If you throw money at stupid people, they do stupid things with it.

[Warph]

The future belongs to those who see possibilities before they become obvious.
—John Scully

Well, we the people have a new president. It's an exciting time for Americans, whether or not you agree with President Barack Obama's plans. My hope is that our new president will instill some confidence in people, not necessarily set out to fix everybody and everything.

There are some bogus government strategies floating around to stimulate the economy and "save us from ourselves." Just because they're all everyone talks about doesn't make them true! Here are a few of the big issues:

Tax Breaks
These aren't bad, and I would never turn them down. But to think that tax breaks single-handedly stimulate the economy is laughable. Remember last fall? Those stimulus checks didn't fix the problem, so what makes us think it's going to fix everything this time? Did you know it was your money to start with? They're just giving it back to you and making you feel good about it. If you're looking for $1,000 to change your life this year, you obviously don't have a life to start with!
It may help you today or this month, but $1,000 will do very little for you in the long run. To win with money, you've got to think long term.

Patriotic Duty
The government wants you to spend, spend, spend—and many Americans are taking this advice while still in debt! No matter what the talking heads say, it is not your patriotic duty to spend money you don't have. Your duty is to take care of yourself and your household with the money you earn from an honest day's work.

If you have your full emergency fund and are in a position to buy something, now is the perfect time! You can get some fabulous deals, but don't let the deals entice you if you haven't planned ahead and don't have the cash!

National Deficit

The dog is STILL chasing its tail.

Debt started the problem, so what is the current plan to fix the problem? More debt!
What really drives the economy? Is it D.C.'s programs or small-business people scattered throughout the country? This down economic time will begin to heal itself. Do we have to go $1 trillion in debt to do that? No way!

The good news is that our future as an economy isn't coming out of Washington. Our future prosperity is coming out of the hopes, dreams and individual freedoms of the American people. When left alone, we have a tendency to prosper.

The healing of the economy will begin and end with you. Yes, you, the person you see in the mirror! You have to make your decision as to whether or not you're going to take part in the recession.

As for our new president, if you're not a fan, pray for him. He's your president. If you are a fan, pray for him. He's your president, not your savior. Your hope will be crushed if you wait for him and his administration—or anyone else—to fix your life and give you money.

Recession-Proof Yourself.  Your economy is up to you!

"The sky is falling! The sky is falling!" That sounds just like what all the media people are telling us these days. "Recession! Recession!" Calm down, Chicken Little! The sky is not falling. Everything will be okay.

By definition, a recession doesn't happen until the Gross Domestic Product (GDP) numbers—how you measure the number of goods made and sold in the USA—goes down for 6 consecutive months. Even though the economy has slowed, it's no reason to completely freak out and think the world is going to collapse. Don't let the talking heads on the nightly news make you emotional and cause you to freak out about the economy. If you let your emotions dictate your actions, you're going to be broke your whole life.

What Can I Do About It?
Regardless of the condition of the national economy, it's a must that you take a look at your own personal economy. Do you have your $1,000 emergency fund saved? Are you tackling your debt snowball like crazy? If you follow the Baby Steps in order, you'll be able to prepare for yourself and your family so that you'll hardly notice when the national economy or your household economy faces potential setbacks:

Baby Step 1: $1,000 Emergency Fund
No one eagerly anticipates negative, unexpected events. But guess what? They're going to happen. It's just a fact of life. Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time. This beginning emergency fund will keep life's little Murphies from turning into new debt while you work off the old debt.


Baby Step 2: The Debt Snowball
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.


Baby Step 3: Fully Funded Emergency Fund
Ask yourself, "Self, what would it take for you to live for 3 to 6 months if you lost your income?" Your answer to that question is how much you should save. Remember, this stash of money is not an investment; it is insurance you're paying to yourself, a buffer between you and life.

Most importantly, remember one last thing. Your economy is up to you. If you are out of debt and have money in the bank, then the media can talk up a storm about a recession, but you won't feel it. When you have a plan, live on less than you make and save money, you are not in trouble. If you have a paid-for house, who cares if foreclosure rates are up? You are all right. If you have no credit card debt and the plastic companies decide to raise interest rates to 50%, how much will you care? NOT ONE BIT! Take care of your personal money situation, and everything else will take care of itself.

There's no time like the present to get started! It's a plan that works every time.

........Dave Ramsey

"If you throw money at stupid people, they do stupid things with it."

[sixdogsmom]

Good post Warph! 

[Warph]

More Baby Steps:


Step 4 - Invest 15% of household income into Roth IRAs and pre-tax retirement.
One of the best financial feelings I can remember was when I first saw some real growth in my savings. When I was younger, $10 represented over 2 hours work for me. Then one month, after I had been saving for several months, I looked at my bank statement. I had earned over $10 in interest. My money was working for me! Nowadays, $10 doesn't seem as much to me, but the concept remains the same. You need your money to work for you if you are ever going to be financially free. Saving for your retirement in tax advantaged accounts is the best way to make progress for long term savings.

Dave Ramsey recommends investing 15% of your household income (or more if you can afford it) into Roth IRAs and pre-tax retirement accounts. I agree with Dave, Roth IRAs are better than Traditional IRAs. If you are considering a pre-tax account, your options are generally a Traditional IRA or a 401(k), or equivalent. Whether you choose a 401(k) or IRA will depend on your situation.

Step 5 - College funding for children.
By Step 5, you should have an emergency fund, be out of debt (except a mortgage), have 3-6 months living expense to cover major life events, and already be contributing 15% or more toward your retirement savings. If you have children, your next major expense will likely be college. Should you pay for your children's college expenses? The answer varies from parent to parent, but you should be aware of this - when colleges process student loan and grant applications, they often take into account parental income levels.

Whether or not you assist your children through college is a decision you will have to make on your own. But there is one thing I like - Dave Ramsey recognizes it is very important to place your retirement savings ahead of college savings for your children. You only get one shot at retirement, and you can't borrow your way through it. College on the other hand... You can receive loans and grants, which can be borrowed and repaid.

Step 6 - Pay off home early.
Many people debate whether or not it is better to repay mortgage debt early, and there are strong arguments for both sides. Mortgage debt is generally inexpensive debt and mortgage interest is a tax deduction for most people. Investing money you could use to prepay your mortgage could potentially earn you much more money in the long run.

On the other hand, mortgage debt is still debt. If you already have completed steps 1-5 and have additional funds every month, paying off your mortgage early will free up more money every month and allow you other freedoms that you would not have with a mortgage.
A friend of mine is in his mid-thirties and paid his mortgage off completely. This allowed his wife to quit work and stay at home to raise their three children. They have no other debts, and he recently took a lower paying job because it brought him more satisfaction at the end of the day. He wasn't trapped by an enormous mortgage, or saddled with other debt. Being debt free allowed his family to make these decisions to live the life they want to live, not live the life they are force to live to just to repay debt.

Step 7 - Build wealth and give! (Invest in mutual funds and real estate).
This is Dave Ramsey's final baby step. In my opinion, this step is open to interpretation based on personal beliefs, needs, and situations. I understand each element, but in my opinion, it seems like a couple different ideas were thrown together into one step. Let's break them apart and examine them one by one.

Building wealth: With no consumer debt, a large fall-back fund, 15% or more of you income going into retirement accounts, your children's college paid for, and your mortgage eliminated, you may have extra funds to play with every month. If so, wealth building is the next logical step. Of course, by investing for retirement, you have been building wealth all along. But, I suspect Dave Ramsey is referring to building non-retirement wealth.

Ramsey mentions investing in mutual funds and real estate. I would prefer to invest in index funds over mutual funds because the fees are generally much lower, but the idea is the same. As for real estate, the reason I believe he mentions that is to grow an alternative income stream; something that will bring in income outside of your normal job. I commend this type of thinking, but real estate is not for everyone. However, I believe alternative income is important for everyone to strive to achieve.
Invest to build wealth, but make the types of investments that suit your needs.

Giving: Dave Ramsey is big on giving, and advocates tithing 10% throughout all the baby steps. Giving, by his definition, is anything about 10%. Giving is a very personal thing, and not something you should rely on someone else to tell you how or when to do. You should do what you believe to be the right thing to do.

I should also note that if you are tight on money, there are other ways to give. Giving of your time, energies, talents, or other forms of giving can often make a greater difference than just throwing some money in a pot.
Dave Ramsey's 7 Baby Steps: Wrap-up

Overall, I think Dave Ramsey's plan is a solid plan to get out of debt, build wealth and reach financial independence, and ultimately, financial freedom. There are a few caveats though - this plan should be viewed as a rough guide, and not an absolute road map. Everyone has different personal and financial situations and goals. But if you are able to use this guide as a rough outline, your chances of meeting your financial goals are very good.