First, if you want to get out of debt and become wealthy, you should listen to Dave Ramsey on the radio or via podcast or catch his TV show on Fox Business Channel each weekday. This is exactly why I am so motivated to become debt free and live on cash only. With like 99.9% of society evangelizing debt and small monthly payments, the average person is going to think that being in debt is the only way to live. Until you listen to Dave Ramsey and he pounds it in to your head that there is a better way to live. He is the perfect counter to consumerism and debtism run amok. As someone who has been in debt, bankrupt, and has managed to not only become debt free but to prosper for nearly 20 years with what are simple, common sense ideas, Dave Ramsey is the only person I would turn to for financial advice. Judging by the number of callers he gets on each show and the number of people who call in to scream "I'm Debt Free" on Fridays, I don't think I am the only person who feels this way.
So anyway, you can click on the link above to read through his Baby Steps. Here is the condensed version:
- Put $1,000 aside to start an emergency fund (this is what you will rely on for emergencies instead of your credit cards).
- Pay off your debts using the "debt snowball". Pay off your bills, listed from smallest to largest, with the utmost intensity (it will go faster than you think if you focus on this one activity and live on beans and rice, rice and beans until you are done). Of course cancel and cut up your credit cards with each debt that is paid off.
- Once your debts are paid off, put three to six months worth of expenses away to fully flesh out your emergency fund.
- Once your emergency fund is totally funded, invest 15% of your income in Roth IRAs and pre-tax retirement programs.
- At the same time invest 15% of your income in a college savings plan for your kids.
- At the same time, pay off your home mortgage as quickly as possible.
- Now you get to build wealth and give some of it away! ...And live like no one else.