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Achieving financial freedom is a very common goal among people. However, it is not as easy and clear as it may seem. But thanks to the financial guru Dave Ramsey, there are some steps you can take to achieve your financial goals.
In this blog post, we discuss Dave Ramsey’s 7 baby steps to achieving financial freedom. So read on to find insights and answers to your most common questions regarding financial freedom.
Dave Ramsey’s Baby Steps to Financial Freedom
Dave Ramsey’s books break down the process of achieving financial freedom into 7 simple steps. By following Dave Ramsey’s baby steps, you can become a millionaire and achieve financial success.
These steps include:
Step 1: Start an Emergency Fund
The first of Dave Ramsey’s 7 baby steps involves starting an emergency fund. You should begin by saving $1,000 as a safety net in case of any unforeseen expenses. These emergency expenses can come in the form of repairs or medical bills.
If you have an emergency fund, you can use this money on any rainy day and save yourself from falling into debt. However, it is best to keep your emergency fund in a separate bank account to keep it safe.
Step 2: Focus On Debts
The second step towards achieving financial freedom involves paying off your debts. The best way to pay off your debts is by following the Debt Snowball method. It is a highly motivating method that offers a quick way to repay your debts.
The Debt Snowball method requires you to list down all your debts (excluding mortgage), from the smallest to the largest amounts.
Next, you start paying off your debts from the smallest amount, while paying the minimum amounts on the rest. Once this is done, you move on to the next amount and continue to do so until you have paid all your debts.
Step 3: Complete Your Emergency Fund
After repaying all your debts (excluding the mortgage), you should expand your emergency fund so that it can cover your expenses for up to 6 months.
This way, you get to expand your safety net in case you are sick, have lost your job, need repairs, or want to get a new car.
Step 4: Save for Retirement
The fourth step in Dave Ramsey’s books for financial freedom is to invest 15% of your earnings in your retirement fund. Whether it’s through a 401(k), traditional IRA, or Roth IRA, this investment allows you to financially secure your retirement years.
Step 5: Save for College Funds
If you have a family, you will eventually need to pay for your children’s college education if you don’t want them to take out a student loan. According to Ramsey, the best way to save for college funds is to use an Education Savings Account (ESA) or a 529 college savings plan.
Step 6: Pay Off Your House Mortgage
The sixth step towards achieving financial freedom is to pay off your house mortgage. Whenever possible, make extra payments to your mortgage principal so you can be completely debt-free as soon as your mortgage is paid off.
Step 7: Build Wealth
The seventh and final step towards financial freedom is to build wealth. Now that you have repaid your debts, set aside your emergency fund, and are making investments for your retirement, it is time to build more wealth.
Invest in a business, real estate, or the stock market to build wealth. For this step, Dave also encourages people to give generously.
What Are Three Questions to Ask Yourself Before You Spend Your Emergency Fund?
With Dave Ramsey’s emergency fund plan, you can save up to cover the expenses of up to 6 months. But what if you come across a situation where you are forced to use your emergency fund?
Well, you have to ask yourself the following questions to determine whether you have a real reason to spend your emergency fund:
- Is it really necessary?
- Is it unexpected?
- Is it urgent?
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