3 Part Financial Series: Part Two

In my last post, I discussed why having a budget is so important. If you are reading this, then I hope you followed through with my suggestion to set up a paper budget for your family. In this post, we will be talking about Dave Ramsey's Baby Steps and how to get started on your path to financial freedom. As I've mentioned, nothing can substitute for the FPU class. Reading a copy of Dave's "Total Money Makeover" can help you get started, but I really believe in the accountability that comes with a small group setting and having people to lean on and encourage you as you navigate financial freedom together.

So here are the Baby Steps per Dave Ramsey:

Baby Step 1: $1,000 in an Emergency Fund. Usually the best way to reach this step is have a garage sale and list some things on eBay. We sold Steve's 70" high definition t.v. from his grad school days to fund this baby step. We listed it on Craig's list and they gave us the asking price.

Baby Step 2: Start the debt snowball. List all your debts (excluding your house) like your car payments, school loans, credit cards etc. from smallest to greatest. Then while you are making minimum payments on all your debts attack that smallest one first. Find every extra bit of money in your budget and then bludgeon that debt with it. Once it's paid off, roll the minimum payment that you were paying on the first one and combine it with your minimum payment on the second debt and then keep doing that all the way down your list until you have paid them all paid off. I recommend making a list of the debts like a barometer so you can see how much you have paid off each month to keep you encouraged. Of all the baby steps this one is by far the hardest because as Dave says, "you can wander into debt but you can't wander out."

Baby Step 3: A fully funded emergency fund of 3-6 months worth of expenses. If you or your spouse were to lose your job, no need to panic, you have enough to live on for 6 months while looking for another job. Your roof needs replacing? No need to sweat - you've got money in the bank for that.

Baby Step 4: Invest 15% of household income into Roth IRAs and Pre-tax retirement. Most companies have a matching plan so it's a good idea to take advantage of the free money once you're debt free. I know a lot of people who are contributing a good bit to 401Ks but have a ton of debt. If you are older it makes sense for you to do so, but if you are still young then get yourself out from underneath that huge burden first.

Baby Step 5: College funding for children - We aren't here yet but we definitely plan to put aside savings for college. We also want to make sure our children qualify for either academic or other types of scholarships to aide in paying for college. After spending so many years paying off college loans it has significantly changed our perspective about the importance of where one attends college.

Baby Step 6: Pay off your house. Dave recommends a 15-year mortgage at a fixed rate.

Baby Step 7: Build wealth and give. As Christians we believe this principle is actually the first you follow by giving 10% to your church and wherever else the Lord leads you.

Click here to learn more about these baby steps on Dave's website.