It’s time to pick up where we left off. If you missed baby steps 1-3, you can find my break down of them here. And please ~ feel free to completely avoid this post until you have completed steps 1-3.
And here are steps 4-7 ladies and gentle… ladies? hehe.
Baby Step #4:
It’s time to invest. At this point you have no payments with the exception of a mortgage. No credit card bills, no automobile payments, nada. As Dave says it’s “time to get serious about building wealth”. Time to start putting 15% of your gross HOUSEHOLD income into retirement plans and/or Roth IRAs.
What is a Roth IRA?
“A Roth IRA (Individual Retirement Arrangement) is a special type of retirement plan under US law that is generally not taxed, provided certain conditions are met. The tax law of the United States allows a tax reduction on a limited amount of saving for retirement. The Roth IRA's principal difference from most other tax advantaged retirement plans is that, rather than granting a tax break for money placed into the plan, the tax break is granted on the money withdrawn from the plan during retirement.
A Roth IRA can be an individual retirement account containing investments in securities, usually common stocks and bonds, often through mutual funds (although other investments, including derivatives, notes, certificates of deposit, and real estate are possible). A Roth IRA can also be an individual retirement annuity, which is an annuity contract or an endowment contract purchased from a life insurance company. As with all IRAs, the Internal Revenue Service mandates specific eligibility and filing status requirements. A Roth IRA's main advantages are its tax structure and the additional flexibility that this tax structure provides. Also, there are fewer restrictions on the investments that can be made in the plan than many other tax advantaged plans, and this adds somewhat to the popularity, though the investment options available depends on the trustee (or the place where the plan is established).” ~http://en.wikipedia.org/wiki/Roth_IRA
Why do you not want to put more than 15% in? Keep reading. You’ll want to have money left to complete the rest of the steps.
Baby Step #5:
First things first. You need to have a goal. You need to figure out how much per month (per Dave, at 12% interest) you need to set aside in order for there to be enough when it’s time to send your child (or yourself) off to college. Google your options for Education Savings Accounts and 529s as this is the best way to save. North Carolina has great options for both in-state and out-of-state college savings plans.
“Never save for college using:
- Insurance
- Savings bonds (only 5-6% growth)
- Zero-coupon bonds. (only 6-8% growth)
- Pre-paid college tuition (only 7% inflation rate)”
~http://www.daveramsey.com/new/baby-step-5/
Baby Step #6:
Could you imagine being out of mortgage payments 5 years earlier than planned? What about 10 years? Don’t forget, at this point you have a solid savings fund with 6 months of your operating income socked away. So now it’s time to pay down that mortgage.
At this point, you may even want to contact your mortgage company, and other companies to see if refinancing to a lower interest rate is an option for you. Either way, it’s time to get to the point where you don’t have to remember to send that monthly mortgage payment. What better way to do so than by eliminating it?
Baby Step #7:
“t’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It's really the only way to live!
Golda Meir says, “You can’t shake hands with a clenched fist.” Vow to never hold your money so tightly that you never give any away. Hoarding money is not the way to wealth. Save for yourself, save for your family’s future, and be gracious enough to bless others. You can do all three at the same time.” ~http://www.daveramsey.com/new/baby-step-7/
Ladies, I know it seems like a lot. But that’s why you start with baby step number one. And that’s why they’re baby steps. It’s clearly not an overnight process, but it is a life changing one. I hope you’ll take that plunge as I have. I’m looking forward to steps 4-7.
Sincerely,
~Nikki
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