My wife and I have recently decided to undertake Dave Ramsey’s Total Money Makeover to help us get out of debt and secure our financial freedom.
Dave recommends the following seven-step process to achieve financial independence, he calls these the “Baby Steps to get your finances in order and on track.”
- $1,000 to start an Emergency Fund
- Pay off all debt using the Debt Snowball (excluding your home, see step 6)
- 3 to 6 months of expenses in savings
- Invest 15% of household income into Roth IRAs and pre-tax retirement
- College funding for children
- Pay off home early
- Build wealth and give! Invest in mutual funds and real estate
One rule is to work on one step at a time, finish the one step before moving on to the next step (if you want to know why, read his book!!).
Today marks a big day for us, we’ve successfully checked off step one. Funny, it’s not that big a step, but it feels liberating and already the weight of debt is being cast away.
Tomorrow, on to step two. We have a line-of-credit, vehicle payment, and two credit cards to pay off (probably in that order).
(Hat tip to Mike Dopp for helping light a fire under my finances to turn “talk” about financial security into action.)