Become Debt Free and Create A Positive Net-worth
1. Establish a 3–6 month emergency fund
Establish this liquid fund as quickly as possible. This will prevent you from getting further into debt (if you have any already).
2. Max out employer 401k match (if available) — Continuous
A 401k employer match is free money you are throwing down the drain if you do not take advantage of it. If you’re employer matches up to 6% of what you invest in your 401k then be sure to invest 6% of each paycheck.
3. Max out your ROTH IRA each year — Continuous
The 2019 ROTH IRA contribution limit is $6,000 — which works itself out to $500/month. Be the driver of your future and start investing for retirement today. Don’t wait. The longer you wait, the harder you may have to work to save up to your goal retirement amount.
4. Establish a 1-year emergency fund
Having a 1-year emergency fund makes you practically bullet proof from life circumstances.
5. Put any extra funds towards debt
After you have developed your continuous investment habits (Steps 2–3) and have completed steps 1 & 4, it is time to put any extra funds towards debt. Pay off your debts in ascending order (pay off the smallest debt first and your biggest debt last).
6. Save & Invest 25% of all income
After you are debt free, it is time to save and invest a quarter of your income. The money you save and invest is for your choosing, but this is the time to focus on ensuring your money is working for you.
Remember:
#1: During steps 1–4, you are still paying the minimum payments for all of your debt. You are also not adding any new debt.
#2:Don’t forget to GIVE during all 6 steps. 10% is a great starting point.
#3: You may have a positive net worth by the time you complete steps 1–4, which is the equivalent of being debt free. At the point you have a positive net worth, you have the power to pay off your debt — which is a powerful position to be in.