Think about your retirement dream. Do you want to travel all over the world? Spend more time with your family? Open that little coffee shop near the beach? Regardless of the dream you have, the road you take to get there is the same. Here at Ramsey Solutions, we recommend using the 7 Baby Steps as your road map to a dream retirement. These steps are designed to help you get out of debt and into a life of saving and giving.
You can have your dream retirement—if you’re willing to do the work! Follow these seven steps and you will be on your way to retirement success.
1. Save $1,000 to Start an Emergency Fund
An emergency fund is for those unexpected events in life. Whether there’s a plumbing issue or your brakes squeal at every stop sign, you can be ready! The goal is to save $1,000 as fast as you can. Sell stuff. Work an extra job. Having that money in place will set you up for future success.
2. Pay Off All Debt but the Mortgage
List all debts except the house in order from smallest to largest. The smallest balance should be your priority. Pay it first, making minimum payments on the other debts. Once the first debt is paid off, use that money to pay off the next debt. When you start knocking off the easier debts, you’ll see results and stay motivated. Before you know it, you’ll be debt-free!
3. Finish Your Emergency Fund
This step is about building a full emergency fund, which you started in Step 1. Sit down and calculate how much you need to live on for three to six months (for most, that’s between $10,000 and $15,000). Start saving to protect yourself against life’s bigger surprises like the loss of a job. You’ll never be in debt again—no matter what comes your way.
4. Invest 15% of Household Income Into Retirement
With no debt payments and a full emergency fund, start investing 15% toward the retirement of your dreams. Between your 401(k), Roth IRA, and Traditional IRA, you have lots of options. The money you were putting toward debt you can now invest! Even $200 a month invested now can make you a multi-millionaire later.
5. Create College Funds for Children
Don’t let college sneak up on you. Saving now will put you ahead of the game when your kids graduate from high school. Put money into a 529 college savings fund or an ESA (Education Savings Account). Both are tax-advantaged savings options that let you save money for your kids’ education expenses. As they near graduation, encourage them to apply for scholarships. Your kids can go to college without student loans, but they’ll have to work at it, and that’s a good thing!
6. Pay Off Home Early
Imagine your life with no mortgage—and the sense of relief and accomplishment you’ll feel! There’s only one more debt standing in the way of freedom from all debt! Apply all your extra money toward paying off your home. You’ll be saving tens of thousands of dollars in interest fees.
7. Build Wealth and Give
This is the last step and, by far, the most fun. It’s time to live and give like no one else! Build wealth, become insanely generous, and leave an inheritance for future generations. You know what people with no debt and no payments can do? Anything they want! You’ve worked hard, so you’ve earned the reward!
The 7 Baby Steps will work if you’re willing to work them. They will set you up for an amazing retirement. And the sacrifices you make now will bring huge rewards in the future!