Outline

1. Make only minimum payments for debt. Squeeze your budget until you have $1000 cash.

2. Snowball your debts, smallest to largest.

3. Save a full emergency fund of 3-6 months' expenses.

4. Fully fund 15% of your gross pay into pre-tax retirement plans.

5. Fund your children's college.

6. Pay your home off early.

7. Build wealth, and give it away!

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Dave Ramsey: Baby Step 1-7

• Step 1: $1,000 in an emergency fund.
You will not arrive at debt freedom if you do not possess an Emergency Fund to fall back on. That's what this first $1,000 is for (or $500, if you earn less than $20,000 annually). Freeze everything else and make minimal payments on each debt; get a second job if needed; forego retirement savings account contributions (temporarily) if you are able to. Prioritize your emergency fund and get it ready quickly.

• Step 2: Pay off all debt except the house applying the debt snowball.
If you already have more than a thousand in savings, withdraw all except the $1,000 and employ the debt snowball method to pay off all debt. (except the house)

• Step 3: 3 to 6 months savings in a fully funded emergency fund.
The third step is to develop your full emergency fund. You should save what would it takes to live for three to six months if you lost your income.
This fund is to be used ONLY in an emergency; incidents that impact on you and your family. Put the money in a money market account where it is liquid, but not so easily available that you would be tempted to spend it.
"Sometimes," Ramsey instructs, "you have to protect yourself from you."

• Step 4: Invest 15% of your household income into Roth IRAs and pre-tax retirement plans.
With no debt and money in your pocket, you are able to invest. Each month, invest 15% of your income into a of tax-sheltered retirement plan. Make sure it is "tax-sheltered," e.g. 401(k)

• Step 5: College Funding
By this step, you already possess an emergency fund, are out of debt (except a mortgage), have enough reserves to cover the living expense for 3-6 months, and are putting up 15% or more towards your retirement. If you have children, college expenses will be your next step.
Whether or not you assist your children through college is a decision you will have to make on your own. But there is one thing I like –
Dave Ramsey advocates putting your retirement savings ahead of college savings for your children since your children can borrow money for college or get scholarships/grants, while you cannot borrow money for retirement.

• Step 6: Pay off your home early.
By prepaying your mortgage, you will benefit from #1.Interest payment savings. #2.Less risk. #3.Peace of mind

• Step 7: Build wealth and give.
Once you've reached the point where all your debts paid, and you can build surplus wealth, do yourself a favor, and start giving to others. Not only will you be a blessing to others, but you'll also be receiving blessings in return.


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