7 baby steps programme endorsed by Dave Ramsey for sound financial health
Baby Step 1: Set aside $1,000 as your initial emergency fund. Establishing a strong financial base before embarking on investments is of utmost importance. This involves eliminating all debts except for mortgage-related ones and creating a well-funded emergency reserve equivalent to three to six months’ worth of expenses.
Debt can significantly erode your investment gains. High-interest debt can be a hurdle to realizing returns on your investments, and it can also hinder your ability to navigate market downturns. In situations such as job loss or financial setbacks, debt may compel you to sell investments at a loss to meet your financial obligations.
On the contrary, having an emergency fund provides peace of mind and enables long-term investments. With an emergency fund in place, there’s no need to fret about liquidating investments to address unforeseen expenses. Baby Step 2: Clear all your debts, excluding your mortgage, using the debt snowball method.
Employ the debt snowball method to eliminate your loans, a well-regarded debt reduction strategy that expedites debt clearance and reduces interest expenses. Begin by cataloguing all your debts, excluding your mortgage, in ascending order of balance, from the smallest to the largest. Allocate minimum payments to all debts except the smallest one, for which you should direct as much money as possible.
After clearing the smallest debt, transfer the payment you were making to the next-smallest debt, all while maintaining minimum payments on the others. Repeat this process until all your debts are fully paid off. Baby Step 3: Build a fully funded emergency fund equivalent to 3-6 months of your living expenses Once you’ve established a debt-free foundation and a well-funded
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