Try to dig your way out of a mountain of debt? Popular financial expert Dave Ramsey, host of the nationally syndicated radio program, The Dave Ramsey Show, shows that you follow these seven "baby steps" that you pay the debt and build wealth.
Baby Step 1: Participate in a $ 1000 emergency fund
An emergency fund, which is also known as "emergency fund" is money set aside in case of great urgency. It is not an account that is tapped to go on vacation or buy a new vacuum.
Even if you have a huge credit card debt, Ramsey said, you first need to in an emergency fund set aside $ 1,000. Only then will the fight start your debt.
Read more: What is an emergency fund?
Baby Step 2: Pay off your debts
The second step is an important step that could take years - pay all debts except your mortgage. Ramsey defends a tactic called "debt snowball" in which up to the largest scales pay the debts in the order of the smallest, regardless of the interest rate equilibrium.
It is a controversial tactic. Most financial experts recommend "stacking the debt," the reward of a debt of about interest rates. More information about the snowball debt against debt pile.
Baby Step 3: Create an emergency fund of 3-6 months
Once you pay all your debts, create an emergency fund to 3-6 months to cover costs. To save borrow again, when faced with a serious crisis, such as the massive job loss or medical bills.
Baby Step 4: Save 15 percent of your income in retirement
Aside 15 percent of their total household income in retirement accounts such as a Roth IRA, 401k or other traditional. Do not worry if your employer does not offer a pension plan - you can add your own Individual Retirement Account or IRA.
Baby Step 5: Save for College
Then start saving for their own good college or university education of their children (or both!) With 529 plans and Education Savings Accounts Education Savings (ESA) is recommended as their savings vehicles.
Baby Step 6: pay the mortgage!
Now is the time to make every penny to pay off your mortgage faster. Why wait 30 years to complete the payment of real estate? You can aggressively pay principal and be completely debt free, including your home!
Baby Step 7: create wealth and give
Now that you save 15 percent for retirement, which is (including mortgage) debt free, and are willing to send their children to school, it's time to concentrate wealth creation (investments, entrepreneurship, etc.), and give alms.
Source: 7 Baby Steps Dave Ramsey
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