I have been following the investment legend Dave Ramsey for almost a month now. Since I am not from the USA myself, it is interesting to follow his radio talk show and see how people are doing in America.
Who is Dave Ramsey? He has become a person helping out many people with getting out of debt and paving a road to becoming rich after that. I have mainly been listening to his podcast and also watching his show on Youtube.
How is he helping so many people? He has a program that is called the "Baby Steps". I think people all over the world can benefit from this so I will share it here as well in case you find you are also struggling with a debt burden and would like to get out of it.
1) Have an emergency fund of 1000$ that you keep on another account than the account you usually operate with. I believe we can easily convert it to 1000 Euros as a European equivalent. The idea behind having this fund is that you have this small buffer to help you get out of unforeseen issues like a car breaking down or water leakage at home or similar. Having this will prevent you from going into more debt (by taking out another loan) if some relatively small unfortunate event should occur.
2) The debt snowball. You write down all your debts and start paying them off from smallest to largest while in the mean time making minimum payments on the rest of them. This way you should be able to attack each debt with a stronger and stronger force since eliminating one debt will leave you with more free income to attack the next one and so on. Discipline, budgeting and a purpose for every euro are the important keywords here.
3) Once you are debt free besides the mortgage payment, increase the emergency fund to 3-6 months of expenses. The specific number depends on your lifestyle. For me personally it would be around 6000 Euros. This fund basically serves a similar purpose as the fund in the first baby step but will also cover you in case you should lose you job for whatever reason or if you should have some sort of a bigger emergency.
4) Invest 15% into retirement. I am not quite familiar with Roth IRA and other pension options in the USA but for me in Estonia this would be investing a part of my income into the second (mandatory) pillar and third (optional) pillar.
5) Invest into kids college. This is less of a thing in more socialistic countries as the college in Estonia for example is free (state funded) given good enough grades from highschool.
6) Pay off your mortgage early. This is the one I am at right now. I am trying to figure out the benefits of paying off a mortgage with a 1.85% interest rate (+EURIBOR which is currently negative) versus investing more and getting better returns on my money. I am pretty sure Dave would suggest attacking this but i will write more about "paying mortgage off early versus investing" in another topic.
This is an investment blog but saving and becoming debt free is one of the prerequisites of being able to max out your investment potential so it is in it's fair place in my oppinion.
If you are interested in getting to know Dave Ramsey or just listening to his show, i suggest starting out with his Youtube channel: How To Get Started On Baby Steps?
Be sure to let me know what you think of Dave Ramsey and his program in the context of your own country.
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