I’ve been a fan of Dave Ramsey ever since he helped me dig myself out of a debt and set me on the path to financial independence. He has a 7 step process he calls the “Baby Steps” required for getting out of debt. This series of articles is to highlight his 7 step process. I recommend them highly because I have personally experienced their effectiveness.
The first baby step is to save $1000. Sounds simple right? If you are deeply in debt, you are mostly likely living paycheck to paycheck and don’t have an extra $1000 lying around. If you did you would be using that to pay down your debts. Right? Saving $1000 can be tricky, but it is doable, regardless of your current financial situation. Anyone can scrounge up $1000 in relatively short order.
Before you begin to pay down your debt you MUST have $1000 stashed away in a bank as an emergency fund. Money locked up in investments, CD’s, precious metals, or anything that is not instantly available to you is not a good emergency fund. Having $5000 in gold coins in a safe deposit box does very little to help fix your refrigerator before all the food spoils, or fix your car in time to get to work in the morning. Emergency money must be easily accessible. It does not have to be in your sock drawer. Most banks will let you start a savings account with $1000 and you can gain access to that money from any atm. As an added bonus; it’s earning a little interest every month that you don’t have an emergency.
So, how do you make $1000. My favorite way to easily make some quick money is to have a garage sale. The average American has several thousand dollars worth of stuff stashed away in garages, crawl spaces, and otherwise hidden in their homes. If you haven’t seen something in the last two years, you don’t need to keep it in your house. De-clutter your life a little bit, and make some extra money. Everybody is guilty of holding on to things they don’t need. Right now there are skis living in my garage. I use this as an example because 1) I live in the desert, 2) my wife hates skiing, and 3) I bought them after we moved to the desert and have never worn them. I got them at a garage sale because they were a great deal. The next time I have a yard sale, I’m going to pass them on to some other ‘great deal’ shopper that hopes he will get to ski someday.
Another tried and true method for making money is to reduce your spending. Reducing spending isn’t as hard as it sounds. Find one or two things that you don’t ‘need’ like cable television or Starbucks coffee and stop spending money on them. Let’s say your cable bill is $65 a month and you buy two bags of Starbucks a month at $12 each. If the ONLY lifestyle change you made was giving them up, you would save $1068 in a year. Realistically you can save $1000 in a few months if you reduce your spending, save hard, and have a yard sale.
Yet another way to save up $1000 is to do a little side work. Are you good at arts and crafts? Sell stuff at local craft fairs. Good at house cleaning? You can do some weekend work. There are numerous odd jobs that need done in every community. Most places have employment offices that can find ‘days work for days pay’ type jobs. Working weekends at a minimum wage of $7.25/hour will get you an extra $1000 in as little as 2 months.
OK, so you saved up $1000 and it’s resting comfortably in a bank somewhere. What next? Leave it alone. You may not dip into this money for anything that doesn’t qualify as an emergency. But what if…NO, just leave it be. Emergencies are things that will cause extreme hardship in your life. This money is a small financial safety net for situations like the loss of a job, an unexpected illness, a faulty car transmission, and other real emergencies. You worked hard to save that money, don’t blow it on a late night pizza run for your buddies.
This little bit of padding with keep you from having to make more debt while you’re paying off the old debt. You need to break the borrowing cycle, and this is the first little step to doing so.
Stay tuned here for Dave Ramsey’s “baby step” number 2, the debt snowball. If you want more information on getting out of debt, I highly recommend you check out Dave’s book and website. He has several books, but my favorite is “The Total Money Makeover Workbook” because it is very hands on, forcing you to fill in your own data into the charts and forms. I found it to be very effective in forcing me to face my financial reality and changing it.