A majority of Americans have acquired some kind of debt. Maybe it has resulted from student loans, credit cards or medical reasons. A lot of people are living paycheck to paycheck and for whatever reason can not seem to break the cycle. But what if there was a way to change your future and obtain financial freedom?
What if with a little financial discipline and patience you could soon be living in the green? You’re probably thinking this is another crazy scheme. However I can honestly tell you, this program has worked for many families across America, it has helped them better their personal finance. Dave Ramsey is a name that many people have heard of. He is very popular in the world of finances. This program is used for individuals and families who struggle to stay a float with their personal finance. His classes are often offered in churches. I’m referring to Dave Ramsey 7 Baby Steps to Financial Freedom. If you were to follow these steps carefully and exactly as stated, you too could soon be debt free. That sounds too good to be true!
This is the very beginning, consider this your start to financial freedom. It is the essential first step to this program. You maybe wondering how can I save this money. It can be a challenge, this is where that financial discipline comes into play. If you can make this happen, you are already ahead. This money is for emergency situations. You will have a chance to grow this savings overtime. With $1000 in savings you are already prepared for the unexpected because life happens. Maybe instead of eating out a few times a month or purchasing that overpriced coffee, you can put that little bit of savings away. You will be surprised how quickly it adds up.
Step 2: Paying off all Debts using the Snowball Effect (minus house payment)
Of course if paying off your debt was this simple, you would of done it already. Am I right? Here is an interesting idea. The way the snowball effect works is you’re going to list your debt from smallest to largest. And one by one you will pay off each debt in the order listed. It feels amazing watching that debt fall off one by one. It’ss a process not to be taken lightly. At this point in time don’t attempt to pay off your home just yet. Yes you will want to continue making payments. But we will get to your home loan later on.
Step 3: Build up that Emergency Account (Save 3-6 months of expenses)
Remember that $1000 you put into that emergency fund earlier, well its time to build that baby up. At this point your debts should be either completely paid off or close. You now have extra money, you will want to begin building up your emergency fund should you need it. What if you lost your job? This will guarantee some sort of comfort should the need arise. Saving 3-6 months of expenses, will help you out in the long run.
Step 4: Invest 15%in Your Retirement.
You now have that strong emergency fund ready to go if the need ever arises. Now with that extra money you have from paying off your debts. Its time to discuss retirement, start by investing 15% of your total household income into your 401K you have through your employer. Then invest the rest into your own or if your married you and your spouses.
Step 5: Set Up a College Fund For the Kids
All your debts except for your home should of been paid off a while back. It is time to begin making monthly payments into your children’s college fund. Educations isn’t cheap, saving beforehand is ideal. To get an idea on how much you will need to save, this will depend on what school your children are interested in attending.
Step 6: Pay off your Home
This is the point in life, where things change for the better. This step may take some time. Any extra money you have left over, put it towards your home loan. A few hundred dollars extra a month will add up quickly. And since this is your only debt. Making larger payments should not be a problem. You are in the home stretch of financial freedom. Don’t give up now!
Step 7: Build Wealth and Give
You’re done! You did it! At this point you can continue growing your savings, you can go on the trips you always wanted too. You are the people everyone wishes they were. But please remember to give to others who need it! Make a monthly donation to a charity!