Category: baby steps

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Baby Step #7 – Build Wealth and Give

Give freely of your time; it is far more valuable than any amount of money.

We have finally reached the very last baby step. And if you personally have or will soon arrive at this step, congratulations! It takes an incredible amount of work and dedication to get here, and you deserve to sit back and enjoy this part of the ride.

Even if you’ve been investing 15% or more, have set aside enough to help your kids get through college debt free (we think they should pitch in; it’s good to have “skin in the game”), you still may not be in a position to give much more financially than you have been throughout the process, and that’s okay. While we think you should certainly give whatever you can, and hope that your ability to give financially continues to increase over time, there are so many other ways you can give that may have an even bigger impact on the lives of others.

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Baby Step #6 – Pay Off the House Early

In our last post, we discussed baby step #5 and mentioned how steps 4, 5 and 6 are to be worked on simultaneously. And, that it is our humble opinion, steps 4 (investing 15%) and 6 should take precedent over saving for your children’s college (step #5).

Now, on to the debate that every single personal finance blog has touched on at least once; do you pay off your home early or invest more money? Which one will be better, financially speaking, in the long run. There are a ridiculous number of variables to consider: Do you plan on staying in your home long term? What is the interest rate of your mortgage? How much is your home worth? How much principal do you have remaining to pay off? What return do you expect on your investments? How soon do you plan to retire? What do you anticipate the rate of inflation will be? It’s enough to make you dizzy.

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Commentary on Step 5 – Saving for College

Here we are at baby step #5, saving for your children’s college.  As you likely know, Mr. Ramsey’s guidance is to work on steps 4, 5, and 6 at the same time.  He does keep this step more vague then the others due to the differences in family circumstances, from those who do not have children to those who have a boat load, creating a much bigger challenge in saving for college for the entire brood.

Most of what we’ve read, heard, and watched from Dave himself about this part of the journey implies it’s a non-negotiable step if you have children.  This is concerning, as everyone’s situation is different.  To be fair, Chris Hogan, one of the “Ramsey Personalities”, has shared on more than one occasion that one size does not fit all and, furthermore, making sure you can afford to retire should take priority.  Amen to that!
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baby step # 4 – investing

Once you have reached this part of the Dave Ramsey plan you are now instructed to invest 15% of your household income into ROTH IRAs and pre-tax retirement. We will not get into the pros and cons of various types of investing in this post, but instead of focusing on the amount. So, this will be a short one.

Investing money is a very important step in winning with money. It is a necessity to save money for your future if you ever plan on retiring. On the flip side, none of us have any idea what life will throw at us and we may not be one of the lucky ones who actually get to choose when to stop working.

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How Much is Really Enough?

This week we continue our commentary with baby step 3, which is to save 3-6 months of expenses in a fully funded emergency fund. We absolutely agree that you should have a fully funded emergency fund. However, if you are already dealing with extenuating circumstances, or you are a one income family, we believe six months is really the minimum you should consider having in reserve before moving on to the next step; depending on your circumstances, a year may be more appropriate. Just think about how fast this summer has flown by; Memorial Day seems like it just happened, and yet we’re only a couple of weeks away from Labor Day… that span is just over 90 days, or three months. I can’t imagine how fast it would seem if we were in the midst of a financial crisis and were eating through our emergency reserves.

To reiterate, we’re not in disagreement as to the point of this step, or its order in the process. We just think that those of us who have more going on would be well advised to take a bit more time to build a bigger cushion before moving on to ensure we are able to weather our brand of storm.

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Snowball Versus Avalanche

Recently, we shared our perspective on the first baby step. As you might have guessed, we aren’t in lockstep with Dave on Step 2 either. While we agree that, after having enough saved up for an emergency, tackling debt is the next logical step, we’re not rigid adherents to the debt snowball process. If you are reading this post, it’s probably safe to assume you have heard this term numerous times but, just to be sure, the process is to pay off your debts working from the smallest balance to the largest.

First things first. If you owe the government any money, you should strongly consider taking care of this first and as soon as possible. Owing the government is not something to be taken lightly as any government — be it federal, state or local — has the power to completely alter your life, and in some cases destroy it. Clearly, this is priority one. To be clear, it may not be necessary to get such liabilities paid in full immediately (i.e. you may be able to work out a payment plan), you definitely want to never miss a payment, especially if you’ve worked out a special plan.

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Is Baby Step 1 Too Small?

Over the next seven weeks we are going to be delving into Dave Ramsey’s baby steps and how we tweaked them to work for us.  I realize this may ruffle a few feathers as there are many strict adherents to his financial peace protocol, and with good reason. Mr. Ramsey has designed a plan that works for many people, and it was a great starting point for us as we were completely clueless when it came to financial matters.

That said, there are many of us who do not fit into the “average American” bell curve; in fact, our circumstances place us on the fringe of the curve.  For our one-income family of six, with multiple chronic illnesses, $1,000 for a starter emergency fund is a complete joke.  It is certainly better than nothing, but $1,000 barely covers anything, even if you do have health insurance.
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A Trip to the Discount Market

Yes, we stuffed all those cool things into that box!

On the same day that we ventured out to a bakery outlet we also made a stop at a discount market. Although it’s called a discount market, I think a better description for this place would be “salvage grocery store”. The store sells food that is past its “best by” date, or that has cosmetically damaged packaging. While many of you may be put off by the idea of buying food “seconds”, Mr. Frugal Source and I have been purchasing food in this manner for years from several different stores and we have never had any safety issues with any of the food we’ve purchased. We are careful what we buy, making sure the package is completely sealed, cans are not too dented and items are not too far out-of-date for our taste.

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Our First Trip to a Bakery Outlet

Quite a haul for just under $15.00!

Everybody likes to save money, especially those of us into pinching pennies.  If you’re like us, you’re always looking for new and interesting ways to stretch your dollars.  We recently found a “new-to-us” way to save some grocery money when we learned of a couple of bakery outlets in our nearby city.  This time around, we decided to stop at the Aunt Millie’s thrift store as it was the closest to another planned stop.

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