The m-network is currently doing a series highlighting Dave Ramsey’s 7 Baby Steps for getting out of debt and getting your life on the right track financially. Links to the rest of the steps are at the end of this post.
For those that don’t know, Dave Ramsey is a US based personal finance guru. On balance, I’d describe him as being allergic to debt. His basic message is very simple – follow his 7 baby steps as written (get with the program ), and you will be financially independent. You can check out a summary of the baby steps at Cash Money Life.
If you’ve been with the program since the beginning, when you get to step seven, you’ll have paid off your debt, have a good sized emergency fund, be saving 15% of your income towards your retirement, have saved enough for your children’s college / university education (or you don’t have kids, or they’re done with expensive education), and paid off your mortgage.
You aren’t home free yet. You still need to keep up with the emergency fund, replacing it as needed and unless you’ve already accumulated your retirement fund, you need to make sure that you maintain that. On the other hand, you should have some money left over each month – the amount that you were overpaying your mortgage. What are you going to do with it?
What you should be doing in step 7, is using your money to increase your wealth and happiness, and that of the people that you love.
Now is the time to learn about investing if you’re interested in it. With more money to play with, you can look into investing in property, and see if you would like to become a landlord. Or, you might be more interested in investing in stocks and shares. Whilst the majority of your funds should still be in good solid investments (like, for example, index funds), you can allow yourself some money to be spent on more interesting investments.
Perhaps you aren’t interested in investing in a conventional sense, but you’ve always wanted to go back to your education, get a holiday home, a BMW, or a yacht. If these things will make you happy and you can afford to do them (whilst maintaining progress towards retirement as planned) then go ahead – after all, one of the purposes of money is to invest in your own happiness.
If you no longer want to work full time, your relative (but not absolute) financial freedom may allow you the opportunity to do work part-time, or downshift into a less stressful job. It that idea appeals, then step 7 is the time to pursue it full throttle.
I’d like to make a plug for giving money as a way of increasing your happiness. It doesn’t matter what your religious, social or political worldviews are, there is a cause for you. Donating money to something that you believe in, and really making a difference will make you feel good about yourself. It’s an investment in you, and in everyone else.
Step seven is the rest of your life. You will always need to live within your means and save for a rainy day. Even if you feel that you have enough money so that you never have to work another day in your life, you won’t have it for long if you spend more than you earn, or you don’t replace the emergency money you use when your boiler breaks down or the cat get’s sick.
Now, more than ever, you need to evaluate what you really want out of the rest of your life. The money bit is easy. You don’t need to worry much about being unable to pay your bills, but you do need to worry about your general happiness. You have many choices, and there’s no point in doing any of them if they don’t make you and your family happy.
Other posts in the Dave Ramsey’s Baby Step Series:
- Overview at Cash Money Life
- Step 0 – No More Debt at Debt Free Revolution and Single Guy Money
- Step 1 – $1000.00 Emergency Fund at Gather Little By Little
- Step 2 – Pay off all debt using the Debt Snowball at I’ve Paid For This Twice Already
- Step 3 – 3 to 6 months of expenses in savings at Being Frugal
- Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement at The Dough Roller
- Step 5 – College funding for children at at My Two Dollars
- Step 6 – Pay off your mortgage at Moolanomy
- Step 7 – Build wealth and give! here at Plonkee Money
- Series Wrap Up at Being Frugal and I’ve Paid For This Twice Already
Image by code poet
- five steps: step 3 grow an emergency savings account
- overpaying the mortgage or investing for retirement part 1
- emergency funds are no fun