So Dave Ramsey’s plan is based on completing seven baby steps to financial peace. His books discuss these at length and how to accomplish them.
Step 1: Start an emergency fund of $1000.
Status: Done. As I mentioned before, we have some money saved up.
Step 2: Pay down debt with the debt snowball.
Status: Haha, not yet. We’ve just started our budget analysis, so we’re looking at where the money is going. From there, we can figure out how much we can put to extra payments for my loans. Essentially, the snowball works by committing the largest payment to the smallest debt. Once that debt is paid off, you shift that money to the next debt and so on until you’re debt free!
Step 3: Build a full emergency fund of three to six months income.
Status: In progress. We plan to transfer money to our savings account each payday or once a month.
Step 4: Invest 15% of income in retirement plans.
Status: Dave is a big fan of the Roth IRA. Given that Mac is active duty, his retirement contributions go to a Thrift Savings Plan (TSP). We’re going to reassess his current plan and look at expanding to a private IRA.
Step 5: College funds
Status: Well, we are lacking children. We talked about this and decided to focus on retirement planning now. We’re leaning towards an investment account with yearly contributions for any children’s college funds.
Step 6: Pay off your home early.
Status: We’re better off renting for the rest of our time in Fayetteville and plan to live on post at Fort Gordon. It might seem counter intuitive, but we’re not going to stay here long enough to buy a new house and aren’t secure enough financially to test the landlord waters. We’re hoping to save enough to have a large down payment when we do buy, and we are comfortable buying a smaller house to incur a smaller debt. But we must wait for the Army to decide where they want us!
Step 7: Build wealth and give.
Status: Financial peace and security are our ultimate goals. Changing our money habits now in October won’t make us rich by Christmas. This is our marathon. When we go to church, we do give an offering, but it’s not tithing. We can and will do better.
Have y’all taken a hard look at your finances? Where are you in the baby steps?