Income Master

Plan for Financial Freedom

Unless you are independently wealthy, most likely you have some form of debt hanging over your head. After all, it is the American way, right?
True.
But just because it is the American way doesn’t mean it is right for you.
It’s definitely not right for me. Just the thought of owing money makes me lose sleep at night. I have finally accepted that I will probably always have a mortgage and have car payments at times in my life, but other than that — I don’t want any other form of debt.
I have a car loan, a personal loan and a credit card I owe money on.
I like having a credit card — for emergencies, but I don’t like owing money on one.
My life has been an ongoing cycle of incurring new credit card debt and then paying it off. Then something happens and I use my credit card again — whether it is for a once-in-a-lifetime trip to Europe, a designer dress or maybe a lot of small things like dinners out at a fabulous restaurant and books on Amazon.
Nonetheless, I’m soon stuck with a credit card to pay off once again.
Most books that offer you salvation in financial freedom and debt riddance suggest you pay off your “worst” debt first — the one with the highest interest rate.
I just read some books by Dave Ramsey and he suggests a different method I hadn’t considered: the snowball debt plan.
Under Ramsey’s plan, the very first step is to scrounge up $1,000 for an emergency savings fund as quickly as possible. It should be done within a month or two. Even people who are living hand-to-mouth will be surprised at the feasibility of this. The key is to think outside the box.
I had to do just this.
With every cent we make going to pay bills or buy food for our family of four, I scoffed at this first step, until I started reading about how others had done so.
I was able to fund this emergency account was by doing something that Ramsey suggested: by selling items on craigs list. I sold an antique clawfoot bathtub that had been sitting in our garage for two years. I sold a bay window sitting in our garage for 4 years. I also sold an adjustable hospital bed, a mini refrigerator, a stroller, tap shoes, a dresser and a dehumidifier. All items that were not being used.
It was such a success I’m still coming up with items to sell. OUr savings account is growing and our basement and garage are a breath of fresh air — room to walk around!
The second step Ramsey recommends is where he goes against the grain of common debt reduction thinking: he says pay your smallest debt first, even if it is a no interest loan. Then as you pay each small debt off, snowball the money you had used for that first debt by rolling it into the payment on your next highest debt.
Anyway, the point is to keep doing this until you only have your mortgage debt remaining.
Once that happens, the next step is to set up a larger/longer lasting emergency fund. This savings account should tide you over for between three to six months of work in case something goes wrong.
Once you have that cushion, the next step is to tackle your mortgage.
There is a lot more to his books, but this is the idea in a nutshell.
Also, one key part — if some type of emergency does happen while you are in the snowball debt reduction phase — say your washing machine breaks and you need to replace it, then withdraw the money from your emergency account to pay for it. The point is to avoid charging anything else ever again.
After you have withdrawn from your emergency account, put the snowballing on hold until you rebuild your emergency fund.
Good luck.