Before you can get out of debt you need an emergency fund (a baby one)

Once you've made a budget and begun using the envelope system, it's time to attack those baby steps of Dave's. For a refresher, they are:

  • $500-1000 in an emergency fund
  • pay off debt except house
  • 3-6 months expense in emergency fund
  • invest15%; college funding;
  • pay off mortgage
  • build wealth

The sad truth is that up until that time our savings account probably fluctuated somewhere between $50 and $350. Maybe. It was obviously so minuscule that I don't remember.

And what happens when something happens (the car breaks down, etc.) and you have no savings. Well odds are it's not in the budget so that means it's taken care of by something plastic with 18% interest. Yick!

So the key to paying off debt is to NOT skip baby step #1 - $500-1000 in an emergency fund.

Depending on your income this is something you might be able to do fairly quickly now that your budgeting wisely. If not look around and see what you can do to get the money. Got an old piece of exercise equipment? Sell it. Tons of junk? Have a garage sale.  Pick up some overtime if that's available.

Now I know it's taboo to talk about how much money you make, but as you're reading our journey I think it's important for you to understand where we were coming from financially. Families with a smaller income will obviously take more time and I don't want you to get discouraged by comparing yourselves to us. If you're making even more well heck, you should be able to beat us.

We were fortunate that when we started the baby steps (2000) we were making pretty good money - between the two of us we were earning about $85-90,000/yr (gross). (Um, this in NO WAY reflects our current salary since we both work in full time missions/ministry.)

Once we nailed down our budget, and cut back on a lot of unnecessary expenses we were able to save up that starter emergency fund within two months.

The next piece was going after our debt (student loans, car payments and credit cards) - like gazelles. Come back next week for the REALLY good stuff.

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