I have always been super frugal even from an early age and I would save my pocket money just in case I needed it while my friends would go shopping for the latest games and clothes. Fast forward to a few years I had my first great job and was spending way more than I should have. I was still frugal in a sense, but I wasn’t great at handling money. Dave Ramsey’s baby steps guided me towards more control over my finances.
If we are honest with ourselves most of us can agree that whereas we aren’t in huge debt or in dire situations we are also not that savvy with money. So here is how I applied Dave Ramsey’s baby steps and I strongly believe they will help you too:
EMERGENCY FUND
Save $1,000 for an emergency fund. I understand that sometimes you don’t have $1,000 laying around so start a fund and put money towards it every other week and any extra you have at any given time put it towards it. This will come in handy when you don’t have to use a credit card or borrow from your family and friends when something comes up. This is the first of Ramsey’s baby step towards creating a safety net for yourself.
GET RID OF DEBT
Pay of all your debt using the snowball effect. This doesn’t include your mortgage. So, if you don’t have one you are good. What this means is take your smallest debt and start working on paying it off as fast as you can while making the minimum payments on the larger ones. Once you are done with one debt you take whatever you were paying and transfer the ‘extra’ payment to your next debt until you are done.
SAVE
Have you finished paying off your debt??? Congratulations! Now it’s time to start a savings account that is the equivalent of 3 – 6 months’ worth of expenses. So, if you spend $3,000 a month then you are trying to save $18,000. What this does is that it protects you from things that could happen in the future. You or a loved one could get sick, you could lose your job anything. This will be a safety net that prevents you from going back to debt.
RETIREMENT PLANNING
Retirement planning comes next. No one said that this is easy but nothing worthwhile is. Dave recommends saving 15% of gross income into a retirement plan. If your company has a 401k plan you should be on it and get the match.
SET UP COLLEGE FUND
If you are my age you have probably started thinking about kids if you plan on having them. Assuming you have little to no debt besides your mortgage, you have saved some money for emergencies and you have taken care of your future now it’s time to plan for the babies. If you have them start a college savings fund. 529 or Educational Saving Plans are great.
PAY OFF MORTGAGE
Pay off the mortgage early. This means any extra income you have, any money you have freed up from paying off your debts should now go towards your home. You could be completely debt free and there is nothing greater than that!
SAVE MORE AND GIVE
Build your wealth and give. You should have quite a nice savings account by now. You are debt free and therefore most of your income is yours. Accommodation makes up the biggest portion of your expense, so you have freed up enough money to give and save for yourself and your kids.
