Learn from Smart Women

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As a recent college graduate and newlywed about to start my career as an actress, Lord knows having a successful financial plan is essential for me.  In my search for a financial plan that will help me meet my financial goals and fit my lifestyle, I came across this ridiculously helpful book entitled, The Total Money Makeover by Dave Ramsey.  Dave Ramsey is a financial counselor who focuses on helping people get and stay out of debt.  What I love about his book is that his lessons are easy to understand and he has broken them down into 7 'Baby Steps' to help you create a successful financial plan.


Apply these 7 baby steps to your life and you'll find the financial freedom you've been looking for:

Baby Step 1: Establish a $1,000 Emergency Fund

You may think, 'I have so many bills, why would I put $1,000 away when I could use it for something else?' Well this money is actually for your peace of mind.  You can't control unexpected events in life, your car breaks, you owe taxes instead of getting a refund, an unexpected medical expense, etc.  But having an emergency fund will not only help you to not freak-out when this happens, it will allow you to avoid creating new debt while you're paying off old debt. 

Baby Step 2: Pay off all debt using the Debt Snowball

What is a debt snowball?  It's when you make a list of all your debts from smallest to largest and you attack them one at a time starting with the smallest one. The idea of the snowball effect is that with a few wins early on it gives you motivation to keep the ball rolling instead of giving up!  Dave Ramsey believes paying off debt is more about motivation than numbers.  The more excited you are about paying off your debt the easier it will be to change your behavior (how you choose to use your money) that will create helpful habits to pay off your debt quickly.  But remember to be mindful of your debt with the highest interest rate.  This debt is costing you the most to carry and should be paid as soon as possible, as well.

Baby Step 3: 3 to 6 months of expenses in savings

Once your debt is paid you will feel AMAZING!  It is then best to keep the momentum going.  Try and stay away from the mind set of 'oh, now that I'm debt free, I'm just going to do and buy whatever I want, I deserve it.'  It is easy to fall into that mentality.  The better choice is to keep the savings going until you have 3 to 6 months of expenses in savings.  This is for you to have a buffer incase you lost your income for some reason. This would give you the security to find something else without having to rely on an unemployement check.

Baby Step 4: Invest 15% of household income into Roth IRAs and tax-advantaged retirement accounts

Now that you have no debt (except a mortgage maybe), and a fully funded emergency fund, you can start looking ahead to growing your wealth.  When you invest in a Roth IRA or a pre-tax retirement plan you will gradually build up your retirement fund, so again you won't have to rely solely on social security to support you in your old age.  Dave Ramsey's philosophy as to why you wouldn't invest more in your retirement is so that you will have other money to put away for paying off your home early or (if you have children) for a college fund.  Remember, you have to consider the interest rate on your debt (such as a mortgage) and then compare it to the rate of inflation to determine wether it is advantageous for you to pay off your debt or save more for retirement.

Baby Step 5: College fund for children

There is no greater financial gift you can give your child than to give them the gift of being debt free once they graduate from school as they start their professional life. Without having school debt, they are free to go where they want, take jobs that may not pay the best, but give them opportunities without the pressure of having to pay off large amounts of debt.  Set a goal for this fund.  Look over your budget to see how much you could afford to put away for them and find a high interest account or start a pre-tax 529 College Savings Plan and watch it grow! What a blessing it will be for your children.

Baby Step 6: Pay off your house early

At this point in your financial plan you will only have one more item on your bucket list of debt. Your house. Imagine a world where you have no house payments! Freedom can be yours when you just attack this last little pesky bill. This is totally doable and taking care of this will allow you to do other things you want to do or buy things you want to buy. My fiancé and I always dream about the first purchase we will make when we are completely debt free. It's one of our favorite games.  He wants a motorcyle (surprise, surprise haha) and I want lasik eye surgery.  No more glasses, no more contacts, oh my, that would make me a happy woman.  But remember to consider your mortgage rate compared with the rate of inflation to determine whether your money is best spent paying off your mortgage now or earning a higher return invested in the market through mutual funds or ETFs.

You may be doubting your ability to make it to step 6, but there is no need.  Remember the little engine that could?  You just have to make your motto, 'I think I can, I think I can, I think I can...' and eventually you WILL succeed.  With a financial plan like Dave Ramsey's 7 Baby Steps there is no reason why you won't triumph over debt.

Baby Step 7: Build wealth and give!

Last step!  And the best one at that. :) This is your chance to bless others.  Dave Ramsey stresses that no matter how much money you make or save there is no happiness that is greater than giving to others. The best way to avoid being greedy is to have fun blessing others. Choose to control your money, don't let it control you.

There are so many smart reasons to have a successful financial plan, but the best reason to having a finical plan for your life is that it takes a lot of the stress associated with money out of the picture. Knowledge is power; the more we know the better choices we can make and typically, people are scared of things they don't understand. The Total Money Makeover will remove the mystery of finances and equip you to not only take charge of your financial life, but will set you up for success.  For more information and helpful tools to create your own personal financial plan made for success visit Dave's website at DaveRamsey.com.


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