*The Dave Ramsey 'Baby Steps' Thread*

[barkley]

3. Umbrella Insurance: Once your net worth passes $500,000 and you approach the million mark, it is time to consider Umbrella Insurance. Car and homeowners insurance can only cover so much. Generally, you will need to increase or max-out the coverage on your cars and real estate before an umbrella policy can be added.

despite a person's net worth once they've paid off their home it is wise to get umbrella insurance. additionally-lawsuits can literally take money you don’t have… yet. if your assets do not cover what the court rules you owe the claimant, the judgment might include garnishing your wages so an umbrella policy provides that level of protection as well. this is why it's important to know your existing coverage in all circumstances AND where you may need but lack coverage- people who volunteer with a community, charitable, or religious organization are at a higher risk of being sued than others. before you volunteer with an organization, make sure they have some form of insurance that can help pay for a related lawsuit against you. if the organization does not have insurance or does not fully cover you, your umbrella policy could save the day. i point this out b/c i personally know individuals who were stuck with high legal bills due to their organizations either not having or being grossly under insured. this can be a liability concern if you drive other people's kids on school field trips or for organized sports/dance/music...events.

 

[ThereYouSeeHer]

despite a person's net worth once they've paid off their home it is wise to get umbrella insurance. additionally-lawsuits can literally take money you don’t have… yet. if your assets do not cover what the court rules you owe the claimant, the judgment might include garnishing your wages so an umbrella policy provides that level of protection as well. this is why it's important to know your existing coverage in all circumstances AND where you may need but lack coverage- people who volunteer with a community, charitable, or religious organization are at a higher risk of being sued than others. before you volunteer with an organization, make sure they have some form of insurance that can help pay for a related lawsuit against you. if the organization does not have insurance or does not fully cover you, your umbrella policy could save the day. i point this out b/c i personally know individuals who were stuck with high legal bills due to their organizations either not having or being grossly under insured. this can be a liability concern if you drive other people's kids on school field trips or for organized sports/dance/music...events.

Very good points. Definitely some food for thought here!

 

[ThereYouSeeHer]

As you contemplate your financial goals for 2023, please feel free to share which step you are currently on, and any progress you anticipate next year!

If you are new to this way of life, find out where you are on the list below, create a budget, and get ready to change your family tree! (If you have past due bills, get current on everything before beginning, which is sometimes called Baby Step 0).

For those who have already started this journey, let's keep our progress in 2022 going strong into 2023!

 

[DL1WDW2]

I describe the importance of adding Umbrella Policy to the pain of paying alimony…only worse.
Excellent advice to purchase the Umbrella .
I also ask if you have heard of the legal ramifications of Online Identity that continues to exist forever.
I currently suggest this small booklet
5@55 The 5 essential contracts required for estate planning .
I have given this as gifts to every family member to be aware of the dangers of forever after.

 

[ThereYouSeeHer]

I describe the importance of adding Umbrella Policy to the pain of paying alimony…only worse.
Excellent advice to purchase the Umbrella .
I also ask if you have heard of the legal ramifications of Online Identity that continues to exist forever.
I currently suggest this small booklet
5@55 The 5 essential contracts required for estate planning .
I have given this as gifts to every family member to be aware of the dangers of forever after.

Thank you for the suggestions!

Dave recommends identity theft protection. I know some plans simply monitor and others include recovery services, but some do not reimburse for stolen funds.

My hangup would be handing over my family's SSNs to another company for monitoring, since I try to be so cautious about even giving those numbers out. Currently, we utilize freezes on our credit reports. If anyone has personal experience with this type of coverage, I'd be interested to hear more!

 

[barkley]

I describe the importance of adding Umbrella Policy to the pain of paying alimony…only worse.
Excellent advice to purchase the Umbrella .
I also ask if you have heard of the legal ramifications of Online Identity that continues to exist forever.
I currently suggest this small booklet
5@55 The 5 essential contracts required for estate planning .
I have given this as gifts to every family member to be aware of the dangers of forever after.

View attachment 726581

if someone receives a pension-esp. through a government entity i highly recommend getting in contact with whomever administers it to find out what THEY require as a power of attorney. it is not uncommon that these entities have their own poa's and will not accept anything other-and it can take upwards of year in these pandemic times to have one processed and officially accepted (we had an 8 month wait pre pandemic with a california state agency). also-be aware, a poa ends upon death as does any authorizations for electronic records and such. make sure to have 'during lifetime' as well as 'end of life' as well as after death authorizations in place.

finally-there are 'notebooks' named things like 'for those i leave behind' that provide a workbook that breaks down and details every business aspect of one's life-and it can be vital for whomever handles things at every stage of your life/death. it details all you financials (accounts, life insurance, pensions, utility deposits, credit card accounts...) so that whomever has to deal with your business has a road map. my personal workbook includes all information as well as copies of my pension paperwork so my survivor knows how to proceed, my birth records, marriage record and all vital paperwork b/c i want no person to ever deal with the nightmares dh and i dealt with despite family members spending large sums of money supposedly 'getting things in order'.

 

[trenty]

Anyone else having trouble getting the Everydollar app to load?

ETA: Nevermind it is working now.

 

[ThereYouSeeHer]

Just posting my 2023 goals. Still saving and making good progress on the emergency fund!

Step 1: Done!
Step 2: Done!
Step 3: In progress
Step 4: Anticipated 2023?
Step 5: Anticipated 2023?
Step 6: Done!
Step 7: Anticipated 2030??

 

[Eviejim]

I bought Dave's book and have listened to a few pod casts of his too but never started it! I've been thinking about it lately and then saw this thread. Sooooo maybe this is my sign. lol I'm on step 1 and recently took a look at my debt snowball and where to start.

Just posting my 2023 goals. Still saving and making good progress on the emergency fund!

Step 1: Done!
Step 2: Done!
Step 3: In progress
Step 4: Anticipated 2023?
Step 5: Anticipated 2023?
Step 6: Done!
Step 7: Anticipated 2030??

I love how you listed Anticipated steps- that's great!

 

[ThereYouSeeHer]

I bought Dave's book and have listened to a few pod casts of his too but never started it! I've been thinking about it lately and then saw this thread. Sooooo maybe this is my sign. lol I'm on step 1 and recently took a look at my debt snowball and where to start.

I love how you listed Anticipated steps- that's great!

Yay, jump on in!

Exactly. Once you have $1000 saved, start attacking your debt with the smallest balance. Budgeting will help find 'extra' money you can throw at Baby Step 2. You'll be snowballing in no time!

Yes, I like anticipating how long each phase will take me. It may take longer or shorter than estimated, but it's good to get a handle on what lies ahead.

You got this!

 

[Starport Seven-Five]

Sooooo maybe this is my sign. lol I'm on step 1 and recently took a look at my debt snowball and where to start.

Consider comparing to the debt avalanche method (where you pay highest interest rate first). Generally it's not a big difference but on some outlier cases a small change in the order for debt payoff can really shorten the timeline.

 

[Eviejim]

Consider comparing to the debt avalanche method (where you pay highest interest rate first). Generally it's not a big difference but on some outlier cases a small change in the order for debt payoff can really shorten the timeline.

Great idea!!

 

[fofinia]

Hi! so I'm looking at step 4 save 15% for retirement. We are both self employed. And there is no regular weekly income amount to count on. I have always liked the idea of paying ourselves first. And so every month I have a small amount directly deducted into a few savings accounts.

When my DH has a great month he always wants to put larger chunks away. Which I think is great. But with the nature of construction (his field) I always am a little hesitant to commit it all to savings. Thinking that some big expense is just around the corner. Or a client delays a payment and we need that money earmarked for savings to pay bills. It's just harder to get it back in savings after pulling it out in an emergency.

So for someone self employed would you look at 15% of your gross income? or 15% of your net income after taxes? I need to go look and see what percentage we are at.

 

[trenty]

Hi! so I'm looking at step 4 save 15% for retirement. We are both self employed. And there is no regular weekly income amount to count on. I have always liked the idea of paying ourselves first. And so every month I have a small amount directly deducted into a few savings accounts.

When my DH has a great month he always wants to put larger chunks away. Which I think is great. But with the nature of construction (his field) I always am a little hesitant to commit it all to savings. Thinking that some big expense is just around the corner. Or a client delays a payment and we need that money earmarked for savings to pay bills. It's just harder to get it back in savings after pulling it out in an emergency.

So for someone self employed would you look at 15% of your gross income? or 15% of your net income after taxes? I need to go look and see what percentage we are at.

I put 15% of my net after estimates taxes into a SEP.

 

[ThereYouSeeHer]

Hi! so I'm looking at step 4 save 15% for retirement. We are both self employed. And there is no regular weekly income amount to count on. I have always liked the idea of paying ourselves first. And so every month I have a small amount directly deducted into a few savings accounts.

When my DH has a great month he always wants to put larger chunks away. Which I think is great. But with the nature of construction (his field) I always am a little hesitant to commit it all to savings. Thinking that some big expense is just around the corner. Or a client delays a payment and we need that money earmarked for savings to pay bills. It's just harder to get it back in savings after pulling it out in an emergency.

So for someone self employed would you look at 15% of your gross income? or 15% of your net income after taxes? I need to go look and see what percentage we are at.

Hello! Great questions. Just for a refresher, and to make sure we're on the same page, let's walk up the baby steps. To begin step 4, it assumes you have finished the following:

Step 1: $1000 in the bank
Step 2: All debt paid off except for the house
Step 3: Fully funded emergency fund (in your situation, saving 6 months of expenses would be recommended)

You mention emergencies, savings, and retirement, so I want to make sure we're talking about the same things.

Emergency funds are for true emergencies that generally aren't planned for.

Sinking funds would be additional savings accounts that cover future known or potential expenses (i.e., specifically saving for a roof or generally saving for medical costs).

Retirement funds are saved in tax-advantaged accounts and are separate from other emergency or savings funds.

In your situation, assuming you already have a fully funded emergency fund, you may want to consider having a separate sinking fund for times when a client delays a payment. Or, perhaps create separate sinking funds for 'big expenses' that you may be concerned about. That way, you are not tempted to withdraw from the emergency fund.

Once you are ready to save for retirement, I believe it would still be 15% off gross income for self-employed individuals. It definitely makes it harder to plan when irregular income is involved, but there should be an average minimum income that you can start calculating from. Here are a couple of articles that may help:

5 Investing (Retirement) Options for Self-Employed People

How to Budget With an Irregular Income

 

[notatallmagic]

Great thread! I read the book and took the class years ago, and it saved my family from certain catastrophe when the ex left years ago, and I was a stay at home mom.

Fast forward 15 years, and we are totally debt free, with my oldest kiddo in college (which she should complete without any student loans due to lots of hard academic work, scholarships, and lots and lots of hours worked on her part); and my youngest with the same goal of no college debt. I'm planning for retirement in about 10 years, which I NEVER thought would be possible. Lots could still happen, but these strategies saved our house and our financial lives.

Little steps. Be intentional. Have a plan for every dollar. Give generously. It CAN be done!

 

[fofinia]

I put 15% of my net after estimates taxes into a SEP

Thanks! We have IRA's and I've had an SEP on my list of things to do. I will look into it again. I'm going to focus on my net number. I'm not at 15%

5 Investing (Retirement) Options for Self-Employed People

How to Budget With an Irregular Income

Thank you for the links! Yes I followed the steps about 10 years ago to get us out of a mountain of work and medical debt. $36,000. I never read any of Dave's books. But so many people on this site would recommend the debt snowball and emergency funds, that it's burned in my brain.

Sometimes retirement funding for self employed gets ignored when reading. Lots of talk of 401k match and pensions and things we will never have access to.
thanks!

 

[trenty]

Thanks! We have IRA's and I've had an SEP on my list of things to do. I will look into it again. I'm going to focus on my net number. I'm not at 15%

Thank you for the links! Yes I followed the steps about 10 years ago to get us out of a mountain of work and medical debt. $36,000. I never read any of Dave's books. But so many people on this site would recommend the debt snowball and emergency funds, that it's burned in my brain.

Sometimes retirement funding for self employed gets ignored when reading. Lots of talk of 401k match and pensions and things we will never have access to.
thanks!

If you already contribute to IRA and decide to add a SEP remember: 15% total. So if you already contribute some to the IRAs, figure out how much to put into the SEP to get to 15%.

I highly recommend TOTAL MONEY MAKEOVER. I do not follow all of the principles exactly, but I did follow his baby steps.

 

[ThereYouSeeHer]

Thanks! We have IRA's and I've had an SEP on my list of things to do. I will look into it again. I'm going to focus on my net number. I'm not at 15%

Thank you for the links! Yes I followed the steps about 10 years ago to get us out of a mountain of work and medical debt. $36,000. I never read any of Dave's books. But so many people on this site would recommend the debt snowball and emergency funds, that it's burned in my brain.

Sometimes retirement funding for self employed gets ignored when reading. Lots of talk of 401k match and pensions and things we will never have access to.
thanks!

Great! It can take time to rework budgets and finish Baby Step 4. Overall, Dave has said he doesn't want you at 10% gross or you risk not having enough for retirement. He also doesn't recommend 20% gross, if you still have a mortgage or children's college to get through.

Everything is a stepping stone to something else. Work on getting to 15% net, and then see what it would take to achieve 15% gross. You can do it!

 

[ThereYouSeeHer]

FYI. Dave is having a free livestream tomorrow, Thursday, January 12th at 8pm EST/7pm CT.

Preregister with an email address here: Building Wealth in 2023.

Looks like it will be Dave, Rachel, and George, with Dr. Delony and Ken joining later for a panel discussion.

"After what the economy’s put you through, no wonder you’re feeling scared and stressed. But you don’t have to take that anymore. You can get ahead—and we’ll show you how at Building Wealth in 2023, our free livestream tomorrow. Time’s running out to register!"

"Plus—a special announcement for our livestream viewers!"

So vague, so many questions! haha....