My sister is a big fan of Dave Ramsey and loaned me his CDs a few months ago for me to listen. I’m finally doing it. He’s a good speaker. I’m not sure that I’m learning a lot from him, but I’m engaged. I think the envelope system is the most exciting/important for me thing he’s said and I learned that from my job this past year so…. He has 7 baby steps to financial independence.
Step 1: Put 1,000 into an emergency fund ($500 if income is under 20,000 annually).
Step 2: Pay off all debt utilizing the “debt snowball” (except the house).
So, I’m currently saving less than I should so I can pay more on debt. So, I’m flipping his order of things. He does make sense. If something comes up and you don’t have a significant sum saved (1,000), then you’re likely to use credit cards yet again. I recently faced that situation but luckily only spent $29 on my credit card. If my income taxes weren’t here, I would have probably put $329 on credit. I don’t really want to use my emergency fund that I’m building to pay for transportation stuff. I want to build it so when I’m out on my own, I’ll have it to pay for housing, utilities, etc. if needed. I have a seperate savings fund for car needs (which I just wiped out due to a car emergency). I don’t doubt that Dave is right on this; I just don’t want to switch my game plan 6 months into the year.
Snowball—I considered that but decided against it. Instead, I looked at how much I needed to pay each company in order to pay them off in 2 years. I figure eliminating cards wouldn’t matter to me. I’m reconsidering that. Somehow, I’ve been paying citibank more than my other cards and should be done with them by this time next year. Every few months, I seem to be paying them about $10 more and someone else about $10 less. I am quite excited about watching their balance fall. Now, I’m thinking of seriously switching to a 1 year interest free card as I anticipate saving about $275 that way. I’m thinking of not transferring the citi amount so I can feel the thrill of paying them off. If I don’t move that balance, I’ll pay bout $90 in interest on that card this year. I’ll save $70 by transferring but lose the thrill of paying them off. I don’t know. Maybe that doesn’t matter much. $275 is less than 2 months worth of payments. I don’t know; I don’t know. Dave isn’t a fan of transfers. I called 2 of my 3 credit card companies last night and both of them refuse to lower my interest rate because I’m less than 5% above prime. Anyhow, back to Dave….
Step 3: Put 3-6 months worth of expenses into savings
Step 4: Invest 15% of household income into Roth IRAs and pre-tax retirement
Step 5: College Funding
Step 6: Pay off home early
Step 7: Build wealth! (mutual funds/real estate)
I don’t think that was my plan. Right now, it looks more like I’m:
1) Paying off debt. Saving some money but debt focused.
2) Putting 1,000 into emergency
3) Investing money while still saving some. I need to learn more about investment options to determine what I want to do. I’m thinking (1) bonds, (2) CD—maybe getting mom to lock money with me, (3 & 4) mutual fund and some kind of stock retirement thing, (5) very focused on retirement savings programs, IRAs-n-such
college funding is unknown. I have no kids but would like to do something to help make sure my nieces & nephews are taken care of, at least the youngest 3.
house early—I don’t have one. Still, Ramsey convinced me that a 15 year mortgage is the way to go. It makes a lot of sense, like a repayment plan of longer than 10 years made no sense for my student loan (or maybe it was a 10 year option with less being paid up front. still.)
build wealth—I thought that was happening through step 4.
I haven’t finished listening to his CDs. This is just what I’ve gotten so far. Now, I need to decide whether or not I’m switching to a no interest for 12 months rate.