We all want to be better stewards of our money by paying regular attention to emergency finances, savings accounts, and debt. However, many people become paralyzed when struggling to come up with a reliable strategy.
If you're drowning in credit card debt, radio financial expert Dave Ramsey advises you to make snowballs instead of panicking. You can gradually dig yourself out from beneath the cold, heavy weight of Visa and MasterCard and the others, one snowball at a time. The Debt Snowball Method is one of Dave Ramsey's well-known "7 Baby Steps" to becoming debt-free and leading the life you seek. Every baby step depends on sticking to a zero-based budget to instill this financial habit.
Like any other financial program, Dave Ramsey's 7 Baby Steps serves as a blueprint for making better financial decisions. The more closely you adhere to his steps, the more likely you are to succeed. This guide will explain everything about Dave Ramsey's baby step 1 in detail so you can begin to build your emergency fund.
Dave Ramsey's 7 Baby Steps
Dave Ramsey discovered that if you follow solid financial concepts in the proper sequence, the more effective they will be. He refers to these ideas as "Baby Steps" because you can solve financial challenges if you take them one small step at a time. Read on to learn more about Dave Ramey’s 7 Baby Steps.
- Baby step 1: Create a $1,000 emergency fund
- Baby step 2: Use the debt snowball strategy to pay off every debt except your mortgage.
- Baby step 3: Increase your emergency reserves to cover three to six months of living expenses
- Baby step 4: Invest 15% of your salary in a retirement account.
- Baby step 5: Save for your children’s college education.
- Baby step 6: Concentrate on paying down your mortgage.
- Baby step 7: Continue to accumulate wealth and donate more.
Baby Step 1: Developing Your Starter Emergency Fund
In Baby Step 1, you will put all your spare money and time, and energy to create the $1000 starter emergency fund as soon as possible.
This amount is only enough to cover a minor catastrophe, but it will save you from going into more debt for expenses such as leaking pipes or new wheels. Small, unexpected costs might cause you to accrue debt if you don't have cash on hand to pay for them.
This will allow you to avoid using your credit card or risking you having no way of paying at all. Minor costs often cause people to go into debt more frequently than you might guess. If saving $1,000 seems overwhelming, Ramsey offers strategies that will make it simpler such as eliminating all non-essentials, using cash-back programs, purchasing generic goods, canceling unnecessary subscriptions, and adhering to your grocery list.
How to Create an Emergency Fund
Building an emergency fund can provide you with peace of mind that you are prepared for unforeseen bills. While it many not cover a huge financial disaster, it will save you from using your credit card for small bills that may occur.
Make every effort to find ways to find a surplus in your budget. Adopt Dave's "gazelle intensity" by eliminating unnecessary costs that are preventing you from reaching your goal so you can put that money in your emergency fund. Keep your emergency savings in a separate account to prevent you from spending those excess dollars on non-emergencies.
Why is an Emergency Fund Important?
Consider an emergency fund a "shock absorber" for life's hiccups that will prevent you from accruing more debt. The COVID-19 pandemic highlighted the need to establish an emergency fund when in case disaster strikes. If you have no or a very small emergency fund, any incident, such as a pandemic or job loss could cripple financially cripple you and your family.
If you’re already struggling to make ends meet, setting aside a small amount of money from each paycheck can be challenging. However, that is why increasing your emergency savings should be a top priority. Every Baby Step requires life adjustments. However, your financial security will grow along with your savings. To save and build your $100 emergency fund rapidly, you’ll need to keep track of your expenditures. Dave Ramsey suggests a budget to keep track of where your money is going.
How to Budget Effectively
Your zero-based budget will serve as your monthly plan. A zero-based budget doesn’t mean you don’t have any money in your bank account. It means you have paid all of your monthly costs, thus zeroing them out.
If you often go over budget and aren’t building savings, you need to adhere more strictly to your budget. If you've never budgeted before, it might take some time to learn how to forecast your monthly costs and follow the spending boundaries you set for yourself.
If you follow your budget, you will build your emergency fund more quickly and the rest of the Baby Steps will go much smoother. Stay committed and remember that your budget is meant to give you flexibility, not restrict it.
Save For Emergencies Early
An emergency fund can mean the difference between financial prosperity and disaster. Even a small financial setback could result in debt and have long-term effects on your financial health. Make the most of your money by opening a V.Bank savings account. Reach out to us today for more information.