You already know I am a fan of Dave Ramsey, the financial guru who has a very simple, straight-forward process for becoming debt free. Judging by the results of the last poll, quite a few of us need to heed his lessons (!), In any economic times--good, OK, or really lousy--following these simple steps will put you on exceptional (meaning rare in the world of the debt-laden American consumer) financial footing. Here they are:
- Put $1000 in a starter emergency fund. With this money put aside, you can stop using your credit cards for "emergencies". With a month of total intensity (having a garage sale, selling stuff on EBay, getting a second job) you will have this step done quickly.
- Pay off all of your debts using the debt snowball. Go to a cash only system, get on a budget, cut up your credit cards, then list your debts smallest to largest. Attack each debt with a passion and pay them off as quickly as possible. This means that you pay the minimum on all of your debts while throwing as much money as possible at the smallest debt then moving on to the next highest debt and so on.
- After all of your debts (except for your house) are paid off, put aside six months of living expenses in a liquid account (ie: a money market account).
- With your emergency fund set, start putting aside 15% of your income into Roth IRAs and other pre-tax retirement accounts such as 401ks and 403bs.
- At the same time you are doing step 4, start investing in your children's college education by putting money aside in an Educational Savings Account.
- At the same time you are doing steps 4 and 5, start hammering away at your mortgage and get it paid off as soon as possible.
- The final step is to build wealth and give. Continue to do steps 4 and 5 then also begin giving away some money, spending some of your hard earned money, and investing in things such as good mutual funds (listen to his show for specific types of funds to invest in).
For more info, check out http://www.daveramsey.com/.