Baby Steps

Funny - the title of this blog could apply to SO many things in my life right now. But I'm going to write about something that I am excited about - something over which I have control. AHA!! I'm having an AHA moment as I type. Part of why I'm so excited about what I'm going to share is that I can CONTROL it. Wow. Clarity.

Anyways - for bookclub we read Dave Ramsey's The Total Money Makeover. Let me start by saying I did not like this book, nor do I care for his style. I thought the book was WAY too much fluff. I understand he's dumbing it down for the masses, which is perhaps why I didn't like it. I don't mind simplifying, but I HATE folksy wisdom and Bible parables. Just give it to me straight. The basic conclusion is that I am too smart for this book.

However, the ADVICE (once you waded through the crap) was sound. It is very common sense at its core, but clearly even smart people like me need the reminder. His basic premise is PAY OFF YOUR DEBT! Anyways, he has a series of baby steps that you follow in order to achieve financial liberation, so to speak. And he really advocates that you do them in order. These are the steps:
1. Save $1000 to start an emergency fund. That way if something unexpected happens (i.e. a large auto repair), you have the money to pay in cash and won't be relying on your credit card as your emergency fund.
2. Pay off all debt except for your house (which includes in most cases paying off home equity loans). Here's where it gets a little clever. He says stop putting money into your retirement account (if you do this) and use that money towards paying off your debt. You pay off your debt using the snowball technique. So, list your debts in order smallest to largest (ignoring interest rate). Pay minimum payments on all debts except the smallest. Take the money you'd be paying towards retirement plus the extra money from reducing other debts to minimum payment, plus any other money you can find, and pay MORE than the minimum until the smallest debt is gone. Then take that WHOLE payment, add it to the next debt's minimum, and pay til gone. Then take THAT whole payment, add the minimum payment until the next debt's gone, etc. Because you're putting more towards principle, you're paying LESS interest! I've figured it out, and we can pay off both cars, our home equity loan and my school loan off in less than 5 years (when we were slated for about 17 years until the last was paid off).
3. Now that you're debt free, use the money you were paying on your debts to build your emergency fund equivalent to 3-6 months of your household expenses (not income) in case of a big emergency like a job loss.
4. Put 15% of income towards retirement or investments. So you had to stop saving towards retirement for a few years. Now you can put the full 15% in and easily make up for what you lost!
5. Start a college fund for your kids (if you have them).
6. Pay off your home early - or save up for a down payment on another home.
7. Build wealth and give back!

By this time, you're in a position where you're debt free and hopefully not acquiring additional debt other than home debt. He advocates for things like buying used cars (1-2 years old) and paying cash (because he advocates that while in the debt repayment mode, you drive your current car til it won't drive and then when your debts are payed, you can use your "car payments" to save to buy a car outright).

So, I'm pretty excited. I don't have to make any changes to spending, I just have to reallocate some funds. It's amazing how a little tweak here and there can make a significant difference!

Here's a website that you can find out approximately how long it would take to pay off your debt. Now, this website has you paying off the highest interest rate debt first, still using the snowball technique, but the repayment time might be slightly off.


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