Advice from Nashville's Financial Guru Dave Ramsey
Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
1/11/2005
"I'm living paycheck to paycheck…HELP!"
Dear Dave,
I'm 19 years old and I owe $627 on my mobile home and $308 on my pickup truck. These are my last payments to be debt-free. I'm making $15,000-$20,000 a year. I'm living paycheck to paycheck and have no savings. I would really like to know how to get ahead.
Tim in Midland, TX
Dear Tim,
The first thing you have to do is create a written a budget, which is simply assigning all of your money to specific categories each month. I call it spending all of your money on paper before you get paid. As you create a budget, you will find money you aren't aware you have.
The next step is to build a beginner emergency fund of $500 - since you have very few monthly expenses. After that, list your debts smallest to largest. In this case, it's just two items. You'll pay the minimum payments on the largest debt, your house, and pay as much as you can toward your truck until it's paid off. Then take the money you were using to pay the truck and add it to your house payment and pay that off.
As soon as you're debt-free, you can really begin to save some money. Immediately after getting free of your debt, you need to build your emergency fund up to equal three to six months of expenses. After that, you can probably begin investing in a Roth IRA. At your age, if you will just keep fully-funding a Roth IRA, you will retire very wealthy. That would require a $250 a month investment, which you can't afford right now, but with no payments it would be a breeze. And you can retire with a big pile of money!
-Dave
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