Dave Says: A Roadmap to Financial Peace
Dear Dave,
After years of living from paycheck to paycheck and running up credit cards bills, a friend told me about the Baby Steps Plan. I am ready to take control of my finances. Just one question. Baby Step 1 involves saving $1,000 to create a beginner’s emergency fund. Do you recommend catching up on past due bills prior to starting Baby Step 1?
Miles
Dear Miles,
Congratulations! Congratulations! It’s a great question to ask someone in your position, as it allows me to guide you through all of the Baby Steps. So, let’s go! First, ensure that you have all the necessities. Food, clothing, housing, transportation, and utilities are all necessities. Next, pay off any bills that are past due or arrange payment. You’re ready to take the first Baby Step. This is Baby Step 1. Then comes Baby Step 2, which is your debt snowball. You’ll now pay off your debts in order of smallest to biggest, except for your mortgage. Pay as much each month as possible on your first debt, and make minimum payments on all the others. Add the amount you paid on the first debt to your next payment and attack it. In Baby Step 3, your emergency fund will grow from $1,000 to three to six full months’ expenses. You will be surprised at how quickly you can save when your monthly income isn’t going out to pay debt. Start investing 15 percent your income in retirement as part of Baby Step 4. In Baby Step 5, you’ll need to fund college for any children that you may have or will one day have. Here’s the biggie. You can pay off your house early by completing Baby Step 6. What a great feeling! But Baby Step 7 is where it’s at. You can now start building wealth while giving generously. Once you have completed the Baby Steps and can do these two things you will be at the pinnacle in smart money management. You’ve achieved financial peace. You can do it!
– — Dave
