Dave Ramsey ,an American financial author, motivational speaker, radio host, and TV personality, written an article entitled “The Seven Baby Steps”. It’s all about the solutions on how to get out of debt and achieve financial freedom. I’ve read this few months ago while I was googling tips on achieving financial independence and added it to my compilation of How-to articles.
In case you haven’t read the article, let me tell you about the process:
Baby Step 1: Build a $1,000 Emergency Fund
$10,000, So that’s more or less 42,000 pesos. An emergency fund is set aside for those unexpected events in life r such a loss of job, hospitalized family member, etc. The advantage of maintaining an emergency fund is that when such things happen, you need not borrow money, which, according to Dave Ramsey will break the debt cycle.
This is definitely important. My son was hospitalized for four days due to measles and acute gastroenteritis. Our little son started to got sick barely a month after my husband went back to his overseas job. Due to meager savings, we had to borrow from my in-laws to pay for the hospital bill. The incident made us realize that we really have to set aside money for emergency purposes.
Baby Step 2: Pay off all debt using the Debt Snowball
Mr. Ramsey suggested listing down debts, excluding the house, in order. The smallest balance should be the top priority. Paying off smaller debts is a motivational factor in attaining one’s goals to getting out of debt. This is known as the debt snowball method which is becoming popular as a basic debt-reduction method taught by many financial and wealth experts.
Read more about the remaining steps and how will I implement them in the next post.