The Total Money Makeover By Dave Ramsey Part Two

Here is the guts of the book – 7 Baby Steps to Financial Freedom

Step One: Set up a $1,000 Emergency Fund

Step Two: Pay off all debt using the “Debt Snowball” method (except the house)

Step Three: Build up your Emergency Fund to be able to cover 3 – 6 months expenses.

Step Four: Invest 15% of Gross Household Income for retirement

Step Five: Start up a college fund for your children

Step Six: Pay off your home mortgage early

Step Seven: Build wealth (through Mutual Funds and Real Estate) and give!

So which step are you on?

We are on Step Three – to build an Emergency Fund from $1,000 to 6 months expenses. Dave suggests that those who are self-employed build their fund to 6 month expenses due to the flucuation of regular work and the risk of injury and illness to the business.We did our sums and 6 months expenses seems like a lot of money to be sitting there so we are going to aim for 3 months.

It seems a bit funny to build up a fund that will sit there for emergencies when we are trying to save for a deposit on a house – but it after reading Dave Ramsey’s book it is starting to make sense to have such a fund. I can just imagine good ol’ Murphey turing up (you know Murphey’s law) and all sorts of unexpected bills could arise once we had committed ourselves to a high mortgage!

Happy Saving!

Rachel Larkin