How to Win With Money in 7 Easy Baby Steps
You make decent money. But where does it all go every month?
At best, you know where most of it lands. At worst, you’re totally lost in a world of credit card transactions and payments. Either way, the Baby Steps can help.
These seven steps provide a clear path to follow as you pay off debts, fund your retirement, and build wealth. This is the plan you’ve always wanted for your money, but you just haven’t had the time to figure it all out.
As you complete each Baby Step, you’ll become increasingly confident and motivated to move forward. Wouldn’t it be nice to finally take control over your household income instead of wondering where it all went?
Here’s a quick introduction to the EveryDollar Baby Steps.
Baby Step 1: $1,000 Emergency Fund
An emergency fund is for all those life events you can’t plan for, like the loss of a job, a medical issue or a faulty car transmission. It’s not a matter of if these events will happen. It’s simply a matter of when. So don’t skip this important first step!
Baby Step 2: The Debt Snowball
List your debts (excluding the house) in order from smallest to largest. Pay the minimum on all your debts except the smallest one then throw everything you have at it. Once the smallest one is paid off, roll that payment into the next debt on the list. As you keep paying off debt, your snowball grows and grows until you’ve built a ton of momentum!
With the debt snowball, you’re not concerned with interest rates or terms—you’re concerned with paying off debts quickly. Getting rid of smaller amounts first will give you some quick, momentum-boosting wins as you move on to larger loans.
Baby Step 3: Fully Funded Emergency Fund
What would it take to live for three to six months if you lost your income? Your answer should tell you how much to save in your fully stocked emergency fund. Remember, this stash of money is not an investment—it’s a buffer between you and life.
Baby Step 4: Invest 15% of Household Income into Roth IRAs and Tax-Advantaged Retirement
Now is the time to watch your money grow. You’ve been paying off debt and saving like crazy, but now you get to invest for retirement. So go ahead and let compound interest work its magic.
Baby Step 5: College Funding for Children
College isn’t getting any cheaper. So if you’re able, help your children by saving now. You can also encourage your kids to get good grades, a part-time job and scholarships. (But that can happen at any Baby Step!) Remember to start saving 15% for retirement before you start saving any money for college.
Baby Step 6: Pay Off Your House Early
Yes, you can actually own your own home outright! Amazing, isn’t it? Imagine walking barefoot through your front yard knowing that the grass beneath you is yours, not the bank’s! How cool will it be when all of your mortgage payments can go toward investing and spending?
Baby Step 7: Build Wealth and Give
The final step is the most fun. It’s time to build wealth, leave an inheritance for future generations, and bless others. Your goal here is to live and give like never before. You’ve earned it!
This isn’t some pie-in-the-sky dream. The Baby Steps have worked for millions of families, and they’ll work for you too. The key is to start small and stick with them.
Find out where you are in the Baby Steps and get on track with your money goals by creating a free EveryDollar budget now!