Dave Ramsey is an American Financial guru who has a money management plan that is broken down into ‘Baby Steps’.
It’s a fantastic plan but it is very much geared for a US audience (it uses/mentions financial products and terms that aren’t relevant here in the UK) so I’ve re-written them to align a bit more with our British pounds and pennies.
Baby Step 0 (BS0) Commit to not borrowing for anything ever again (except for a house in BS3b)
- Talk with your spouse and get on them on the same page concerning finances
- Create a budget and learn to stick to it
- Get current on the basics; food utility, shelter and basic transportation – your ‘Four Walls’
- Get rid of ‘toys’ and all non-essentials (anything that will slow down your debt snowball)
- Cut your lifestyle
- Get current on ALL bills (this includes clearing overdrafts if you have them)
(I go into more details about BS0 in this post)
- Cut up credit cards – you won’t be needing them anymore!
- Get life and long term disability insurance if you have debt or if your family couldn’t survive financially if you died (especially important if you have children)
- Get rid of any cars that you can’t pay off within 24 months
- Draw up a will
- Pay your debts off smallest to largest (regardless of interest rate), minimum payments on all debts and then throw any extra money at the smallest debt.
- Start your replacement car fund
- Start furniture or other non-essential stuff replacement fund
Baby Step 3b (BS3b) Save for a house deposit
- Aim for a minimum of a 20% house deposit to make sure you get access to the best rates
- Make use of retirement vehicles and any company matching schemes to max tax relief
- Fund a LISA (Life Time ISA)
- Consider a junior ISA or children’s bond – the money will be the child’s, but inaccessible until they turn 16/18.