Jeff is reclaiming his unique digital identity with a sense of clarity.

Interesting Reading – Dave Ramsey’s Total Money Makeover: A Proven Plan for Financial Fitness

Dave’s Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness is a very good book. In post-stock market crash world we live in today, it’s reliance on using stocks as the main method of making money once you get financially stable is a bit questionable. However, all of the steps in the book to get to that point are sound, and simple enough that anyone can do them.

The main “baby steps” that need to be taken as the first steps to get financially stable that are listed in the book are:

1. Save $1,000 to start an Emergency Fund. The goal here is to get yourself to a place where you never use a credit card again, or have to take out a loan again in your life if possible. If you can get 1k in savings, and ONLY use it when you have a real emergency (car blows up, etc.), you can slowly get yourself off of relying on plastic and loans.

2. Pay off all debt using the Debt Snowball. The idea with the snowball payments is to pay off the smallest debt (loan, credit card, etc.) that you have first, and pay minimum payments on everything else until that little debt is killed off. Then keep paying the same amount you would have to the little loan, and just apply the extra to the next biggest debt, and keep doing that so that you are basically doubling or tripling your payments over time as more things get paid off so that you minimize the amount of time it gets to get completely debt free to a few years instead of to a few decades.

3. Save up 3 to 6 months of expenses in savings. This step is important since it gives you a chance to really build up your savings account. The reason you do this now instead of earlier in step 1 is so that you could drop more cash in to the debt earlier before you do this so that you are not killing your savings interest rate with the interest rate of outgoing cash going in to paying off the stuff in step 2. Honestly, I think for most people, in todays unstable economy, it might be smarter to actually save up 1-2 years instead of only 6 months if possible, just so that you are safe. The unemployment rate is raising a lot more, a lot faster than it has in the past, and I personally know a few people that have been on unemployment (except for a few part time job seasonal monthly jobs) for a couple of years… so it’s a good idea to save!

4. Invest 15% of household income into Roth IRAs and pre-tax retirement. I’m not sure I agree with Dave on this. I do agree it’s good to invest in something, but since IRAs are still one form of stocks, they can loose money if you the market goes down again… It might be better to invest in US savings bonds. They at least have a guaranteed interest rate that is backed by the Government. I’m pretty sure the government back out on paying bonds any time soon, even if our national debt grows every year at the rate it has for the last few years…

5. Save up College funding for children if you have kids, or alternatively, save up a little nest egg for yourself to get yourself ready to start up that home business you’ve always wanted to start, or to give you enough cash so that you are safe and can try to switch jobs and start doing what you really want to do if you don’t have kids. If you don’t want to do a business and don’t have kids, save up anyways. You never know what the future will bring. I think I read somewhere the other day that on average, a retirement home can eat up about one million dollars over the course of 2-5 years!

6. Pay off your house early. This one just makes sense. Get that mortgage gone so you can be completely debt free. However, don’t make it a priority over other debts unless the total payoff on it is lower than other debts because typically interest rates on houses are a heck of a lot lower than on credit cards and other unsecured debt. You also might put off paying minimum payments on your college loans right before paying off the house, depending on how many college loans you have and if you consolidated, etc. since college loans typically have a death clause and a low interest rate. (The death clause pays off the debt if you die so those you leave behind won’t be paying off your college loans forever after you are gone).

7. Build wealth and give! The ultimate goal is to be completely debt free, and never to rely on loans or credit cards again. Once you get to this point, you can start looking at a lot of different ways to invest and let your money grow itself for you. When you get to this point, and you are not living paycheck to paycheck, you can start looking in to giving money away to charities or people in need. Help them out. It’ll help you out spiritually, and probably mentally too. It’s nice to help people when you can. It’s just hard to get to a point in your life where you can do that without worrying about all the other debt… If you follow Dave’s baby steps, you can get to this point a lot sooner than you might think! 🙂

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