Here’s the gist of our financial plan, using Dave Ramsey’s baby steps:
- Baby Step #0 – be 100% committed to not incurring any more debt, except possibly a mortgage, ever again. Not ever. Period. Done.
- Baby Step #1 – have a Baby Emergency Fund of $1,000. This is NOT to be touched unless it’s, well, an emergency. Christmas is not an emergency, nor is eating out. This is also intentionally on the low side in order to give you that panic sort-of feeling – it’s good that this emergency fund is uncomfortably low, at least for a season, in order to light that fire underneath you to get debt-free asap. Done.
- Baby Step #2 – pay off all debts, smallest to largest, using the “snowball method.” We have just one debt, school loans at roughly $11,700. Because of our ridiculously small shovel at the moment, we are only able to allocate about $200 per month towards paying this down. At this rate, it will take forever. It’s not gazelle, to say the least. But we’re sticking with this until our BEF is back up to $1K. Currently working on it.
- Baby Step #3 – put 3 to 6 months of living expenses into savings, thus fully-funding the Emergency Fund from Baby Step #1.
- Baby Step #3b – save up funds for car replacements. We don’t currently own a car, living overseas, but eventually we’d like to have one again. If we do buy one in this country, we could most likely sell it at the same value in the end, because cars hold their value here. Go figure.
- Baby Step #3c – save up funds for a down payment on a house, ideally at least 20%. Heck, I’d love to have at least 50% saved, but I can’t wrap my brain around that amount of money. I really, truly wish we could start saving for this now, so that it could sit in a mutual fund for several years or something. This step is financially and emotionally important to me – possibly the most important right now.
- Baby Step #4 – contribute 15% of income to retirement. I admittedly need to learn and research more about this. Right now we are contributing $200, as recommended by our company.
- Baby Step #5 – Fund college education for kids. We’ve got two kiddos, almost 3 years old and 5 weeks old. Nothing saved yet. Likewise, I need to research this, but I’m psyched about doing this. Wish my parents had.
- Baby Step #6 – Pay off the mortgage early. Seeing as we aren’t yet homeowners, this seems like a far-off dream. This would be amazing, though.
- Baby Step #7 – Build wealth, give, and live like no one else.
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