Saturday, January 2, 2010

The Dave Ramsey Plan

I wanted to start out the blog with what is currently motivating my wife and I from a financial perspective. This past year we got on-board with a generic version of the Dave Ramsey plan. When I say generic, I mean that we didn't actually read the books or go through any of his formal classes, we just followed the basic premise and so far so good! He has a ton of great info on his website and his podcasts are entertaining/eye opening as well. If you think you have it bad, listen to a podcast or two for a quick pick me up.

We're happy to report that we are starting 2011 DEBT FREEEEEEEE, minus the house! My twin sisters turned me onto the plan and we only wish we had come across the plan much earlier in our lives like they have, to set the foundation for financial freedom much earlier. The plan has changed the way we think about money and we're continuing with the steps on Dave's plan.

The basic premise of the plan is to setup a financial cushion and become debt free so that you can achieve financial peace/freedom to 'live like no one else' as he likes to put it. Here are the basic steps that he refers to as baby steps 1-7:

We are currently on Step 4. All of our debt is paid off, we have 6 months of expenses in an emergency fund and my plan for the next few weeks is to tweak our 401k contributions to reach 15% and also to setup Roth IRAs for this past year prior to April 15th.

When my wife Marla and I met in 2001 we had a variety of different debt. I had mostly student loans and a vehicle loan and Marla had student loans, credit card debt and a vehicle loan. A year or two later we started a debt snowball of our own, laying out all of the various payments we had, organizing them by size/interest rate and we started tackling them.

Dave recommends paying them off by size, smallest first, so that you can start knocking things out and start to feel good right away about achieving your goals by eliminating the small ones and then rolling that $ into paying the larger ones.

At the time I think we did that, but if we had slightly larger amounts with much higher interest, we concentrated on those first. Either way the premise is the same, list all of your debts, smallest to largest and concentrate on the first one, making minimum payments on all others.

When that one is paid off, use the amount you were using to pay that one off to start in on the next one and so on. It really does work and the more smaller ones you pay off, the better you feel, motivating you to continue forward with increased 'gazelle like intensity' as Dave likes to say.

Once we get done with Step 4 (Invest 15%), Step 7 (Build Wealth and Give) will be next and a topic for another day. Step 5 (College For Kids) doesn't apply for us and Step 6 (Payoff House) we don't plan to do since we plan to sell our home within 3 years. 

Investment Options

If you are looking for a "set it and forget it" investment account, Vanguard has some of the lowest fee mutual funds and ETFs in the industry.   You can pick from one of their Target Date Funds that automatically change the allocation over time and setup an automatic investment schedule to pull funds from a bank account to average in over time and be done.

If you are looking for an online broker for either IRAs or standard investing accounts, I recommend OptionsHouse.  Open a standard trading account and get a Free Kindle Fire HD and $3.95 stock trades!  If you open a new IRA, you can get up to $600.   

Here's to a happy, healthy and prosperous new year!  Let me know if you have any questions, as I really enjoy helping others on their quest to become debt free and financially independent!

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