I’ve always been a big fan of Dave Ramsey and I use his “baby steps” as a guide for my financial planning. (If you are interested in a pdf file with Dave’s baby steps, click here. This pdf file is provided for free by Dave. You can print it, share it, copy it, and pass it around. I am in no way affiliated with Dave Ramsey or his show. I just like what he does and says!) Here are the baby steps that I have completed so far:
1. 1000 Baby-Emergency Fund [x]
2. Pay Off All Debt But House [x]
3. Save 3-6 Months Expenses [x]
Now I have to work my way down the next 4 Baby Steps. The main difference between the last 4 and the first three? You do the first three “one-at-a-time”, completing one step before you complete the next. The last 4? You can do them all at the same time, if you have enough available money. Here’s how it will work out for me:
4. 15% To Retirement Accounts ($1000 Per Month / $12000 Per Year For NCN)
I’ve really wrestled with the 15% number. Because it is a percentage, I feel confident that I can either contribute a little more or a little less than 15% and be just fine. My wife’s job requires a 5% contribution for her pension plan, and I have decided NOT to include that amount when figuring 15% of our income. So, I’ll actually be contributing MORE than 15% of our total income to retirement. I have decided to up my 403b contributions to $1000 per month, for an annual retirement contribution of $12,000 dollars.
5. College Funding ($333 Per Month / $4000 Per Year For NCN)
I have two children ages 7 and 3. I have an ESA opened for my daughter, and I will soon open one for my son. I have until April of 2007 to contribute to their accounts for 2006. I have decided to make it my first mini-goal to fund their 2006 contributions by that time. I’ll probably wait until 2008 to worry about their 2007 contributions. Confused? Me, too. Bottom line. 2K per child, before April 2007.
6. Pay Off House Early
This is a very, very unique issue for me. My house that I live in now is provided by my employer. So, I have no mortgage. But, I know that I will want to purchase a house in the future. I just don’t know WHEN I will need to purchase the house. It could be 2 years, it could be 20. So, on to step 7.
7. Build Wealth and Give
I already give tithes and offerings to my church, and I give to several charities. I’ve decided that, on top of my 403b retirement savings and my ESA college savings, I will use index mutual funds and my ING Direct account to amass as much cash as possible. At the end of the year, I can gage my progress, and determine if I need to make additional contributions to additional retirement vehicles (such as IRA’s) or if I simply need to keep the cash in a non-retirement account. A lot of this depends on how my job is going, and when / if I might need to buy a home. My goal is have an additional $12,000 dollars in my savings account by the end of 2007. I’ll decided what to do with the money at that time.
When Dave says 15% of your income to your retirement accounts every month, does he mean pretax or post tax? Its certainly easier for me to come up with 15% of post tax income, but pretax means I would put away more.
ps. I love the new site look!