Improving your Financial Mindset & Dave Ramsey’s Top 7 Baby Steps to Financial Freedom

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Hey FitnanceIQ Family, welcome back to the Canadian Financial Literacy Month series; here’s a refresher for the reason of this series with my introduction.  I found this to be a great opportunity to educate family and friends.

I imagine some of you clicked on this to learn the FAST way of making money, but sorry to let you know I won’t be telling you any fast cash gimmicks. The way to build wealth is all about your mindset and willingness to make the change for yourself! Are you willing to sacrifice a few months or years to get to the ultimate goal of being debt-free and financially independent? Are you willing to try different forms of income, or consider passive income? Are you willing to reduce your debt and keep your expenses at a record low? Are you willing to start saving more? Are you willing to learn the basic factors to start investing?

 

My Financial Journey

I will say, I was born frugal. I remember getting an allowance when I was a child and would learn how to save it for the next time I would get an allowance. If I needed an Archie Comic or anything, I would find a way to get it; from collecting coins and cashing it, to asking my grandma for it or even sacrificing a mint chocolate ice cream one or two Friday evenings. So it doesn’t surprise me how frugal I am in my adulthood years.

Fast forward to university times. Just like other university students during frosh week (Homecoming for others), there was a table to sign up for a credit card. I was skeptical at first but my mother convinced me to get one (to build up my credit). The only problem was, I only had a seasonal job. So once October hit, I was unemployed and relied on my OSAP (student loan) only. Tell me how this credit card company managed to approve me for $1,500!!!! Long story short I ended up maxing it out and not able to pay it off, like any other inexperienced and uninformed student.

Fast forward to after university. After all those years of seeing family and friends travelling and wishing I could be them. I began travelling to the states on long weekends, or heading to the Caribbean islands and eventually deciding to move to South Korea where I had my first taste of being independent, and making enough money to be independent and REALLY save!  Oh and that OSAP (student loans to my non-Canadians)?…I started increasing my payments to pay that off quicker (I paid it off this year☺).

Fast forward to this year 2017; after finally touching the continents of Europe and Africa and accomplishing another travel goal. Unfortunately, this was a time when I decided to say YOLO and max out my new credit card limit (honestly I thought it was fate the timing of my limit increase). However, I was stuck in a job that did not pay well and paying off the debt begun to stress me. I reached my point of frustration and finally decided that by the time my birthday hits it will have completely paid it off or have at least 10% or less left of my limit.

 

Learning from Financial Mistakes

Why is that important to y’all? Even though I was normally frugal, I am also human and have made financial mistakes and wish I had the determination and knowledge when I was much younger. So my goal is to help others see the light as well!! I believe it takes that last point where you have finally had enough!! If you are a millennial like myself who wishes they had done it 5-10 years earlier you would be in a different situation. Well, why not try now? It won’t be easy, but improving your mindset and making small changes is all it takes!

Throughout my financial journey, I’ve noticed financial bloggers or gurus with advice and suggestions. It seems most of them follow Dave Ramsey’s steps to becoming financially free. If you haven’t heard of Dave Ramsey, I suggest you find articles or his book. But here are 7 of his best tips to try in order to achieve financial freedom.

 

Baby Step 1: $1,000 cash in a beginner emergency fund

$1,000!!! That’s so difficult!! That would take me YEARS!! I can imagine some of you saying this, but let me show you a way to accomplish this. Let’s say you start saving one dollar a week, and each week you increase your saving by a dollar. To explain: the first week it would be $1, the second week it would be $2 and the third week $3. Did you know if you did that for a year you would manage to save $1, 378!! That seems doable! Yes, the last two months would be tricky because of holidays. But if you learn to pay yourself first it will become second nature. Or if you want to switch it up, start off saving $52 and then $51 and so on. The purpose of this is to have money if there are any unexpected expenses aka emergencies. And no, that doesn’t include last-minute Black Friday sales. Think more along the lines of something in your place breaking down.

Tip: Automate your savings; the money goes directly into your savings.

 

Baby Step 2: Use the debt snowball to pay off all your debt except the house

Once you finish or during the first baby step, start paying off your debt. Set a certain amount that you will put towards debt, and one by one eliminate your debts by listing them (highest interest rate to the lowest).

Tip: Whenever you receive extra cash, put that money towards your debt to pay it off faster. I don’t care if it’s $10, $20 or $50. Put at least 75% of that towards your debt. 

 

Baby Step 3: A fully funded emergency fund of 3 to 6 months of expenses

It’s time to find out what your basic needs are to survive. So look at your previous monthly bills and tally up your rent, phone, hydro, etc. Once you have those amounts, START SAVING!!! Try to have 3 to 6 months, so if you were to lose your job (knock on wood), you’d be ok. Sorry but this amount doesn’t include entertainment.

Tip: Want to get closer to this amount? Use your tax return that you get back (if you get it back) or cut down on unnecessary expenses (unused subscriptions).

 

Baby Step 4: Invest 15% of your household income into retirement

Once again you can do this while doing Baby Step 3. Also, to ease your mind this doesn’t have to be done within a year or two. This is an on-going process that may take 3, 5 or more years. This is NOT a race. At this stage of your life ideally, your income has increased and you are able to put a decent chunk towards your retirement.  The best scenario is having your company match your pension, if available. TAKE ADVANTAGE OF THAT BENEFIT!!! So let’s say you put in $100, your company will also put in $100!!! If your company doesn’t provide that, look towards setting up an RRSP (remember it’s tax-deferred).

Tip: Try to do more than 3% pension matching with your company. It will work out in your best interest.

 

Baby Step 5: Start saving for college

Planning to have children or already have children? Canada allows you to save towards your children’s school funds into an RESP. This can ideally be done while paying for your retirement.

Tip: If you aren’t planning to have children you can put it towards your retirement or house. 

 

Baby Step 6: Pay off your home early

Who wouldn’t want to pay off their house earlier than expected!! After sorting everything out, the only thing left is paying off your home.

Tip: Try renting out the basement to students or single young adults and getting rental income to pay towards your mortgage.

 

Baby Step 7: Build wealth and give generously

When all is said and done; how do you want to spend your life? Would you rather live paycheck to paycheck or actually enjoy life. It may take some time but eventually, you will be able to live off the money you saved all these years. Hopefully, you will be able to give back to charities and leave some inheritance to family and friends.

Tip: Don’t forget to consider making a will when you have some assets. After all, wouldn’t you rather your money going towards a good cause or family than being paid to the government?

 

I’m in the mix of baby step 1 to 3. I believe saving and paying off debt will help in the long run. Once my debt is finished I will be able to save more aggressively for other financial goals.
So have you reached that stage where you ultimately want to improve your financial mindset? OR do you have a family member or friend that may need to switch their mindset? Let’s discuss it! Also, which baby step are you at? Remember you could be at multiple steps in your life, and it is NOT a race. IF you have a game plan you will get to step 7. Remember the goal is to become LEADERS and be financially fit. Much love to you ladies and gents.

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