In this post, I will be sharing how you can learn how to pay off debt with this one book changed my financial life. I have mentioned this book in pretty much all of my debt journey posts, so I felt should share with you why I chose to follow Dave Ramsey’s Baby Steps for paying off my debt
Dave’s Ramsey’s Baby Step is a financial plan designed to help you get your finances in order, teach you how to pay off debts, and achieve financial freedom.
Dave Ramsey’s Baby Steps includes 7 steps
- Start an emergency fund of $1,000
- Pay off debts by using the debt snowball method
- 3-6 months of expenses in saving
- Invest 15% of household income into retirement savings
- College funding for children
- Pay off home early
- Build Wealth and Give.
HOW TO PAY OFF DEBT
I was introduced to the Dave Ramsey’s Baby Step financial plan when I purchased his book A Proven Plan for Financial Fitness through Amazon. There is a total of 13 chapters in this book. This review I will highlight the chapters that affected me the most. I highly suggest purchasing this book if you are looking for a plan on how to pay off debts.
CHAPTER 2: Denial
This chapter hit me the hardest. While some people get into debt through no fault of their own, most (like me) are in debt because of bad money practices. While a good portion of my over $200,000 debt comes courtesy of law school about 40,000 of it does not.
After receiving my first few paychecks I did not understand how by the end of the month I only had 10-20 dollars left of my paycheck (I get paid monthly). I chalked it all up to not getting paid enough. After reading Dave’s book, I realized it had absolutely nothing to do with my paycheck and everything to do with me.
The number of monthly bills I have is ridiculous, the amount of debt I am in is overwhelming and money spending habits I have are sickening. It was after reading this chapter that I knew I was going to have to make a commitment to change and that started with accepting fault for my situation.
CHAPTER 6: Save 1,000 to start an Emergency Fund
The first step of Dave Ramsey’s Baby Steps is to start an emergency fund. In Dave Ramsey’s eyes, an emergency fund takes precedence over paying down debts. I struggled with this concept the most. It did not help I had people in my ear (who are not good with money either) telling me $1,000 dollars is too much. But then it hit me. What if something happens. While I have a debt paid off I would not have any money to cover an unexpected expense. In my cases, I literally would have had zero dollars because I did not even have a savings account before going on my debt journey.
How I am building my emergency fund
- Picked up a part time job
- Create a monthly budget
- Start looking for ways to instantly save money
CHAPTER 7: Debt Snowball Effect
The second step is to learn how to pay off debt using the Debt Snowball Method, mortgage debt is not included. The Debt Snowball Effect Method requires you list all your debts starting from the lowest to the highest. How high the interest is not of importance. The idea behind attacking your small debts first is that it will give you a sense of victory when you pay it off. In return, it will motivate you to continue going.
One thing I have to disagree with Dave about is the taking money out of your 401K to kick start your debt payoff. I disagree with for the following reasons:
- I do not want to pay the plenty for dipping into my 401K
- My 401K is not worth the plenty because I just started working.
- Dave is also part of the generation that will receive a social security check, along with his 401K. As a millennial, I will not have such luxury.
Currently, a lot of the chapters in Dave’s book do not apply to me. First, I am not interested in buying a home because I do not know where I want to settle. Secondly, I did not have children, so saving for their future is not of immediacy. However, I am very well aware you can plan for a child’s future before you ever plan for a child. I do know that when I am ready for those steps in my life I will fall back to Dave Ramsey’s Method.