Here we go. All journeys need a plan. And we start one step at a time. I'm using Dave Ramsey's 7 Baby Steps.
Baby Step 1: Have $1000 in an Emergency Fund.
So far so good. I have $850.
Baby Step 2: Payoff all Debt using the Snowball Method
Just starting on this. But I did get two things paid off! Yay me!!
Baby Step 3: Have 3-6 months of living expenses in Savings. A FULLY funded Emergency Fund.
My goal: $6000
Baby Step 4: Retirement investing
Baby Step 5: College Funding
Baby Step 6: Pay off Home Early
Baby Step 7: Build Wealth and Give!
These can be all found at Dave Ramsey's website www.daveramsey.com
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My journey to freedom using Dave Ramsey's Total Money Makeover
Baby Steps
- 1. $1000 Baby Emergency Fund- DONE!!!
- 2. Debt Free- Current Step
- 3. Fully Funded Emergency Fund $6000
- 4. Invest 15% in Roth IRA's adn Pre Tax retirement
- 5. College Funding for Children
- 6. Pay off home early
- Build wealth and give!
My journey to freedom from debt
4 comments:
The snowball method sounds like what the church teaches, and I wondered if that is indeed what it is: pay off the highest interest debts first, then use the money you were paying to those debts to go down the list until you've paid off everything but maybe a house and car.
Right now we're working on most of those steps, but not just one at a time. Does that fit with the plan?
It is similar to the church's method, with one difference. Dave Ramsey recommends doing the lowest payoffs first, while its not going to save you money in the long run, it gives you the motivation to keep going once you've paid off a couple small debts. And definitely payoff the car!
And to answer your last question, no, it does not fit with the Dave Ramsey plan, the idea is to go one step at a time, putting your energy into each single step. You do step 1 before moving to step 2, as having an emergency fund will keep you from using debt for emergencies while you are finishing baby step 2. And it goes from there.
The understanding I have is the church teaches to payoff the highest interest, not highest balance. That reduces the pace of debt increasing. That certainly is what my branch president explains to people anyway. It makes good sense, because as you payoff the most expensive debt, the money you'll have to pay lower interest debts will increase faster. Both make sense, though.
Financially the church's way makes more sense. You will definitely come out ahead with the higher interest balances paid off first, your dollar will have more oomph, and it will free up more money in the long run. However, most people who get into debt so far they can't see straight, need a few "wins" to get the motivation to continue, which is where the lowest to highest balance debt list comes in, payoff the lowest ones first and you can say, "go me!" I accomplished something! But either method will work for you, as long as you put the effort into it.
And usually but not always, the higher interest debt is also the highest balance, so it can be discouraging to pay that one off first, as it will be slow going.
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