The baby steps (The Total Money Makeover)Before starting the baby steps, Ramsey recommend that people be current with their debts. He suggests that old, written off debts or those on which one is behind on payments should be approached first even before beginning step one. 1. Start a “beginners” Emergency Fund: This should be $1,000 unless the family makes less than $20,000 a year in which case the fund should be $500. While admitting that he used to recommend people shed their debt first, he found too often that emergency situations such as pregnancies and blown transmissions would completely curtail their efforts to get out of debt. He revised this step to take care of any small emergencies that might take place during step two. 2. The Debt Snowball: Making all the minimum payments and keeping debts current, Ramsey recommends using any extra funds to begin paying off debts by the smallest to the largest. Ramsey admits this method is mathematically inferior to paying off debts largest interest to smallest, but states that he is more interested in the “quick wins” involved in paying off the smaller debts quickly. This step is also often called “Debt free except your house,” as he does not count a personal home mortgage along with other debt. 3. A Fully-Funded Emergency Fund: Ramsey recommends having a fully-funded emergency fund placed in low interest building and easily accessible accounts such as money market accounts totaling three to six months of expenses. The purpose of this step is to build a safety buffer so that using credit cards for emergencies no longer becomes necessary. 4. Invest 15% of your gross income: Ramsey recommends starting with matching 401k accounts, but not including the actual company match in the 15% calculation. He also does not recommend including calculated Social Security benefits. Beyond company match 401k, Ramsey recommends funding Roth IRAs if the person qualifies. After that Ramsey recommends Mutual Funds with a high performance track record of 5 years or more. Ramseys full recommendations on investing can get rather complicated, and always recommends seeking out further information, either through his subscription website or through one of his ELPs (Endorsed Local Provider, a financial professional that Ramsey recommends) 5. College Funding: Ramsey acknowledges that “a college degree does not equal success, and urges parents not to send their children to expensive out-of-state colleges. He of course urges students to stay away from student loans, and to search out as many scholarships as they can. Additionally, he recommends that parents invest in ESAs and 529 plans. 6. Pay off the home mortgage: Ramsey argues that taking a tax deduction for a home mortgage does not make up for the amount of money spent in interest each year. 7. Build Wealth: Ramseys idea here is that once a person’s income is totally free of payments, they should be able to invest heavily and amass a sizable nest egg. This is the step in which Ramsey recommends having fun, investing, and philanthropy.

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