The 7 Baby Steps by Ramsey Solutions
From the Ramsey Solutions website:
Dave Ramsey’s 7 Baby Steps will show you how to save for emergencies, pay off all your debt for good, and build wealth. It’s not a fairy tale. It works every single time!
As the name suggests, there are 7 steps to be taken in order.
Baby step 1Section titled Baby step 1
Save 1,000 USD to begin your emergency fund.
The first step is start building a cash buffer for yourself for when life goes pear-shaped.
Baby step 2Section titled Baby step 2
Pay off all debt (except the house) using the debt snowball.
The debt snowball is a method of paying off debt where you focus on the debt with lowest balance and paying it off first. You commit to pay at least the minimum payment on each debt. When you pay one debt off, you take that minimum payment and add it to the minimum payment of the next debt in line. Repeat until all debt is paid off.
Using the debt snowball is said to result in a psychological benefit because you’re getting quick wins by paying off low-balance debt. Further, it accelerates because instead of increasing your total lifestyle cost because you no longer have a minimum payment on that debt, you’re throwing more money on the next debt. And, finally, once you’re done, you should have a relatively stable total lifestyle cost and all the money that was going to pay on debt is now part of your profit.
Baby step 3Section titled Baby step 3
Finish building your emergency reserve by saving 3–6 months worth of living expenses in cash.
This should be easier because you’ve paid off all your debts, which results in extra cash in your pocket, and your total lifestyle cost isn’t as volatile as it might have previously been.
Baby step 4Section titled Baby step 4
Invest 15 percent of your household income for retirement.
Baby step 5Section titled Baby step 5
Save for your children’s future education.
Baby step 6Section titled Baby step 6
Pay off your home.
Baby step 7Section titled Baby step 7
Live and give like no one else.
Read my personal reflections on The Financial Order of Operations