Finally, The Baby Steps!

Click HERE to see the baby steps
In an earlier entry where I blog about the junker car we purchased instead of a brand new Honda, Pilot I also said that we had about $6,000.00 in savings, and a $10,000.00 bonus on the way. Is anybody wondering what we did with that money? Well guess what?
I will be giving you an insider's exclusive. We ended up only receiving $6,848.23 from the bonus because of government taxes (go figure! apparently we'll receive the rest of the bonus at the end of the year) SO, we now have roughly $12,848.23. Imagine that? What kinds of things would you have done with $12,848.23? We were thinking...... Ireland in July and New York City for New Years Eve. Yeah, that's what we WERE thinking before the Dave Ramsey class.
Here's the after math. Dave has 7 financial Baby steps to set you for life! We took that money and put it into  

Baby Step 1: $1,000.00 (has to be easily accessible) emergency fund. 

                        -The reason why you'll want this emergency fund is to prevent you from putting it on the credit card if an emergency were ever to occur. It makes complete sense, if you're already in debt and do not have the money to pay for this surprise emergency whether the car broke down again, or your refrigerator leaks and floods your house, then you're sinking yourself into more debt by having to put that expense on the credit card. SO, make sure the cash is easily accessible but not a temptation to grab for non-emergencies. Shane and I have ours in cash, not in the bank (in case we were to have any problems withdrawing it). Don't think you're getting the insider's exclusive as to where we hide it.
Baby Step 2: Pay off all your debt with the debt snow ball
           -This is what we mean by snow ball.
This was our debt: Master card 1: $343.00     @ 16% interest
                             Master card 2: $1,600.00   @8% interest
                             Student loan 1: $2,600.00   @34% interest
                             Student loan 2: $6,660.00   @0% (til 2012)
                                                             Visa 1: $100.00
                                              Visa 2:  $300.00
Many people would approach this by paying off the the bill with the most interest. Well that's wrong! (in the snowball method). You want to pay the lowest bill no matter what the interest is. If you can pay more than the minimum payment that is excellent too.

    

            Visa 2: $100.00                 minimum of  $15.00 a month
            Visa 1: $300.00                                          $15.00 a month

Master card 1: $343.00     @ 16% interest        $15.00 a month

Master card 2: $1,600.00   @8% interest          $25.00 a month

Student loan 1: $2,600.00   @34% interest        $232.00 a month

Student loan 2: $6,660.00   @0% (til 2012)            no payment until 2012 

In the snowball, you pay the minimum (or more) for each bill until the lowest bill Visa 2 $100.00 is paid off. We actually payed $50.00 a month for the Visa 2 bill. We carry that $50.00 over to Visa 1 $300.00 so our payment to that Visa 1 is $50.00 + $15.00 (min payment) = $65.00. Remember, you're still making the min payments to all the other bills too.

Then when Visa 1 was payed off next is Master card 1 $343.00 and we take the $65.00 we were paying on Visa 1 and put it toward Master card's min payment of $15.00 to = $80.00. Then we take out that bill faster. Then we take the $80.00 to Master Card 2's min payment of $25.00 a month and we have $105.00 to pay off  the $1,600.00. Does it make sense? the reason why you want to pay off the bills from least to greatest is because it boosts your hopes that it will be possible to pay off all your debt. 

That was a long explanation. Lucky for us we just payed off all those bills using the money we saved up. Now we've completed Baby step 2 we took the rest of our money and applied it to                                   

 Baby Step 3: 3-6 Months Expenses in Savings                                                                                                                 -If Shane and I were to be un-employed for anywhere from 3-6 months we do not want to rely on credit cards to bury us in more debt. We would need cash to hold us up through this tragedy if it ever were to happen. Looking at all our expenses, our rent, utilities, cell phone bill, clothes, groceries, transportation, we need about $23,000.00 to survive if we ever were to be un-employed for that long. After paying off our debt a total of $11,603.00 we were left with $1,245.23. We put that into Baby step 3, $23,000.00 - $1,245.23 = $21,754.77 more to save up in order to have our 6 month expenses in savings! And that is where we are right now. If we were to put away $500.00 every month it would take us 3 1/2 years to get the full $23,000.00. Listen, this process is not a get rich quick. You need to be patient!
Baby Step 4: Invest 15% Of Income Into Roth IRAs And Pre-Tax Retirement Plans
                -When I get to that class I'll tell you about it.
Baby Step 5: College Funding

Baby Step 6:  Pay Off Your Home Early
Baby Step 7: Build Wealth And Give!