My Bit of Financial Advice

I spent most of my working teenage and young adult life in poverty and in debt. (Ages 16-32).

Take this advice or leave it. I don't care. I'm not going to argue. I've done financial STUPID. I have a Master's in DUMB from the walk of life.

But I learned from it. I'm still paying for my mistakes but I've minimized their impact.

And yes, I follow the Dave Ramsey method for those wondering.

If you're financially well off and out of debt, this isn't for you. You're in a different ballpark. Carry on.

This is for those struggling and living paycheck to paycheck and looking for way to stop the pain and get out of debt and the end of car payments, credit cards and financing junk.

My advice is this.

Baby Step 1
Save up $1,000 for your starter emergency fund.


Baby Step 2
If you have debt, clean it up NOW. Debt snowball it.
https://www.ramseysolutions.com/debt/how-the-debt-snowball-method-works


(If you want to do the Debt Avalanche, fine. Just pick one and stick with it. I personally found the Debt Snowball gave a better emotional gain and reward and motivated me to keep going better than the Debt Avalanche. Either one works).


Baby Step 3
Now that you're debt free, Save up your full emergency fund of 6 mos expenses. This is 6 mos of housing, health/car insurance, gas, food, utilities, cell phone, internet. Typically $25K - $30K for the average American. May be higher or lower depending on your monthly expenses.

Guys and gals...this is your EMERGENCY FUND. Not a down payment on a car, or to borrow from to buy furniture or junk with! It's not for tires or brakes. You should be budgeting typical car maintenance.

Emergency = The heater goes out, the water heater bursts, or you get a crack in the foundation. The transmission suddenly goes out. You get a hole in the roof.

Pause what you're doing, take care of the emergency, then REPLENISH THE EMERGENCY FUND. Then resume where you were.


Baby Step 4
Once you have your Fully Funded Emergency Fund, put 10% to your 401K. Take the match and/or ROTH OPTION if available. Put 5% to a ROTH IRA.


Baby Step 5
Open a 529 for the kids college. If you dont have kids, its ok to still do this. If you dont plan to ever have then, skip this step.


Baby Step 6
Payoff the house! Here's how in less than 10 years.

Call your lender, ask what you need to do to get on bi-weekly payments. Make sure they don’t charge any extra fees to do bi-weekly though.

Usually you pay your current payment plus one more up front, then it gets deducted from your account every other Friday. But it saves you tens of thousands of dollars in interest.

https://www.nerdwallet.com/article/mortgages/should-you-make-biweekly-mortgage-payments

- Pay one extra full payment to principal at the end of every December.

- This part you will have to calculate. I divided my home loan balance by 120 payments. (10 years).

My payment is $1,415 a month. I owe $280K. $280,000 \ 120 months (10 years) = $2,333.33 a month. So I would make $1415.00 to the loan plus the difference ($2,333.33 - $1,415.00) = $918.333 to principal every month. Just this part will pay your home off in 10 years.

Doing all three of these will payoff your mortgage in less than 7 years.


Baby Step 7
Now you're debt free...max out your 401K retirement and IRA annually.

Invest in mutual funds. There's 4 kinds.

Growth, Growth and Income, Aggressive Growth and International. 25% to each. Mixed bag.

You can also save up for a second home and property. A beach house. A mountain cabin. Whatever. Just pay cash.


Good luck. That is all.

 

Solid advice.

 

Decent advice-my only caveat is low interest rate home loan be not necessarily in a rush to pay it off. Luck/timing involved but I agree paying debt - especially consumer debt should be high priority

Our home loan is sub 3% our payment is close to $2000. I could pay it off easily but that cash account earns $4000-$6000 depending on what dividends come in that month. It’s a little more complex than that because I could be saving and investing the $2K payment but you get the point.


The most important thing in all this is always always always PAY YOURSELF FIRST. Your savings is the most nasty bill you have. Do not play mental games or give in. Just start at 10% with a goal of growing your savings to at least 25% of every dollar that comes in. Increase it gradually if need be. Save all windfalls. Use autodeduction and it will be less painful and soon you will feel really good about it, as it should be.

 

https://www.youtube.com/watch?v=aeeZ_iIQG8Y

https://www.youtube.com/watch?v=pSlB5yAHDHs

https://www.ramseysolutions.com/taxes/mortgage-interest-deduction

 

I would add that instead of tackling smallest debt, tackle the debt taken out at the highest rate(s), and pay those down first. If you CAN take advantage of moving Debt A at Rate A to a lower rate, do it. But make sure it makes sense to do so. The fee to move needs to be less than you'd save in interest over the term.

I am WAY ahead on my truck loan, but stopped making payments when my money market's interest rate went higher than the loan on the truck.

Agreed.

Pay cash when you can. Some places will actually give you a cash discount, and this will save you money when it comes to the "average daily balance including new purchases" needs to be calculated. You NEVER want to put things on a credit card that is carrying a balance, since you'll always be paying interest from day one.

 

I actually agree just for the tax deduction makes no sense. But if you are far enough along in life and saving and you are in a low then raising rate environment it CAN make sense

 

nope.

https://www.youtube.com/watch?v=aFhhpahqDx8