Tuesday, February 8, 2011

7 Baby Steps

I'm at the very beginning stages of becoming financially smarter and having more freedom. It's been laid upon my heart for a long time to not have debt. This is something I feel convicted to do.

Roman 13:8 let no debt remain outstanding, except the continuing debt to love one another

I trust that God put this law into place for good reason, and I trust that in a pinch He will always provide, he does after all love me more than the birds of the sky. But I want to be a good steward with my many (many) blessings. I think when it comes down to it, my main goal is to be a good steward (this may have something to do with my clean house obsession).

At any rate, since Todd has joined my financial team, we have started taking a more serious look at our future and at our current situation and things we can do to change our irresponsible habits. Which is where the D@ve R@msey 7 baby steps came in.

Baby Step 1 - - $1,000 emergency fund

step 1 - check

Baby Step 2 - - Pay off all debt using the snowball system

we'll be starting this process with our tax return, we will be debt free by 2013, this is exciting for me because also in 2013, Todd will be graduating and able to start looking at teaching positions, which will help with our next baby steps.

Baby Step 3 - - 3-6 months of expenses in savings

I've always kept our budget and expenses so that we can live off one income if necessary, which proved to be a blessing when Todd was laid off from truck driving just a month before Ryan joined our family. I have said it before and will say it again, God does not work in mysterious ways...this layoff forced our hand on Todd furthering his education. Our family has been happier even with less money and eventually it will pay off. But there are still expenses that would need covered in the case of some catastrophic event (one of the 5 of us falls ill or something along those lines). Our monthly budget "need" includes our mortgage, car payments, electric, phone, insurance, cable, heat, food and medication grand total of $3,127 (of course we would cut back if necessary but right now that is our monthly budget) so for 6 months of living expenses saved up we would need $18,672 (or $9,381 for 3 months), this number is for our current budget (not our debt free budget). And in an effort to remain debt free we will start saving immediately for a truck for Todd...I want him to have exactly what he wants, meaning we will want a pretty good cushion to work with. So for this step we will probably save $10,000 and then start on the truck savings account of $15-20,000 (maybe more depending on what he wants).

Baby Step 4 - - Invest 15% of household income to Roth IRAs and pretax retirement

This step is scary for (because I know so little about them) scare me...research will need to be done.

Baby Step 5 - - College funding for children

We will have 2 in college at once and as soon as we get them through their little brother will start. Todd and I have agreed, disagreed, fought and finally compromised on this. We have decided that for HS graduation they will get a *nice* laptop to see them through college and we will buy their books, we will fund *some* living expenses but we expect great things from our children, including working while going to school. We will be happy to help them during this time in their life but we think they will be more apt to buckle down if they are not handed a free ride. So we will save enough for books and laptops but not tuition...

Baby Step 6 - - Pay off your house early

We bought our house at a great price with a decent interest rate, our house payment is $746, it would be easy (by this time in the 7 step program) to put an extra $250 to the principle every month.

Baby Step 7 - - Build wealth and give!

I'm very excited to get to this step! To be in a place in life where we can live comfortably, and build wealth, have something to leave our children with, maybe have a place on the lake for them to spend weekends and holidays. This step is worth the first 6!