Debt is a very common financial issue that can have a negative impact on a person’s life. Managing debt can be a difficult task, but it is important to remember that it is possible to win back your money by managing your debt.
There are a few tips that can help you win money by managing debt. One of the tips that have been outlined by the financial guru, Dave Ramsey is his 7 baby steps of how you can win the battle against debt and win over your money.
What are the benefits of managing your debt?
The advantages of managing your debt are numerous. The ability to conserve money is one of the most crucial benefits. You can save money if you have manageable debt because you won’t need to borrow as much money in the future.
You may improve your credit score by managing your debt, which may make it simpler for you to obtain loans in the future.
Controlling your debt might also provide you a sense of financial control. It can make you feel more in charge of your life to know exactly how much money you have and what you owe.
How to win money by managing your debt – 7 Baby Steps of Dave Ramsey
Although debt might be a significant financial burden, it is not insurmountable. Here are Dave Ramsey’s 7 baby steps to help you manage your debt and finally get your money back:
1. Save $1000 for your starter emergency funds
Start saving as soon as you can if you want to have a reliable emergency fund. According to the Federal Reserve’s economic household figures for 2021, just approximately 64% of Americans have more than $400 in cash set aside for emergencies. You need to be ready for any emergency that might come, such as a broken down automobile, kids falling down the drain, small accidents, or family members being sick, as the recession and inflation are happening all over the world. All of those situations demand cash, which is not cheap.
Saving $1,000 is difficult for some people, but it’s not impossible either. The following advice will help you start saving so that you may build up your emergency fund to $1000:
A. Set a Goal
When you initially begin saving, make sure your objective is clear and attainable. If you decide to save $200 every month, for instance, you will be able to cover your $1,000 emergency within five months.
B. Make it Automatic
If you struggle with self-discipline to continuously save money, setting standing orders automatically from your monthly income account or salary is a smart idea. Try to set saving as your default behavior if you can. Try to set up an automatic transfer from your checking account to your savings account once a month if you have a checking or savings account.
C. Spending Less
It’s crucial to make a budget once you have a goal in mind so you can keep track of your advancement. You could control your budget and regularly manage your expenses if you spent less.
You can choose to cut back on eating out, plan your meals, stop paying for unneeded subscriptions like Netflix, Amazon Prime, or even Spotify. You could also benefit from spending and money-saving applications like Money App, Cashify, and many more.
Selling used furniture, appliances, and children’s toys can help you raise money and accelerate the process of building an emergency fund.
2. Pay off all debt using the snowball method (except your home)
If you can’t manage your debt, it may be a significant burden, according to Dave Ramsey. It may seem as though it will always be there. But the snowball approach can get rid of it. This strategy is built on paying off little amounts of debt first, piling on more until it’s all gone.
Find out what all of your debts are initially. Examining your bank statements, credit reports, and other financial records will help you with this. You can begin to consider how you can pay off your debts after you have a list of them.
No matter what the interest rate, you can start with the lowest sum and work your way up. Perhaps you might think about leaving out the home mortgage since it can be considered an asset and will eventually appreciate in value.
The snowball approach to debt repayment is a powerful tool for overcoming the anger that lies beneath all liabilities. Many people use this strategy to guide their lives toward financial freedom.
3. Save at least 3 to 6 months of expenses in a fully-funded emergency fund
Keeping three to six months’ worth of costs on hand is one approach to build up an emergency fund. You can set aside up to six months’ worth of costs if your household only has one income. You have the option of choosing a three-month expenditures fund if your home has two incomes.
Again, if you already have the practice of saving money from the prior advice, creating a completely funded emergency fund won’t be difficult. Maintaining your saving momentum and routine is essential if you want to succeed.
The fund can assist you in paying for unforeseen expenses, such as an emergency auto repair, an immediate medical bill, or a case where you lose your job. You might make a list of costs that are frequently incurred in an emergency, such as rent, groceries, and utilities. Additionally, once you have saved up your 3 to 6 months’ worth of spending, you can use and keep this money to pay for any ad hoc or unforeseen bills without having to worry about debt.
4. Invest 15% of your household income for retirement
You should invest 15% of your household income in retirement planning since doing so can help you reach your financial objectives. Here are some pointers to get you going:
First, figure out how much money you’ll need for a comfortable retirement. You can use this to determine how much money you need to set aside each month.
Next, create a budget and make the appropriate investments using the money you save. This will enable you to monitor your progress and make any necessary corrections.
Finally, make a tiny initial commitment and progressively raise it over time. You can prevent severe financial failures in the future by doing this.
5. Save for your children’s college fund
If you don’t have kids, then maybe you can skip this part. But if you do, this step might be important to you as a parent.
Dave Ramsey explained here in Baby Steps 5 that, the Baby Steps 4, 5 and 6 need to be done simultaneously in that order – 4, 5 then 6.
Again, preparing your retirement fund needs to be prepared first, regardless of whether your kids might or might not attend college at all. But you will definitely get old and retire.
Then, kids’ education and college funds can be so expensive that it might take years for you to keep up with the funds for a very limited time. Therefore, it is imperative to begin the process of saving for the fund as soon as the children are born.
There are numerous benefits to setting up a college savings account for your kids. College tuition, books, room & board, and other costs can all be covered through college savings accounts.
When setting up money for your kids’ college expenses, there are a number of variables to take into account. Determine how much money you want to save first. Second, pick a college savings account that is appropriate for your family. By taking this action, your children won’t graduate from college with debt. The benefit is that if your children are intelligent, they won’t even need the college fund since they will be given scholarships from various organizations. So, financial and education planning is important.
6. Pay off your home early
It can be a good idea to try to pay off your house as quickly as you can if you have the money to do so. This may enable you to lower your interest payments and save money on your mortgage. When attempting to pay off your home early, there are a few considerations to bear in mind.
Having a reliable estimate of how much you can afford to spend each month is crucial first. You may calculate how long it will take to pay off your house with this.
Second, it’s crucial to remember that paying off your house early doesn’t necessarily mean you’ll save the most money, but that you’ll be able to set away enough money for any other financial objectives, such as your retirement, medical expenses, and bucket list trips across the world.
7. Build wealth and giving out
Everyone has varied life objectives that are unique to them. There isn’t just one way to do things. However, saving and investing are two of the best strategies to increase money.
Start small and gradually increase your investments. You’ll be able to fulfill your ambitions and see your money grow; you might even start becoming philanthropists. You can give and support people, charities, and the less fortunate. Like saying that you get back more than you give. Living the idea of giving is therefore essential to boosting the country’s economy.
Conclusion
For each person or family, managing debt is essential. Dave Ramsey asserts that you can advance in life if you have controlled your debt and your finances. With the ability to manage both your own life and the lives of many others, you may be more laser-focused on your personal goals.
You may be more effective in creating your own wealth and prosperity by following Dave Ramsey’s seven baby steps for managing your debt and getting your money back. Start making wise choices and creating a plan to achieve financial freedom that meets your needs and comfort level.
This is not official financial advice, as a disclaimer. There are many other ways and paths to develop wealth and live without debt, therefore this is only meant to be a general guide for you to use and refer to. Wishing you luck on your path to financial freedom.
