Are you overwhelmed trying to figure out your finances? Most people avoid dealing with their money situation because it’s confusing, frustrating, and boring.
However, I’m going to show you 7 simple baby steps you can take immediately to create a budget, pay down your debt, save for emergencies, and prepare for retirement.
Don’t worry. It’s so much easier than you’ve been led to believe.
Here are the baby steps to budget, save, invest, and give back.
Baby Step 1: Save $1,000 for a Starter Emergency Fund
First, you’ll want to start a high-yield savings account with compound interest. Compound interest adds the interest to your balance and then, pays you interest on that balance.
You earn interest on earned interest.
Your initial goal is to put aside $1,000 in your emergency fund. You can fund this all at once – or over time, such as $100 a month for 10 months.
Baby Step 2: Pay Off All Non-Mortgage Debt Using Debt Consolidation
When I created my very first budget, I quickly realized that I needed to consolidate my student loan payments and my truck lease into one payment.
The 2 main reasons to consolidate my loans were to lower my interest rate on these 2 loans into one lower-rate loan – as well to simplify my payments. I went from managing two higher-rate loans to only having to pay one loan each month with a lower rate.
My top recommendation to consolidate your debt is Super Money. It’s surprisingly fast & everything is done online. Once your outstanding loans consolidated into one lower-cost payment, it’ll be easier to pay it off faster. Click Here to Combine Loans into One Payment.
Now, if you have too much credit card debt, you’ll also want to use Payoff to reduce your high-interest payment into one low-rate monthly payment.
What I like about Payoff:
- Focused on Getting You Out of Credit Card Debt
- One Fixed Monthly Payment
- No Late Payment Fees
- Increases Your Credit Score
Baby Step 3: Put 3 to 6 Months Living Expenses in an Emergency Fund
When you’re budgeting, you’ll want to use the Zero Based Balance Budget to calculate your income/expenses down to the penny.
Then, you can calculate 3-6 months of living expenses by multiplying your monthly expenses. You want to have this much money set aside in an emergency fund in case you lose your job or have a large expense (i.e. car maintenance, air conditioning breaks, etc.).
Baby Step 4: Invest 15% of Your Income into Retirement
No matter your current age, you want to start putting money away for retirement. The sooner you start, the more your investments can grow.
You also want to make sure you optimize and diversify your 401k or your IRA management. For this, we recommend Blooom.
Blooom gives you a personal analysis of how to diversify your retirement portfolio based on where you’re at financially – regardless of age or experience. They make it simple for you because they do the trading for you.
If you already have an IRA or a 401k account, you can easily connect that to Blooom. That way you don’t have to setup a new account.
You can setup a new account or connect an existing account. They will research, optimize, monitor, and even trade for you. Click here to get more details about blooom.
Baby Step 5: Save for Your Children’s College Fund
There’s no time like the present to start saving for your kid’s college fund. And saving can be done on a tight budget with very little effort.
Buy Low-Risk CD: CIT Bank offers a daily compounding interest to maximize your earnings.
Let’s say you start with $1,000.
CIT Bank pays 0.75% interest rate, compounded daily.
Let’s say you want to contribute $100 per month for 18 years. By the end of 18 years, when your child is ready for college, you’ll have $24,289.19 to help pay for college.
If you want to set a goal of $40,000 by the time your kid turns 18, then you’ll want to start with the $1,000. Then, add $2,000 every year.
By the time your kid hits 18, you’ll have close to $40K for college. Click Here to Open Up Your Free Account
Baby Step 6: Pay Off the House
If you do not include your mortgage in the consolidation loan, then, step six is paying off your house.
To pay off your house, I recommend combining a budget with a payoff method.
There are four types of budgets:
The Zero-Balance Budget is perfect for this because you can see what spending categories you need to cut and how much you have leftover to apply to the principal of the loan.
Then, you can calculate how long it’s going to take you to pay off your house.
If you have a 30 year mortgage, this is how many years it would take to payoff the mortgage.
- Extra $750 per month would pay it off in 13 years.
- Extra $1,000 per month would pay it off in 11 years.
- Extra $1,500 per month would pay it off in 9 years.
Or you could do what I did. Invest that extra in stocks and watch the stocks grow faster. How do you know which stocks to trade?
Here’s what we recommend:
Step 1: Open an eToro account. It’s free. It cost $0 to trade.
Step 2: Get the top stock picks from Morningstar. They pre-sort the top stocks, the top mutual funds and the top ETF picks using data points. Then, they feature their top picks. Click here to try it for free for two weeks.
Baby Step 7: Build Wealth & Give
Once you start paying off your debts, you’re going to start having some extra money at the end of each month.
With all the extra money, you’re now going to invest every month. I recommend using M1 Finance to invest. There are four main benefits to using M1 Finance.
- Every penny goes to work by investing in fractional shares, which allows you to get a piece of major companies.
- You can use it like a checking account and easily sweep extra money into investments or your investments into your checking.
- M1’s algorithm determines which securities to sell based on your portfolio.
- If you ever need a loan, you can borrow at 2% with no paperwork.
Make sure you bookmark this page as I’ll be updating it as often as I can to keep you informed on Dave Ramsey’s Baby Steps to Financial Freedom.
If you know anyone looking to grow their money, please share this page with them.