can cover your emergency situation, the better.
Baby Step 4: Invest 15% of your income towards retirement. Saving for retirement is not only for old people. In fact, you should start saving and putting away money for retirement the moment you start working. The sooner you start, the better. If you do, then you won’t have to cram or compromise your present and future financial situation.
Baby Step 5: Save college funds for kids. Once you have completed steps one through four is when this step can be implemented. You have to fund or make sure that you are working well on your retirement before you can take care of your child’s college fund. Your child will have many other means to save for their college but for now you have no other option but to save retirement money for yourself.
Baby Step 6: Pay off your home early. Wouldn’t it be nice to have a paid mortgage? Don’t worry about tax write-offs. You still save way more in paying your mortgage than paying interest on your hundreds and thousands of dollars worth of mortgage.
Baby Step 7: Build wealth and give. Once you accumulate wealth, learn how to have fun, know how to invest, and share your blessings by giving!