Episode 8 How to Use Dave Ramseys Baby Steps
Royal Stanley of Oregon Pacific financial advisers, offering securities through United planners financial services. Member FINRA SIPC shares. His planning approach to help people toward a place where they may be at peace regarding their financial goals in this dynamic podcast. Royal will share his insights on how to design a retirement plan to help you plan for your future. Now onto the show. Hello and welcome to life, but design with Royal Stanley from organ Pacific financial advisers today, we're gonna be talking about Dave Ramsey baby steps and some of the things that Royal does in his practice to incorporate these good morning, Royal. How are you doing great doing great looking forward to get into? This is this is a process that I go through quite often with clients. And I think it'll be good to be able to share this with people where they can go back and listen to all the specifics abalata. Dave Ramsey end is baby steps fantastic. All right before we get to deep into this. What's new with you, Royal just getting ready here? My wife, and I we're going to take my daughter down to Disneyland next week. But we haven't really told her where we're going yet. She loves going to hotels, and she always talks about are. We going to go to a hotel, and how many sleeps are we going to have? That's awesome counts. The number of nights where stayed and so I told her we're going down going to a hotel for three nights. And she's like what about four sleeps? And she's negotiating this with me. And it's pretty durable. And she has no idea where we're going. She's been to Disneyland before told her at has a pool, which is I think the most important thing to her. And we we've told her it's newer park. Oh, joe. She'll be happily surprised when we get down there. Exactly. She'll shoe recognize park. It is very quickly. I'm sure. Yes. Absolutely. Absolutely. All right. Well, let's jump into Dave Ramsey's baby steps or are. We starting today. I thought I might just touch on my relationship day Ramsey. I've used Dave Ramsey for probably ten fifteen years now as a way of helping clients just to kind of advocate, maybe getting their financial house in order. I think it's a very simple systematize. His way of looking at your financial situation and improving it in gradual steps you can take without overwhelming yourself. I think so many people just look at all the things that they have in front of that they need to do to start preparing paying off debt saving for the future. Saving for college pain up the house and just gonna feeling over while the Dave Ramsey program is really geared to cut up each of those stages of life. And move people towards I think financial freedom, and you know, the name of his his university that gets put on at various churches or other beauty organizations financial financial peace university that that's really what those babies sets geared for his cheating, financial peace. However, you you might define that. I'm also the a Smartvestor pro which is program where if you're Dave Ramsey listener, you go to find those who have gone through that Dave Ramsey training and have the same outlook that damn has when it comes to someone's financial situation, though, we have that through our website at o- PF dot com. You can go there and check it out. We have information about that. If you wanna tend financial peace university and really get kinda deep education about all these baby steps, you can just go online to the Dave Ramsey website every dot com and find a financial peace university near you just put it in your zip Cup data. Kind of brings me to yesterday had a first appointment with a young couple. They came in and had just gone through some medical medical situation had a little bit of time off work had been medical debt. And I think they're just trying to sitting back in. How do we even deal with us? We've got student loans. We've got car dad, we've got a little bit of credit card debt. And now this this big medical debt. How how do we even work with them? And by using the start of the baby steps, it was a very easy way of giving them a sense of. Here's a plan. We're gonna fall into get you out of the situation we made it bite sides. So it wasn't an overwhelming thing of well, all you have to do is pay off this hundred thousand dollars worth of debt at your fine. That's not realistic. I think for the vast majority of people by giving them that sense of here's the plan. Here's what you have to do in three and a half years or four years. You can have all of this taking care of. It's an easy way to help people just kind of move through that process and get to that point of. Okay. What's next and how how can I get to that next step in this process? Absolutely. It's it's like the old saying how do you eat an elephant right one by the time to take one bite of the time. So can you tell us what the baby steps are? Yeah. Absolutely. So they're seven babies steps. And we'll just kind of walk through them one by wanting and destroy them. Never one is really just you. You have to make a commitment to make an changing your life and realize that you have to take that first step away from using credit cards using. Debt as a crutch to finance your life. Dave Ramsey's program is really designed to have around the concept of leaving a debt free life. And so big step number one is almost a triage if you will of just trying to get thousand dollars saved as your star for emergency savings that thousand dollars. So if something comes up, you at least have money in the Bank, or you know, at home that you can just get to pay for new tires. Your car breaks down any of those little emergencies that might crop crop up without falling back on using your credit cards. So that first baby step is simply let's get a thousand dollars in the Bank and for some people that's fair easy. Maybe they have a good paying job, and they can easily just shift at those dollars into savings in a month or two other people that that could be a six months to a year long process. You know, we want to encourage. People wherever they're at. But doing the baby step number one is a great way of just showing commitment. And it's it's it's a way of saying. Okay. I've got a baby step number one checked off my list. What's knacks? Absolutely. So after that, we look at putting together a plan for getting rid of the step in. That's what I call it. Debt snowball. It's Dave calls it. And it's really a great process to say what's the plan? Forget getting rid of this stat. So in the simplest terms, what we'd looked to do is we take a look at all of your debt that you might have. And kind of rank it according to the balance and the interest rates you're paying on it. So usually at the top of that list is, you know, the credit card debt, you have and that sort of thing then made maybe your cars, student loans and medical debt kinda shifted in their each person's situations is a little bit different. So yesterday sat down with this. And it just kind of did this for that. We just had a conversation of. Okay. What are your priorities? What what goals you the most about your financial situation would think she wanna focus on we. We just kind of built this plan to say. Here's the priority list that you wanna focus on each of these stats and what we do is. We take the minimum payment for all of those credit cards loans etcetera. And just say you're going to pay the minimum payment on all those except for your number one priority. So let's say it's a it's a credit card with two thousand dollar balance. If that's the case we're going to put all of our focus each mum on getting that paid off now minimum. We want someone at least pay an extra hundred dollars a month on that credit card. But if they're able to, you know, three four five hundred dollars maybe yard sale and put all that money onto that one that maybe your tax return that sort of thing. And once that's paid off. What we want to do is take your minimum payment on that first card and begin applying it to your priority, number two debts, and then at all your extra income all the Midi extra money, you can kinda scrounge around and fine and put it on that second debt and overtime that begins to build a snowball because what you're using for your minimum payment keeps. Growing on that priority debt. So what we see is it usually takes quite some time to get this first two or three debts paid off. But once you get that, you you're putting so much torture debt each month that those lower priorities can really be taken care of pretty quickly the grant seem thanks. So that's that's basics of debt snowball. One thing. I offer to clients coming in is to go ahead and just build that for them. And just say, okay. Here's how many months this will take will factor in all the interest and whatnot. And just look at how long we can get them out of all that consumer debt. Now, the cabbie out there is we don't really look at your mortgage payment as part of the debt snowball while it is debt it it's a good kind of debt because it allows us to to leverage our well and buy a home that we can live in. And if you look at a Americans and the way they build wealth. Buying a house and getting paid off overtime is one of the number one ways of building while. So we don't wanna take that away from from someone with that being said one of the things that we need to focus on it's removing through baby steps one into that emergency savings from the debt snowball is getting a handle on your spending. And maybe for some people that's really building out of strict budget for others. Maybe it's a looser spending plan. I think everybody's a little bit different. What their needs are in the way, they look at money and they're spending. But we encourage people just to find a system that works for you. And for some people it's getting really serious about budgeting. So, you know, where every single dollars allocated, and for others that might be a little bit looser where you say, I know I'm spending this much on getting my debt payments down so much. But we wanted us a certain level of intensity to get that taken care. Of soon as possible because really we can't really do anything Intel that does taken care are now that that debt snowball has been rolling, and it's complete. What's the next step? Then once that debt is all taken care of now for somebody who owns a house it they'll still have their mortgage off. But after that dead state and care now, we're gonna lay the foundation for the future, and that's with building three to six months of emergency savings. Now, you still have your thousand dollars. You've kind of set aside, but Dow we wanna start building up just kind of the beginnings of that really large emergency savings that's going to be there. So you never have to worry about going back into credit card debt should something come up, and I get the question quite often. You know, how much should we plan for where should we put it? You know, I I'm word. I'm not gonna highness interest rate on my emergency save in should I invest? It all these questions seem to pop up. And so give you kind of my generally, sir here. The first thing we wanna focus on is getting three months of emergency savings in the Bank. I'm not really worried so much about the interest rate. You're getting on that money. The reason being is we're not looking to invest this money this money simply there to protect you should something major happen. And it's extremely liquid. It's extremely liquid. We want we want people to be able to get to right away. We don't want to worry about the volatility of the market there. And the way we look at it's not necessarily three months of income that you need to have save, but it's really three months of living expenses. So for someone who makes you know, one hundred eighty thousand dollars a year, it might not need to be forty five thousand dollars at they have set aside in the Bank. But if they're only living, let's say five thousand fifteen. Thousand would would cover their living expenses for that three months. So we wanna look at living expenses. Not just what you are annual salary is divided by three or sex. And then also I think there's there's some other factors in there that that kind of determined you need to go up to six months of emergency savings. What is are you just a single income earner family in that case having that six month buffer is probably a good thing. Because if anything happens to that primary breadwinner, you wanna have that extra room in your emergency savings that extra capacity to kind of figure out what the next step is the other thing, we really look at is. Do you have guaranteed sources of income that are coming in for instance, if you're already retired, and you have pension and retirement income, you know, do you really need six months of emergency savings set aside there it might be nice to have. But at a certain point my want to shift some of that say. Savings to a moral liquid investment. Simply because you probably won't lose your social security your pensions engine income. Yeah. The other thing will will look at there is life insurance and disability insurance for those who are still working because that's that's the biggest risk there. Especially for someone in their working years. Disability is really the bigger risk more than life and showing life insurance is is good to have. But I think people really under estimate. How often a disability Inc occurs in someone's weren't career? It's we have discounted our mind, cause it's not as devastating s a loss of a spouse or a mother. What we have that three to six months of emergency saving set aside. That's were really wanna start focusing in on saving for the future. Ver- saving for retirement. Okay. At this point. And this is where I began meeting with quite a quite a lot of people. I have a lot of people go through this first baby steps very quickly or Orna alumna cases, especially with folks who really had a good handle, our finances and didn't have to go through the process of getting into debt and then getting back out of down. They can go fairly quickly just right through from emergency savings and begin saving for the future. So what we want to look at is it possible. Try to get as much money set aside into tax free accounts, like a Roth IRA or Roth four one K and have a target of about fifteen percent of your pretax income that we want you to be focused on saving for the. Future. Now oftentimes people will hit the limit on how much they can put into a Roth IRA. So that will start looking at do. They have 4._0._1._K's at match are there other after-tax accounts that we should start using. But we really wanna get in that habit of using fifteen percent as our starting point for saving for the future, and my personal opinion. Is that fifteen percent should be what your income is not don't include anything that your company matches. So for instance, I I talked a lot of people say, oh, I'm saving fifteen percent for retirement. But six percent of that coming from my company man, I really encourage people try to get up to fifteen percent of your own money. And then at the company match on top of that it does to Ben's one it exceleron. It's how bigly you're building wealth. But more importantly, it also lowers how much income you have coming in. And allows to live on less, basically restricts how much you can you can spend each month, which is a good thing for retire. We want to have a high income and a low cost of living. That's that's really my ideal situation for people when we look at planning for the future, and we look at building. Well, that's good. That's good math. I think so I think I've seen a lot of people who, you know, two hundred three hundred thousand dollars a year. But at the end of the your heaven saved a dollar. And I think we all know people like that are your stories about that. Where is not really an income problem, but it's a spending problem so just by lowering and deferring some of that income into retirement plan into an investment vehicle. It's a great way of making sure that adds something to show for that income at the end of the year. And also, I think that fifteen percent rate is a starting point. It's not the end all be all for how much she should be saving for the future, especially when you look at associate for younger people, what might happen was so security and really be complete disappearance of pensions from both private employers across the country. Yeah. Definitely. Royal they've got they're they're doing their fifteen percent. And even better than that. They're doing their fifteen percent. And their company's matching. We've got that step down. What's the next step? So step number five is what situational? And that's that's really lecture. You're saving that money for your future. It's looking at your children's future. And that's really where college savings comes into play. Obviously for those people who don't have kids or the kids are already out of the house. Don't have to worry about college savings at all. But for those that that do this would be the time that we wanna start looking at setting decide money for for call. And I think everyone has a different way of looking at that how best to fund their children's college. I don't think there's a right or wrong answer. Here. I have a lot of clients who are taking the time with their kids to basically say you're going to work your way through school. Just like I did because I had an experience. Where I had to do that. And I really appreciated that time in the education. I got whereas others might say, I just wanna make sure that my kids get outta school with don't debts and don't worries and can start their life on the best foot possible. There's no right or wrong answer here. The never one thing. I would say is. I never wanna see client hood, four years worth of college savings in an account that specifically tied to education like an ESA or a five twenty nine plan ESA is an educational savings account because if that happens if that child decides had I've not going to go to school. A maybe I got a full ride scholarship maybe instead of going to Harvard. I'm just going to go to a state school by getting to twenty five twenty that can create its own problem. So that's why one as a few different account types to begin saving for school in a five twenty nine clan for college savings. I usually don't like to see more than two years of educational expenses saved that way. And then when we get to the point of school, we want to spend that five twenty nine money really early on in the educational process. Just to make sure it all gets spent. All right for those who don't have kids or taking care of and setting aside money for college at this point. It's really just a focus on getting your primary residence paid off got an hour focusing on the house. Exactly. So this this is where you've taken care of all your debt, you've got money in the Bank. You've got money going into your 4._0._1._K, Zha, Roth IRA's and other accounts. College has been taken care of for your cats nounce time to really take care of that last piece of debt that most people how and from a financial planning standpoint, I loved his down across from India client who says we just got the house paid off where we're getting ready to retire. That's an ideal situation. I'm not saying you can't retire with a mortgage. I'm just saying it's a whole lot easier. If you don't have absolutely at that point. Then we'll have a. Conversation about how much extras to really start putting on the house, and and try to look at getting that house paid off as early as possible. Because once that house paid off we can move into that last baby step, and that's really where we just look at building. Well, and creating a legacy going forward what you've taken care of all those basic I six steps of the plan. It's at this time that we can really start looking at, you know, supporting those causes that are really important to you building wealth to pass onto future generations. And we've in that legacy there. So that point that that baby step number seven that really goes on the rest of someone's let went taken care of those first sex step. So that's that's where wanna get our clients to where they don't have debt. They're financially free. Hopefully, they have found financial peace, and they don't have that worry that follows around so many Americans who are tied to this cycle of credit card payments, car payments, and just kind of that fear that if some. Something happens. Everything comes crashing to a halt. That's a terrible place to be. So for clients who have gone through this process either through Dave Ramsey or just because it's a natural function of how they view buddy in their financial live. They really for the most part have a sense of wellbeing that they don't have those worries that most Americans happen. They're leaving in a place where the worry about tomorrow about making that next mortgage payment or rent payment just isn't there, and it's a place where they can enjoy their life and really live little light. That's you need to that. So that's where we're trying to get our clients to like call to action today would be if that's something you would like to have a conversation with for somebody who's walked through these steps with hundreds of clients, you good our website at o- PF aid dot com. You can make an appointment there. Give me a call. We can totally just sit down and. Look at your personal situation in answer those questions what planned in use it to reach that point of financial Welby Earl that sounds great to me. But I also know that we're low on time today. So we need to wrap this up. Do you have any closing thoughts? I said visit our website make an appointment. It's a very easy process to to go through an just start making that plan for the future. Also, I encourage it listen to the Dave Ramsey show. Check out his book, the total money makeover. I really encourage people to to get educated about the best way of dealing with kind of budgeting money dot sorta. Absolutely. Thank you. Everyone for listening to life by design podcast with Stanley. If you've not subscribe to the podcast yet. Please click the subscribe now button below this way. When Royal comes out with a new podcast it'll show up directly on you're listening device. This makes it much easier to share these podcasts with your friends and family, and I'm thinking. That most of you have friends or family that should just be taking that one individual small single little step toward their financial freedom toward getting their financial house in order. And this is a great way to do it. This is a great list that Royal is shared with us today. It's been proven time and time again to work for folks. So if you have questions, or if you you just wanna know how easy or how difficult these steps are going to be reach out contact Royal in his office. Thanks again for listening for everyone at Oregon Pacific financial advisors. This is Eric Johnson reminding you to live your best day everyday. We'll see next time. Thank you for listening to the life by design podcast. Click the subscribe button below to be notified when new episodes become available. The views expressed are those of the presenter and may not reflect the views of United planners financial services. Material discussed is meant to provide general information, and is not to be construed as specific investment tax or legal advice individual needs berry and require consideration of your unique objectives and financial situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions, you may have regarding your investment planning advisory services offered through Oregon Pacific financial advisors Inc. Securities offered through United planners financial services of America. Member FINRA and SIPC. Oregon Pacific financial advisors Inc. And United planners financial services are independent companies.