7 Baby Steps:
- Save $1,000 to start an emergency fund.
- Pay off all debt using the debt snowball method.
- Save 3 to 6 months of expenses for emergencies.
- Invest 15% of your household income into Roth IRAs and pre-tax retirement funds.
- Save for your children’s college fund.
- Pay off your home early.
- Build wealth and give.
Debt Snowball Method
Debt Snowball Method: Start by listing everything you owe except your mortgage. Order your debts by balance, from smallest to largest. Don’t worry about interest rates unless two debts have similar payoffs- then you’ll list the higher interest rate debt first. Attack the first balance on your list by paying as much as you can each month while making minimum payments on your other debts. When you’ve paid it off, add what you were paying on it to the payment on your next debt and start attacking it. Your results will keep you motivated to dump all your debt.
A fully funded emergency savings will protect you against life’s bigger surprises (emergency medical expenses, car breaks down, etc.). Keep it in a separate checking account or money market account so you won’t be tempted to touch it. And remember, the easiest way to build up your emergency fund is by having a solid budget.
Start by investing enough in your company 401(k) plan to receive the full employer match. Then invest the rest into Roth IRAs—one for you and one for your spouse if you’re married.