Thursday, January 17, 2008

Yes, I am a Dave Ramsey fan.

We have been talking a lot about physical fitness but here is a little post about financial fitness.

First, meet Dave:

Dave Ramsey is a call-in AM radio host/financial adviser. You can listen to his show online or listen to his archives here: http://www.daveramsey.com/radio/home/. People call in to ask questions about getting out of debt and investing. On Fridays, the show tries to feature people that have recently gotten completely out of debt and they get to scream, “I’m debt free!” over the airwaves. It can be pretty emotional and pretty inspiring.

Dave can get pretty extreme though and he doesn’t believe in credit at all, though he thinks it’s okay to get a mortgage for your house if you must. He advocates that you cut up all of your credit cards and only pay cash for cars. I don’t agree with all of his politics – he’s mostly anti income tax and anti social programs – but he makes a convincing argument for taking personal responsibility for your financial health and making choices that enable you to win. Anybody can do better if they follow his “Baby Steps.” I got his book, The Total Money Makeover for Christmas and I’ve been reading it up. So here are the Baby Steps.

  1. Quickly save up a $1000 emergency fund. This fund is truly for emergencies.
  2. Pay off all debt, except your mortgage, using the Debt Snowball. The Debt Snowball is listing your debts from smallest to largest and start with the small, pay it off and add what you were paying to the next largest debt and so on till it is all paid off.
  3. Save up 3 to 6 months of expenses in savings for a full emergency fund.
  4. Invest 15% of household income into Roth IRAs and pre-tax retirement.
  5. College funding for children.
  6. Pay off home early.
  7. Build wealth and give! Invest in mutual funds and real estate.

To keep from needing the emergency fund for non-emergency things like groceries, you need to budget. At the beginning of the month, create a budget with and include exactly what you will be spending for the month, not an ideal month, or an average month, but anticipate exactly what you’ll need for the month and budget it in. I have even started getting out the grocery and eating out money in cash and keeping them in envelopes at home. This insures I stay within my budget.

Here are some blogs I like to read about personal finance and living frugally:

http://www.getrichslowly.org/blog/

http://www.thesimpledollar.com/

2 comments:

Morkthefied said...

I always get emotional when I hear the people yell, "We're debt free!" And then the "Freedom" call from Braveheart plays. I always think, "this is cheesy," but then I always tear up; kind of like a sappy commercial that you can't help getting hit in the heart with a sap bullet. "Family...isn't it about time?" Ah, got ya!

MarySquare said...

Cindy, I hear you -- I listen to it at work so it gets embarrassing when I'm crying and blowing my nose at my desk.