aditya online bloggs: Sep 28, 2010

Emergency funds are arguably one of the most important things you can do for yourself financially. You never know when you fast access to several hundred or even a few thousand dollars to a car repair or a quick flight to family who live far away need a visit. An emergency fund gives you the means to take care of these expenses as they arrive, and help you stay out of debt. The best place to stash your emergency fund savings in an online savings account where you earn a high interest rate and easy access to your money. Step 2. Pay all debt using the Debt Snowball.

Dave Ramsey advocates using a debt snowball to pay off debts. Some people call this “snowflaking” which refers to taking small amounts of money (snowflakes) and combining them into a larger amount (snowball effect). That small amounts of money can add up quickly, and a snowball is much more effective than a tiny snowflake. Ramsey urges that any small amount you can store and its application toward your debt – instead of spending it on frivolous items. This concept has really taken off in personal finance? N blogosphere and has even led to a Snowflake Revolution website and a network where members share how they snowflaking principle applied to debt reduction, investing, or any other applicable financial ? le goal. Step 3. 3 to 6 months of cost savings.

So you have an emergency fund, and you’ve paid off all your consumer debt … what’s left? Extended savings earning a high interest rate. An emergency fund is great if you need new tires, cross-country for a sick or dying relative or to attend major car repairs to fly. But what happens when you get fired, or need a new roof, or you get hurt at work and at work for several months? Unemployment and disability insurance will be of any help, but they are probably not all your expenses. Your roof? Unless you can cover with cash, you are liable to have to get into debt, did everything you worked so hard to achieve in Baby Step 2. Step 4. Invest 15% of household income in Roth IRAs and BEFORE taxes retirement.

You have your money work for you as you will ever be financially Fri Save for your retirement in tax advantaged accounts is the best way forward for long term savings. Dave Ramsey recommends investing 15% of your household income (or more if you can afford it) into Roth IRAs and v?-Tax retirement accounts. I agree with Dave, Roth IRAs are better than the traditional IRA. If you are considering a pre-tax account, your options are generally a traditional IRA or a 401 (k) or equivalent. Whether you choose a 401 (k) or IRA depends on your situation. Step 5. College funding for children.

Many people debate whether or not it is better to repay mortgage debt early, and there are strong arguments on both sides. Mortgage debt is generally inexpensive and mortgage debt is a tax deduction for most people. Invest money that you could use to advance your mortgage could earn far more money in the long term. On the other hand, mortgage debt is still debt. If you have already completed steps 1-5 and have additional funds per month, paying off your mortgage early will free up more money each month and you allow other freedoms that you would not have a mortgage. The freedom of no mortgage: A friend of mine is in his mid thirties, and his mortgage paid off completely. This allowed his wife to quit working and stay home for their three children to raise. They have no other debt, and recently a lower-paying job because it gives him more satisfaction at the end of the day. He was not caught by a huge mortgage or saddled with other debts. Become debt free family may be making those decisions in life that they want to live, not live the life they have power to live just to repay the debt. Step 7. Build wealth and give!

Dave Ramsey This is definitely a baby step. In my opinion, this step is open to interpretation based on personal beliefs, needs and situations. I understand each element, but in my opinion, it seems a few different ideas? N were thrown together in one step. Let us break them and examine them one by one.

Building wealth: With no consumer debt, a large fall-back fund, 15% or more of your income going into retirement accounts, your school children paid your mortgage and taken away, you have extra funds to play with each month. If so, wealth building is the next logical step. Of course, by investing for retirement, you have been building wealth around. But I suspect that Dave Ramsey is referring to the construction of non-retirement wealth. Ramsey mentions investing in mutual funds and real estate. I would rather invest in index funds over mutual funds because the fees are generally much lower, but the idea is the same. As for real estate, the reason I believe he mentions that you can grow an alternative revenue stream, something that put the result beyond your normal job. I recommend this kind of thinking, but real estate is not for everyone. However, I think alternative income is important for everyone to emulate. Invest to build wealth, but make the kind of investment that suits your needs.

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Tuesday, September 28, 2010

Dave Ramsey Get Out of Debt Baby Steps

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