Personal Finance

The total transformation of your money

Comentarios del artículo By: Isaac Lopez ( Isaac Lopez ) ⋅ January 16, 2009 ⋅ Comments Article

Wandering wallmart magazines, I found the book The Total Money, Dave Ramsey, had never heard of the author or the book, but a bit investigándole found it one of the best (if not the best) personal finance book ever written. The book plasma in a very easy and foolproof practice to take control of our money.

Ramsey's method is simple to understand but requires good discipline to contain the impulses of unnecessary consumption, this slogan sums up the book

If you live like no one else, then you will live as one

The author means that if you make some sacrifices now that most people are not willing to do, then you can live in a better way that they could never afford it.

The method consists of seven "Baby steps" to achieve financial freedom:

Step one: Save $ 1000 initially as a cash emergency fund

Before anything, Ramsey recommends having at least $ 1000 dollars available for any emergency repairs, Doctors, etc. The author recommends that in order to raise the money from the emergency fund, whether you have debts, while saving the amount should make only minimum payments on their debts, not more.

Step Two: Get out of debt (snowball method).

Once you have a cushion for emergencies, you should get out of debt as quickly as possible, for which Ramsey proposes the following method:

1. Order your debts (not mortgage) from lowest to highest amount.
2. Pay the minimum on all debts except the lowest balance.
3. Put as much money as possible in the lower debt balance.
4. Once you pay the debt with the lowest balance first, it is time to attack the next debt with the lowest balance.

Importantly, the duration of the method must allocate a fixed monthly amount and not decrease even if you're decreasing the number of debts.

This method has been widely criticized, as many analysts recommend strike first debt interest, because mathematically it is better, but the method is based on quick wins, which encourages people to continue, as you observe your progress . Psychology of mathematics.

Step Three: Complete your emergency fund.

In step one laid the foundations for an emergency fund, now is the time to complete it using the money to destinabas debts, if you used $ 3,000 to make payments on your debts, you can now use it to complete your emergency fund.

A good emergency fund should be 3 to 6 months of your expenses, ready to use in case you run out of work or happen algae º n problem. It is important that this emergency fund is available immediately, should not be in any investment account or similar instrument algae º n, as this money will not make you a millionaire only give you security in tough times, without incurring any debt.

Step Four: Invest 15% of your income in retirement.

If you complete the steps above, you could imagine how it feels to have no debt (except maybe the mortgage), a savings of 3 months of your expenses, Â Do you feel good right? Ramsey indicated that although they have completed the most difficult steps is now necessary to continue thinking about our retirement.

Dave Ramsey recommends investing at least 15% of our income in retirement savings, in Mexico the companies handling these savings are called Afores. Most governments offer tax incentives for such savings. More information at www.consar.gob.mx

Step Five: Save for college.

It is important to create a college fund for our children, and is also important to be well informed and seek support scholarships or university, as it is surprising the number of scholarships each year are available or are assigned at the discretion just because no one requested.

Step Six: Pay off your mortgage.

Although you could have paid your mortgage earlier is not convenient either for tax deductions on the interest or for the use that was given to the money in the previous steps. The most effective way of paying your mortgage is to recalculate the monthly amount spent on the mortgage to reduce the number of years that you must pay, with only a 20% increase to the monthly could reduce up to 40% the time of your mortgage.

The important thing is not to make large payments at year end (bonus) but be consistent and do it all year even a small amount extra.

Step Seven: Build wealth.

Once you have completed all the above and could start building your wealth in three simple ways

• Investing: It is time that your money work for you, money is the best worker in the world, never get sick, working 24 hours a day. No evaluates your investment options, diversify and be patient.
• Give: There is no better way to feel full share your wealth.
• Fun: Now it is time to buy that car à º last model, that vacation to Europe, why not buy that $ 50,000 clock.

Dave Ramsey wrote an excellent book that outlines a plan of how to become rich, step by step but in a safe, easy and foolproof. I really liked a phrase from his book that asks What is the best way to eat an Elephant? R = one bite at a time.

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