What is Dave Ramsey's 7 Baby Steps to Financial Peace Program?
In my last post I talked about a financial advisor radio talkshow host by the name of Dave Ramsey and also did a short review of the "Dave Ramsey Radio Show" that airs on over 300 different radio stations each week and reaches over 3 million listeners.
Dave Ramsey is a personal finance advisor who specializes in giving out information that helps his listeners achieve financial freedom and financial peace. Dave Ramsey is also an author of many personal finance advising books that provide his readers with simple ways to achieve financial peace.
Some of these books include The Total Money Makeover, More Than Enough, and Financial Peace Revisited. Each year thousands of people are able to use the financial advice from The Dave Ramsey Radio show and his books to achieve financial freedom and financial peace.
Today I wanted to give my readers a very quick review of Dave Ramsey's "7 Baby Steps" program to financial peace.
The 7 Baby Steps program is designed to be very simple and easy for anyone to follow. When someone is trying to achieve financial freedom they must first start out with baby steps just like a child who is learning to walk. Each baby step in Dave Ramsey's financial advisor program builds upon the others and leads to a bigger step in moving toward financial peace. If you can follow his seven baby steps one by one then you will have a great start on your quest for financial freedom.
The Seven Baby Steps are listed below with a short explanation of each.
Financial Advisor Baby Step 1: $1,000 To Start An Emergency Fund
The first baby step is to establish a $1,000 emergency savings account fund. The point of this step is help people build up a small amount of savings so that they can be released from the dependence they have on credit cards. Having an emergency fund allows people to have money available when unexpected expenses comes. When this occurs this people are then able to dip into their emergency fund rather than having to charge the expense on their credit card.
Financial Advisor Baby Step 2: Pay Off All Debt Using The Debt Snowball (excluding your house)
The second step financial advisor baby step is to slowly pay off all of your debt using his debt snowball method. I will save a full debt Snowball explanation for a different post and just give you the general idea here. The idea is to start out by paying the minimum payment on your largest debts and then put the rest for your money toward your debt that has the lowest balance. Once this debt is paid of you can then move on to the next smallest debt and put all of your excess income toward this debt. Dave Ramsey's rational is to gain steam and see results by paying off the smallest debts first. The Debt Snowball Method will help you to see real results and help motivate you to continue. Using the debt snowball method and getting your debts paid off is the second baby step and must be completed before you can move on to baby step three. Sometimes in very bad situations the only choice is to look for the best debt consolidation company so that they can help you get a debt consolidation loan.
Financial Advisor Baby Step 3: 3 to 6 Months of Expenses In Savings
The third financial advsior baby step is the program is to establish a full emergency savings account fund of at least 3 to 6 months of expenses. The issue is that it is called an emergency fund because an emergency is something that we cannot anticipate. If we do not have this emergency fund in place and a large unexpected expense comes up we could be forced to put it on a credit card and then be right back in the middle of baby step two. Dave Ramsey suggest that the best place to put this emergency savings account fund is in a money market savings account that earns at least a small amount of interest. You could also consider putting it in a high interest CD if it is liquid enough for immediate access if needed.
Financial Advisor Baby Step 4: Invest 15% of Household Income Into Roth IRAs and Pre-Tax Retirment
If you have reached this point in the financial advisor 7 baby steps program then you should not have any payments left except for your house payment. When here you are finally at a point you can begin to build wealth and starting saving up that large nest egg of money. The idea here is to start saving for retirement. At this point some people often disagree and want to pay the house off quicker but they often don't understand the power of compounding interest and realize that time is of the essence when saving for retirement.
Financial Advisor Baby Step 5: College Funding For Children
This step in Dave Ramsey's baby steps program is very important and can be applied to saving for your own college or your childs college. You need to estimate how much it will cost to go to college. Then you need to use a savings calculator to find out how much you need to save each month at X interest rate to end up with that total amount needed for college.
Financial Advisor Baby Step 6: Pay Off Home Early
After setting up your college savings and retirement savings financial advsiors suggests that you put all of your extra money toward paying your home off early. The idea here is to eliminate this payment as quickly as possible so that you can then put even more money toward your retirment and investments.
Financial Advisorv Baby Step 7: Build Wealth And Give! (Invest In Mutual Funds And Real Estate)
The final step is the financial advsior seven baby steps program is to build wealth. To do this you should begin putting most of your excess money toward investments. This means putting this money in investment accounts that are invested in mutual funds.
This review of the Seven Baby Steps program has given you a good idea of how it works and also shown that anyone can be successful if they tackle their personal finances one step at a time.
Please follow Dave Ramsey's personal finance advice and begin your journey toward financial freedom and financial peace.
P.S If you are looking for a financial advisor and don't know where to start email me and I will give you a few good financial advising companies to consider.
Saturday, May 3, 2008
What is Dave Ramsey's 7 Baby Steps to Financial Peace Program?