Managing Money God’s Way

I have been writing about personal finance for oh, just about 4 days now and realized that after posting yesterday’s comments about establishing an Emergency Fund I actually put the cart before the horse as they say.  What I should have done, which is what I am starting today is a series on the 7 baby steps Dave Ramsey recommends in his book The Total Money Makeover: A Proven Plan for Financial Fitness.  So today I’ll be starting a series of posts about his system.  In this series I will be going over the 7 baby steps in depth, talking about each one and going over what you need to do to achieve each step.

Who is this Dave Ramsey Guy?

Dave Ramsey is a personal money management expert, radio talk show host and TV personality who has helped thousands of people become debt free and change their financial lives forever.  He gives no-nonsense advice to people who are in debt, gotten in over their heads, and need help finding their way out.  My wife and I bought his book and have been following his steps, so I can tell you from experience that they really work.

Dave Ramsey’s 7 Baby Steps

1. $1,000 to start an Emergency Fund: Before you get started with the rest of the plan, you need to save some money in an Emergency Fund.  We opened an account at ING Direct for our emergency fund.  This is to be used in case of an emergency like flat tire, medical, etc.  You need to do this so you will STOP using your credit cards.
2. Pay off all debt using the Debt Snowball Method: Basically you list your debts from smallest to largest.  You pay the minimum payments on all of your debts and any leftover money you have you pay extra on your smallest debt until it is paid off.  You then roll (snowball) that amount over to the next smallest debt.  I found a great Excel spreadsheet I used for this that does most of the work for you.
3. 3 to 6 months of living expenses in savings: Dave recommends that you save 3-6 months of expenses in case of job loss, illness, or other long term problem.
4. Invest 15% of household income into Roth IRA’s and pre-tax retirement: Save for the future, unless you want to eat cat or dog food.
5. College funding for children: After saving for retirement you can save for your kid’s education and college expenses.
6. Pay off home mortgage early: Make extra payments on your mortgage.
7. Build wealth and give!: Continue building your wealth through mutual funds and real estate, and GIVE IT!

7 pretty simple, yet effective steps, but if you don’t ever take the first step you will not take the other 6.

Getting Started

Before you even get started, I think it is important to understand why you really want to do this.  It is also important that you discuss this with your spouse and get him/her on board and committed to making this change.  My wife and I finally came to the realization that we needed to change our habits on day while talking over the phone about our financial situation and how much credit card debt we had.  We decided right then that we needed to do something, so I ran right out and bought Dave’s book.

No More Credit Cards or Debt Period!

When you finally make that decision to change, you need to begin immediately and decide as a family that you are not going to incur any more consumer debt.  Credit cards, store credit cards, home equity lines are off limits.  If you want something new like a LCD TV or Laptop you are going to have to save up the money to buy them.  Freeze your credit cards in a cup of water and leave them at the back of the freezer!

I will be skipping to step 2, “Pay off all debt using the Debt Snowball Method” tomorrow, since I already wrote about step 1 in yesterday’s article.