I'm approaching being 40 years old soon and I have to say, some things such as not being debt free in my retirement, just won't be cute by then or is even cute now for that matter. During quarantine, I've done my absolute best, with managing my personal finances and on the road towards building wealth, not because it's cliche to say right now but more so because my future self needs me to. I've learned that in order to prepare for my future (i.e., retirement), I have to make changes today that will help me tomorrow. So one day, I set down and pulled my bank statements for three months and my most recent credit report to see where I was financially. To my surprise, I'm actually in a great position financially to build wealth because, for so many years, I've always paid for things with cash because my credit score had always been so low that I dare not even thought about applying for credit cards (hence why I'm in a great position now), so I didn't have a huge mountain of debt to climb out of.
I saw the problem with my low credit score immediately...... I ignored paying my student loans which caused them to A) go into default and/or B) be reported to credit bureaus as "missed" or "late payments" for 30-120 days consecutively......... OUCH!!!!!!! This drastically affected my credit score because late payments highly impacts your credit score. So I called my student loan service providers and asked for any available repayment plan options that I could consistently pay on monthly and therefore, get my accounts back in good standings so that my credit scores could increase over time. If you're reading this, don't ignore another piece of mail or email from your student loan service provider, call them and work out a plan with them ASAP!
So after getting my student loan repayment plans finalized, I still felt lost on what to do next with getting my personal finances in order. So like anything else you do when you want to learn something, I headed over to YouTube and searched "Personal Finances 101" and there were tons of videos by a man named Dave Ramsey. For short, I'll call him DR for the remainder of this post. DR teachings were derived from "baby steps" that he learned over his course in life that has positioned him to be pretty wealthy. Obviously not everyone is on board with his teachings or we'd all be doing it, right???? But for me, I was won over by his methodology of paying for everything with CASH and the only debt you should have is if you own a home. Watching his videos on YouTube, opened up my eyes so much and his methods of building wealth, already aligned with my spending habits: paying for everything in cash.
Now before I go any further, let me list his infamous 7 Baby Steps formula towards building wealth:
Baby Step 1: Save $1,000 for your starter emergency fund.
Baby Step2: Pay off all debt (except the house) using the debt snowball.
Baby Step 3: Save 3-6 months of expenses in a fully funded emergency fund.
Baby Step 4: Invest 15% of your household income in retirement.
Baby Step 5: Save for your children's college fund.
Baby Step 6: Pay off your home early.
Baby Step 7: Build wealth and give.
Usually, people frown at B1, skip B2 and go straight to B3. So instead of doing the steps in order (i.e., B1, B2, B3.... they do it this way, B1, B3, B2, B4, B5....). The reasoning is, no one is comfortable only having $1,000 in an emergency fund and paying off debt. Having no real emergency fund will be the cause of your financial demise if an emergency happens while you're on B2. I totally agree and I've personally decided to do B2 and B3 ...... TOGETHER for my sanity.
Again, I love his baby steps mainly because it provides me with a formula to use while building wealth and that's how I effectively learn, is through formulas. I've been told a million times to "save money for a rainy day" but that didn't prompt me to save anything! I've also been told to "live below your means" or "don't go into debt"........again, those words didn't prompt me to do anything there either. But what caused me, a 39 year old black woman on the verge of heading into my next chapter in life that is preparing me for retirement, was to shift my mindset about money and actually create a plan to build wealth, which I found in was Dave Ramsey's 7 Baby Steps.
DR is strict about completing the steps in order and one at a time (or suspending them all together during this time of crisis such as COVID-19). I'm all for doing what's best for you and for your household and your household income. So for me currently, I'm simultaneously completing B2 and B3 (I completed B1 already). After that, I'll complete B4 (my goal is to invest 30% of my income into retirement because I'm a late starter) and B5 and then finally move into B6 (if I decide to own a home by then) and B7. I don't have credit card debts to pay off THANK GOD, and I only have student loan debts that are around $60k and I plan to pay those aggressively off. So within the next 5 years (or sooner), I plan to be DEBT FREE!!!!!!
I encourage you to face your finances and forgive yourself for the mistakes you've made in the past. Comb through your expenses and cut out unnecessary spending, engage with communities of people who are debt free or in social media groups that will help encourage you on whatever financial journey that you're on. Look at your money daily and tell your money where to go by creating budgets based on your income. Do whatever it is that you need to do, to get yourself on the right path financially. I had to take a hard look in the mirror and acknowledge that I wasn't being a great steward over the money that I currently had, so clearly God wasn't going to trust me and bless me with more.
Let me know in the comments if you are following DR baby steps and what's your experience with following them or what formulas are you using to build wealth?