Episode 21

The 7-Step Plan to Live Debt Free

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These goal trackers will help you visualize your progress and keep you motivated along the way as you save money each month!

Are you ready to start off 2019 on the right track? I’m not talking about a flaky resolution. I’m talking about the peace that comes with having an actual plan for your money. Did you know there’s a seven-step plan that will change your life?

 

How to Get Out Of Debt and Stay Out of Debt

 

Baby Step 1: Save $1,000.

The very first thing you need to do is build your starter emergency fund of $1,000. Think of it like a safety net, so when emergencies pop up out of nowhere (and you know they will), you don’t have to use a credit card. If something goes wrong with your car, or you chip a tooth, or you need to replace the water heater in your house—your emergency fund will get you through without taking on any debt.

 

Baby Step 2: Pay off debt using the snowball method.

Once you’re prepared to avoid future debt, it’s time to get rid of your current debt. Start by listing everything you owe (except your mortgage) from smallest to largest. This is called the debt snowball method, and you’ll use it to knock out your debts one by one.

Don't worry about interest rates unless two debts have similar payoff amounts—then you’ll list the debt with the higher interest rate first.

Attack the first debt on your list by paying as much as you can on it each month, while making minimum payments on your other debts. When you’ve paid off the smallest debt, add what you were paying on that to the payment on your next debt and start attacking it. Your results will keep you motivated to dump all your debt.

Before you know it, you're debt-free! Millions of people have gotten out of debt by working this method and taking Financial Peace University to beat debt for good.

 

Baby Step 3: Save 3–6 months of expenses for emergencies.

Now you’re going to take your $1,000 emergency fund and expand it to 3–6 months of expenses. This will be your fully funded emergency savings, and it will protect you against life’s bigger surprises.

Can you even imagine what life is like once you’ve completed this step? I mean, think about being debt-free and having 3–6 months of expenses saved in the bank! That gives you peace of mind with your money, regardless of what life throws your way.

 

How to Build Wealth

Baby Step 4: Invest 15% of your income.

The money you had been using to attack debt can now help build your future. In Baby Step 4, it's time to get serious about retirement—no matter how old you are.

Your goal is to invest 15% of your household income into pretax retirement accounts. Start by investing enough in your company 401(k) plan to receive the full employer match. Then invest the rest into Roth IRAs—one for you and one for your spouse if you’re married. If your company doesn't offer a retirement plan or match your contributions, then go straight to the Roth IRA.

Now, your most important investment throughout all the baby steps is making sure your family is 100% taken care of should the unthinkable happen. My husband, Winston, and I trust Zander Insurance for our life insurance policies. Don’t put it off; connect with Zander today.

 

Baby Step 5: Save for your kids’ college fund.

By this step, you've paid off all debts but the house and started your retirement savings. Now it's time to save for your children’s college expenses. Saving now will put you ahead of the game when your teens graduate from high school.

I recommend looking at 529 college savings plans or ESAs (Education Savings Accounts). These are both options specifically designed for saving and paying for college expenses. Plus, they have tax advantages.

 

Baby Step 6: Pay off your home early.

There's only one more debt standing in the way of you and total freedom from debt—your mortgage. Any extra money you can put toward your mortgage will help save you tens of thousands of dollars in monthly (or even yearly) interest. If you currently have an ARM, interest-only, or even 30-year mortgage, consider refinancing to a 15-year, fixed-rate mortgage.

And you guys, get this. If you can make just one extra mortgage payment each year, you’ll shave eight years off of a 30-year mortgage! If the thought of coming up with the cash intimidates you, here’s a hack: Switch your payments from monthly to biweekly. With biweekly payments, you make half of your mortgage payment every two weeks. That results in 26 half-payments, which equals 13 full monthly payments each year.

 

How to Be a Generous, More Fulfilled Person

Baby Step 7: Build wealth and give.

As you’re continuing to invest and build wealth, now you get to be a tremendous giver! It’s pretty awesome to have no payments—not even a house payment—and have so much income freed up to go and do incredible things for other people.

What would you do if you had this kind of freedom? Would you travel more? Invest in a business idea you’ve always had? Would you write a huge check to a cause close to your heart, or pay off someone’s medical debt? Keep that dream in mind as you work your way through the Baby Steps.

This plan has already changed the lives of millions of people. My hope for you is that you’ll join them! Make 2019 the year you’ll look back on and say, “That’s when I took control of my money, built a legacy, and changed my family tree forever.

Sign up for Financial Peace University today.

Other products and services featured in this episode:

Connect with a professional for investing or for saving for your kids’ college: https://www.daveramsey.com/smartvestor

Find an independent insurance agent near you who can help you save money each month: https://www.rachelcruze.com/elp/insurance

Get Chris Hogan’s new book, Everyday Millionaires: https://www.chrishogan360.com/store/product/everyday-millionaires-book-by-chris-hogan

Download the Goal Trackers mentioned in this episode: https://www.rachelcruze.com/download-your-goal-tracker-sheets

Sponsors pay the producer of this show, The Lampo Group, LLC, advertising fees for mentioning their services or products during programing. Advertising fees are not based upon or otherwise tied to any product sale or business transacted between any consumer or sponsor. The following sponsors have paid for the programing you are viewing: Zander Insurance, SimpliSafe.