In this book Dave gives us step by step guide to wealth building. he call them “Baby steps”. He is pointing out that the biggest problem for most of Americans is overspending.
Baby step 1: Put $1000 as a beginner emergency fund. We need to hit this mark fast – find an extra job, have a garage sale. So in case of emergency you don’t have to use your CC.
Baby step 2: Payoff all your debt (except house mortgage), so you don’t have to overpay the % to CC companies or other debtors. Don’t take a vacation, don’t go to the restaurant with friends! Priority is to payoff all your debts first.
Baby step 3: Put away 3 to 6 month’s of expenses as full emergency fund. keep this separate from checking account, keep it liquid. Emergency fund is not an investment. If you are saving for a big purchase – pay cash.
To build wealth start saving as early as possible and invest in a good mutual fund monthly. Magic of compounding will build you wealth until your retirement age.
Dave teaches us about importance of budgeting. Make a written budget every month and try to spend cash instead of paying with a CC. Dave encourages readers not to use loans or CC’s. Debt is a product that banks are trying to sell us.
When we are buying we should negotiate everything. here are some tips for savings:
– use the phrase: “that is not good enough”
– don’t buy extended warranties
– use power of cash
– use “walk away” power
– don’t talk too much
– use “If I” technique
– practice patience
– know where to look (sales, auctions, expos, use coupons, flea markets, for closures, pawn shops)
Baby step 4: Invest 15% of your income to Roth IRA; 401(k);…
We should invest monthly until we reach a “pinnacle point” – that’s when returns will produce us more money that we make working. Invest in mutual funds with a long history (over 5 years). Don’t in vest in CD’s. Investing in mutual fund – diversify.
– Roth IRA give us a chance to pay taxes now and let investment to grow tax free.
– 401(k) – pre tax retirement investment account. (has limits)
– Roth 401(k) – tax free growth.
Baby step 5 : Begin college fund for kids.
– Never use student loans.
– Start Education Saving Account ( ESA) as early as possible.
– Don’t put your kids education over your retirement plan.
Baby step 6: Payoff your home early.
Horrible mortgage options to avoid: – adjustable rate mortgage (ARM); – reverse mortgage; – accelerated payoff.
When buying – take 15% fixed rate conventional mortgage with at least 10% down and payments not more than 25% of your household income.
Baby step 7: Bid wealth and give.
God is a giver and we are created in his image. We shall give tenth of our increase to church or cherty. These instructions are biblical.
After reading this book i learned how to manage personal finances; learned ways to get out of a debt and never use loans> I learned the importance of emergency fund and early retirement planning; learned how to buy and sell real estate and how to get best deal on mortgage.
All this knowledge will help me after release. because if one doesn’t know how to manage personal finances he always will be broke, regardless how much money he earns.
