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Unit 1: Chapter 1
Transcript of Unit 1: Chapter 1
The Seven Baby Steps are the steps you should take to reach financial peace.
$1,000 in an emergency fund (or $500 if you make less than $20,000 a year)
Pay off all debt except the house utilizing the debt snowball
Three to six months of expenses in savings
Invest 15% of your household income into Roth IRAs and pre-tax retirement plans
Pay off your home early
Build wealth and give!
Baby step 1 is $1,000 in an emergency fund. If you make under 20,000 a year, put $500 in an emergency fund.
Savings must become a priority. Always pay yourself first.
The United States has a -0.6% savings rate.
Saving money is about emotion and contentment.
Money is amoral.
You should save money for three basic reasons:
***Baby Step 2 is skipped in this chapter.*** Taking the First Step: Chapter 1: Savings Emergencies are going to happen, Count on it.
Baby Step 1, a beginner emergency fund, is $1,000 in the bank (or $500 if your household income is below $20,000 per year).
Baby Step 3 is a fully funded emergency fund of 3-6 months of expenses.
A great to keep your emergency fund is in a money market account from a mutual fund company.
Your emergency fund is not an investment, it is an insurance.
DO NOT touch this fund for purchases.
The emergency fund is your first savings priority. Do it quickly! Emergency Fund
The second thing you save money for is purchases.
Instead of borrowing to purchase, pay cash using a sinking fund approach.
The third thing you save money for is wealth building.
Discipline is a key ingredient when it comes to wealth building.
Building wealth is a marathon, not a sprint.
Pre-Authorized Checking (PACs) withdrawals are a good way to build in discipline.
Compound interest is a mathematical explosion. You must start now. Purchases Wealth building Both Ben and Arthur gave $2,000 per year at 12%.
Ben starts at age 19 and stops at age 26, while Arthur starts at age 27 and stops at age 65.
Ben invested only $16,000 and ends up with $2,288,996
Arthur invested $78,000 and NEVER caught up with a total of 1,352,166
Rate of return, or interest rate, is important. Recap and Review Make savings a priority. START NOW!
Compound interest works over time and the rate of return will make a difference in how large your investment grows. Remember Ben and Arthur.
An emergency fund is your backup strategy when unexpected financial events happen.
Baby Step $1,000 in your emergency fund ($500 if you earn less than $20,000).
Discipline and focused emotion is the key to saving.
Use the 80/20 rule. Handling money is 80% behavior and only 20% head knowledge.
Anyone can learn to save! The Story of Ben and Arthur By: