I'm debt free so now what?: The Rest of the Baby Steps and What that Might Look Like for a Prepper
You saved up $1,000 for a baby emergency fund and then you started working your debt snowball. You put your debts in order from smallest to largest and paid them off with lightning speed. You've made a budget and, remarkably, you even followed it! Congratulations! You're better than 95% of all Americans.
There are still five more Baby Steps to financial freedom if you follow Dave Ramsey's plan, many of which have implications for your prepping.
|Keep working those baby steps!|
The next step is to save up some serious cash. Dave says that if you have a secure job and lifestyle (ie. no serious things looming on the horizon that could zap your cash), you can aim for cash to cover 3 months' worth of expenses. If things are more uncertain, you should have more money saved up. Other financial experts think you should have more like 8 or 9 months of salary saved up in this economy. Honestly, you really can't save too much as long as you are meeting your other financial goals (See Baby Steps 4-6).
It is important to note that this money is NOT to be invested. This should stay safe and easily accessible in a place like a Money Market Account. You should also have a good amount of it in cash at home. Obviously, you should not advertise the fact that you have a bunch of cash in your home. You should also buy a water- and fire-proof safe to store it in.
You might also consider your food storage to be part of this Baby Step. Hubby Dear does, and he has reduced the amount we are putting into Emergency Fund accordingly.
Baby Step Four: Retirement
Dave Ramsey says you should invest 15% of your income into a mix of growth-stock mutual funds with proven track records. No matter what the stock market is doing, Dave has consistently said that he believes in American capitalism and that all things will work out in the end.
Dave is against buying gold or other precious metals and certainly would not advocate putting some of your emergency fund in gold. In fact, he says gold is "the new Snuggie" - just a fad. You can read what he says about gold here.
What I didn't understand until recently is that a gold purchase isn't so much an investment as it is insurance. The difference is that you expect an investment to consistently increase over time. Insurance isn't there to make you money, its purpose is to protect what you already have. Read this piece on the SurvivalBlog for more about tangibles.
So with such different advice, what are we to do to prepare for the future?
Frankly, I doubt things like the Roth IRA are going to be around when we reach that age. The government is simply spending too much money to allow growth in Roth accounts to remain tax-free. I expect tax rates to increase exponentially.
We are going to hedge our bets and do a bit of both approaches. We're going to do some traditional investments and think about getting some tangibles as well.
Baby Step Five: College for your Kids
Many people make the mistake of taking care of their kids' college funds at the expense of their retirement savings. Your kids can find a way to work through college. Not so with your retirement!
We have 529 plans set up for each of our children. Our goal is to have enough money saved for four years at a state university. If our children choose to go elsewhere, great. They need to figure out how to make up the difference either with scholarships or by their own hard work. Hubby Dear and I were accepted to several "elite" universities but chose to go to a state school for financial reasons. We're doing just fine today, thank you very much! :)
Baby Step Six: Pay off your house
This is the Holy Grail of financial preparedness, in my opinion. Owning your house free and clear would give such peace of mind. Think about it. If you have no consumer debt, no mortgage, and a year's worth of food storage, how confident would you feel? If you lose your job or the economy tanks even further, you would be far more secure than the Average Joe.
If you currently have a 30 year mortgage or adjustable rate mortgage, you should think about trying to refinance into a 15 year fixed rate mortgage. You should take advantage of the low interest rates if you can.
Baby Step Seven: Build Wealth and Give
Dave Ramsey advocates giving during all stages of his plan. We believe in tithing and beyond, and I encourage others to do so as well. After you are completely debt free, however, you will have an abundance of money to give freely. You might consider buying extra food storage and supplies at this time. Should the SHTF, you will be in a position to give charity to others who are not prepared. This is also when you can really step up your investment in tangibles and other wealth vehicles.
Get debt free, and save, save, save. You can do it! We have paid off nearly $80,000 in the last 18 months and we're finally DEBT FREE!!! It feels awesome!
Remember: The borrower is slave to the lender (Proverbs 22:7). You should be no one's slave.