Baby Steps

How do you eat an elephant? One bite at a time. Just like a baby learns to walk one step at a time. These are called baby steps for a reason. The journey to financial freedom can be overwhelming. I know you will get there if you take one baby step at a time.

These baby steps may look familiar to you if you follow Dave Ramsey. I have made some adjustments to follow a more natural flow. Lets deconstruct.

Step 1: Find your "WHY"

Ask yourself why you are on this journey. Dig deep. Ask yourself at least three times until you've discovered the true answer. Your answer will fuel you to the finish line.

Step 2: Track and Categorize Your Spending

You have to know where you are before you can make adjustments. Are there certain areas you are spending carelessly? Were there unexpected expenses? Could they have been avoided? What would you do differently?

Step 3:  Create a Budget Using the 50/30/20 rule

The 50/30/20 rule is 50% on needs; 30% on wants; 20% on savings. 

What are needs? Think four walls (food, utilities, shelter and transportation). Savings will be your emergency fund, then debt, then retirement. 

To keep the momentum going you will need to continue to track your spending and compare it against your budget. I personally use Quicken but there are free options out there too. 

Budget App Suggestions:

• NerdWallet for budgeting
• Mint, for saving more and spending less
• YNAB and EveryDollar, for zero-based budgeting
• PocketGuard, for a simplified budgeting snapshot
• Clarity Money, for all-inclusive budgeting
• Goodbudget, for shared envelope-budgeting
• Personal Capital, for tracking wealth and spending

Step 4: $1,000 in Emergency Fund

If you don't have an emergency fund, it's time to buckle down. Set aside a time frame where you only spend on the necessities. Sell stuff. Increase your income with a side hustle.

Step 5: Pay off Debt Using Debt Snowball 

The idea of the debt snowball is to pay off your smallest debt first; make minimum payments on the rest of the debts. When the first debt is paid off roll the payment you were making to the next debt. Rinse and repeat.

If you are the type of person that likes to see the most cost savings payment options then you will love the Debt Payoff Planner & Tracker app.

You may spend a large amount of time in this stage. It can get discouraging. Look for ways to cut your expenses and increase your income. This is where your trusted financial coach can help you with ideas and keep you accountable.

Step 6: 3-6 Month Expenses in Savings

I think COVID proved the importance of having several months of savings. Reminder, this is not equivalent to how much income you bring in, just your bare expenses to get by.

Step 7: Invest in Retirement

Invest 15% or more of your income into Roth IRAs and pre-tax retirement plans

Step 8: Pay off the House early

Your dwelling is usually your largest expense. Just imagine the freedom that comes when your income is freed up. 

Step 9: Build Wealth and Give

This speaks for itself.