Dear Dave,
I just paid off all of my consumer debt in Baby Step 2. It took a protracted time, but I finally did it. Now it is time to grow my $1,000 beginner emergency fund right into a full-featured emergency fund. I’ve been working on this for some time and I’m glad I’m doing it. But I used to be wondering when you possibly can spend money and have a little bit fun by following the Baby Steps plan.
Mark
Dear Mark,
Congratulations, buddy! The first few steps could be essentially the most difficult. I’m really happy with you for sticking with it and making it occur.
I like to recommend completing the primary three baby steps before excited about spending money on fun things. In my opinion, this puts you on pretty solid financial ground. So at this point, it’s okay to have a little bit fun by occurring vacation or buying something—at an affordable price, in fact—that you’ve got been eyeing.
As you said, Baby Step 1 saves $1,000 for a starter emergency fund. In Baby Step 2, you repay all debts – except your house – using the debt snowball method. In Baby Step 3, you return and fully fund your emergency fund with enough money to cover three to 6 months of expenses.
But haven’t got a lot fun that you just forget the opposite Baby Steps. Baby Step 4 means putting 15 percent of your income into pre-tax retirement plans, comparable to mutual funds and Roth IRAs. If you could have children, don’t neglect saving for faculty. That’s baby step 5. And baby steps 6 and seven are paying off the home early, constructing wealth, and being outrageously generous. Live like nobody else in order that later you possibly can live and provides like nobody else.
Everyone likes to rejoice. And there’s nothing incorrect with spending some money if you happen to can afford it. I just want people to ensure their funds are so as first. Remember you could only do three things with money. You can spend it, put it aside and provides it away. If you follow my plan, you possibly can do all three things without putting yourself in a financial bind.
Keep it up!
–Dave
