You are probably tired of living in debt, wondering how and when you are going to start paying off debt, to be able to achieve financial freedom, live carefree when it comes to money and travel places.
Dave Ramsey the author of the best seller Total Money Makeover has been educating many on paying off debt for a long time, providing many with this financial independence.
Turns out winning the lottery isn’t the only way to live a great financial life.
Ok, back to financial freedom, becoming debt free is a sure way to financial independence, it is totally doable with a little discipline, patience & gazelle intensity.
There are many success stories of Dave Ramsey’s snowball plan from individuals as well as families.
In this article we will cover the first 3 steps to your debt free journey; establishing an emergency fund and how start paying off debt.
Before you start paying off debt, you need emergency savings set aside to act as a safety net when life throws at you that wasn’t expected.
You get the idea, basically anything that is unplanned.
Without an emergency fund, the alternative will be credit card debt or loans to pay for these unforeseen expenses.
Then life continues to be a vicious circle accumulating more and more debt as emergencies arrive at our doorstep.
This will be expanded later ideally to be 3, 6-8 months worth of expenses.
It is recommended to keep your emergency funds in a checking account (separate of your current checking), or a Money Market Savings account.
Either of these accounts would allow for check writing, which is important to have for any emergency that arises.
Let’s explore some ways to get this $ 1,000 set aside.
Start a list (spreadsheet), and list items along with the estimated resale value of each item. It is a good idea to go room by room in order to prevent overload.
If you aren’t sure the value of the products, you look them up on your phone in places such as; Craigslist, let go, and similar buy/sell apps.
This can give you a good idea of demand for your products, and value of the products.
The above mentioned apps are where you can list your products for sale, along with online marketplaces such as Ebay.
The second tip is to lower some of your typical expenses such as; monthly car payments, electricity, phone, internet, TV, money spent on groceries and rent/mortgage.
The $200 savings can be applied to build that $1,000 emergency fund.
Ramsey refers to this tip as the beans and rice. You will need to cut your grocery/food budget to make room for more money towards your debt payment.
Consult your family members about a weekly or biweekly menu.
It saves you a lot of time and money.
You can go about it two ways. You can plan your menu from your available grocery items;
Or you can your shopping depending on what is on your menu plan.
Dave Ramsey suggests the percentages above of income for expenses and living.
This way, you know when the Recreation funds are gone from the envelope, no more going to the Movies.
Sinking fund is money set aside every month for the expected expenses. Things like birthdays, Christmas, Easter, car maintenance etc
This will help you avoid debt when Christmas rolls around, or when your car is due for maintenance checks.
It is recommended to keep your sinking savings in a separate account from your checking account.
- Make a list of your debts (minus mortgage) smallest to largest
- Make minimum payments on all debts except for smallest
- Pay as much as possible on smallest debt each month
- Once that smallest is paid off, do the same for next smallest.
If that isn’t enough to pay it off in the first month, then maybe the following month it is paid.
Then you move on to your next smallest debt, and aggressively pay that one off, and continue on until the largest is paid.
While your aggressively paying off debt, your discover that your are pregnant. Babies are a blessing, bring joy to the family, but they are expensive.
Much like the emergency fund, begin building your stork fund to anticipate all these baby & delivery expenses. Otherwise, your emergency fund will be raided.
There are also other unexpected costs like longer hospital stays in the neonatal unit in case baby needs it.
After mom, baby and other family members are settled in, the family budget is adjusted to accommodate the new baby demands; slowly go back to debt snowball.
You do not have to follow Dave’s snowball method to the dot, customize it to what suits your situation best.
I know of people who used the snowball method, save money on the side simultaneously. It too them a little longer to become debt free, but they did it.