Dave Ramsey: Tough Times Call For Tough New Budgets

Lea from New York is calling in today, and she is worried that she’s not going to be able to move past the Ramsey Baby Step she is in now. She is currently in step 3, which means she is paying into her emergency fund. But, the issue is she is barely making enough to pay the bills and put some aside for that fateful emergency. She feels like she may not be doing something right when it comes to the process and wants to know what she should do to fix this.

Dave recommends revisiting their budget because this is usually the root of the problem. Looking at their average home income, he suggests reviewing because they are probably overspending in certain areas. Some people have issues with this because they like to start in the middle of the problem instead of finding the source.

The second step is to make sure you are planning for the due dates, not pay dates. Due dates are not mythology; they just don’t miraculously appear from nowhere. Instead, they come on specific days. So it would help if you made sure that when you are setting money aside, it accounts for these dates, not your future paycheck.

Dave Ramsey’s 7 Babysteps For Success

• Baby Step #1 Save 1000

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  In this first step, your goal is to save $1,000 as fast as you can. Your emergency fund will cover those unexpected life events you can't plan for. And there are plenty of them. You don’t want to dig a deeper hole while you’re trying to work your way out of debt!

• Baby Step #2 Pay Off All Debt (Except the House) Using the Debt Snowball

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  Next, it’s time to pay off the cars, the credit cards and the student loans. Start by listing all of your debts except for your mortgage. Put them in order by balance from smallest to largest—regardless of interest rate. Pay minimum payments on everything but the little one. Attack that one with a vengeance. Once it's gone, take that payment and put it toward the second-smallest debt, making minimum payments on the rest. That's what's called the debt snowball method, and you’ll use it to knock out your debts one by one.

• Baby Step #3 Save 3–6 Months of Expenses in a Fully Funded Emergency Fund

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  You’ve paid off your debt! Don’t slow down now. Take that money you were throwing at your debt and build a fully funded emergency fund that covers 3–6 months of your expenses. This will protect you against life’s bigger surprises, like the loss of a job or your car breaking down, without slipping back into debt.
• Baby Step #4 Invest

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  It's time to get serious about retirement—no matter your age. Take 15% of your gross household income and start investing it into your retirement. Start with your company’s 401(k) plan and invest up to the full employer match. Then invest the rest into Roth IRAs—one for you and one for your spouse (if you’re married).

• Teach Your Kids Financial Responsibility

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• Baby Step #6 Pay Off Your Home

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  Now, bring it all home. Baby Step 6 is the big dog! Your mortgage is the only thing between you and complete freedom from debt. Can you imagine your life with no house payment? Any extra money you can put toward your mortgage could save you tens (or even hundreds) of thousands of dollars in interest.
• Baby Step #7 Build Wealth and Give

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  You know what people with no debt can do? Anything they want! The last step is the most fun. You can live and give like no one else. Keep building wealth and become outrageously generous, all while leaving an inheritance for your kids and their kids. Now that's what we call leaving a legacy!

 

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