Both plans provide great financial guidance.  I’ve been doing some thinking lately about highlighting the best of both (and some of my own ideas) and bringing them together in one list.   And this post will bring some of that thinking and brainstorming to a reality.

I wouldn’t say this changes course on what both Crown Financial Ministries and Dave Ramsey are saying with their plans, but I think it might allow one to consider additional steps or further options in working towards their objectives.

Money Map: things to do now

1. Create a personal financial statement (assets – liabilities = net worth) to get a clear picture of your net worth.
2. Create a spending plan or budget.
3. Track your spending against the plan on a daily basis for good personal cash flow management.
4. Execute a will.
5. Get an appropriate amount of life insurance.

The Best of the Money Map and Baby Steps

1. Save $1000 for emergencies.
2. Pay off all debt with the debt snowball paying smallest principle balances first.
3. Pay off a second mortgage if the balance is 50% or less of your yearly income (advice from Dave Ramsey I heard on his radio show).  Otherwise, second mortgages get paid off as you pay off your home.
4. Save up one month of emergency savings.
5. Take advantage of employer matching for your retirement plan as long as you can continue to make forward progress.   In other words, if your employer matches 50 cents on the dollar if you contribute 5% of gross income; go ahead and begin investing up to 5%.
6. Save up three to six months of living expenses for emergencies.
7. Begin savings for major purchases (home (20% down), auto, vacations, etc.)  Increase retirement contribution to 15% of income.  Begin savings for children’s education.  Emergency savings could also be built up to 6-9 months depending on your threshold for risk.  Obviously, there will be a lot of savings buckets created in this phase.
8. Buy affordable home if you do not already have one.
9. College savings funded.
10. Home paid off.
11. Retirement funded.  Continue to build wealth and give more, give more, give more!

I’m sure the above plan isn’t perfect,  As I mentioned, its not meant to be original, but I felt I needed to have a little more guidance around the savings area, in particular, that would define what we’re going to do with our money once emergency savings is funded.  Again, I tried to include what I liked about both the Baby Steps and Money Map in this post.

I think an interesting observation is that steps 1 – 7 could be done very early in life if you have the right motivation.  If  only I were in my twenties again!

What do you think about this plan?  Would you suggest any changes?

If you’re just joining, this is article #7, the round up article.  It is the last in a series about The Baby Steps and Money Map.  With each post I’ve stepped through the phases of both approaches, discussed my observations, hopefully, stimulated your thinking and raised some questions for thought.

In this final post I plan to bring both approaches together and discuss the ultimate benefit in following either one of them for your plan.  But first, I’ll list the first six phases of the Baby Steps and Money Map.

Baby Steps:

1. $1,000 In An Emergency Fund
2. Pay Off All Debt With The Debt Snowball
3. 3 To 6 Months Expenses In Savings
4. Invest 15% Of Income Into Roth IRAs And Pre-Tax Retirement Plans
5. College Funding
6. Pay Off Your Home Early

Money Map:

1. Begin using a spending plan & save $1000 for emergencies.
2. Pay off all credit cards and increase savings to one month’s living expenses.
3. Pay off all consumer debt & increase savings to 3 months living expenses.
4. Begin savings for major purchases (home, auto, etc.).  Begin saving for retirement.  Begin saving for children’s education.  If you want to start your won business begin saving for it.
5. Buy affordable home.  Begin prepaying home mortgage.  Begin investing wisely.
6. Home mortgage paid off.  Children’s education is funded.  Confirm estate plan is in order.

Baby Step 7 – Money Map Destination 7

What does the Baby Step say?

• Build Wealth and Give.

What does the Money Map say?

• My retirement is funded.
• I am free to to be more generous with my time and money.

Observations and Questions

• The Money Map scripture in this destination is Matthew 25:21.  “Well done good and faithful servant.”
• Obviously, both plans come together in the final phase with the key theme of giving and building.
• Are you in pursuit of a final destination of financial freedom and giving more, or is your pursuit more focused on short – term gratification?

Round Up

The ultimate benefit in following either of these two approaches is financial freedom.  You see, there is no longer a need to get rich or pursue quick money making schemes or chase after fruitless desires.  Most of those things, if pursued, without living from heaven backwards don’t produce anything but a pile of problems.  Don’t misunderstand, I don’t have anything wrong with having toys, fun vacations and more, but pursuing these things without a plan for the future (for financial freedom) is exhausting.  They never lead to financial freedom.

These approaches bring focus and precision to financial goals.  You can’t get to a destination if you’re constantly taking a wrong turn or getting distracted along the way.  No, you must have a map, or steps to guide your direction.  You have to know the impacts of stalling out.  For instance, if I continue to acquire debt, or don’t make progress towards paying off my debts, I’ll probably never have enough for retirement and to ultimatly build wealth, give more, etc.

My wife and I made a decision a long time ago to pursue a financially free life.  A life in which we could give more of time and money to help others.  I know that we can only get there by following the course presented by these two approaches.  Wouldn’t you agree it would someday be great to hear, “well done good and faithful servant?”

Is either approach right or wrong?  Which one is better?  In my opinion, neither approach is right or wrong.  The one that is better is the one that fits your situation.  That sounds like a bit of a cop out given the content I’ve posted recently around this dance, but it’s true.  To be honest, I’ve found a combination of the two phases that I find works best for our family (upcoming post).

So, what do you find works best for you?  Are you into Baby Step’n or Money Map’n?

If you’re just joining, this is article #6 in a series about The Baby Steps and Money Map.  I invite you to follow along with me as I walk you through both approaches, discuss my observations, hopefully, stimulate your thinking and raise some questions. I’ll round out the series with some summary thoughts.

Baby Step 6 – Money Map Destination 6

What does the Baby Step say?

• Pay off your home early.

What does the Money Map say?

• Home mortgage paid off.
• Children’s education is funded.
• Confirm estate plan is in order.

Observations and Questions

• Essentially, both approaches are coming in-line with one another in phase 6.  At the end of this phase, both the Baby Steps and the Money Map have us paying off our homes and funding our children’s education.
• Have you ever thought about what it would be like to not have a home mortgage?  Many people don’t think about the home mortgage as being debt, but it is just another form of debt.  There are tax advantages to having a house paid for, but imagine all of the money one would have each month and over a year if the mortage payment was going to other financial objectives.  The home mortgage by the Money Map and Baby Steps is the last remaining debt to be paid off.
• The Money Map highlights a very important step in planning and that is confirming your estate plan is in order.   Since Destination 6 is near the final destination of retirement and in most cases the elderly years we are reminded to check our estate and make sure it’s in order.  Setting up a will was recommended as something to do sooner than later.  Here are 9 articles about estate planning created by Crown Financial Ministries.
• The Money Map scripture in this destination is John 8:32.  “You will know the truth, and the truth will make you free.”

What are your thoughts on this phase?  Have you ever given thought to paying off your home mortgage?

If you’re just joining, this is article #5 in a series about The Baby Steps and Money Map. I invite you to follow along with me as I walk you through both approaches, discuss my observations, hopefully, stimulate your thinking and raise some questions. I’ll round out the series with some summary thoughts.

Baby Step 5 – Money Map Destination 5

What does the Baby Step say?

• College funding.

What does the Money Map say?

• Buy affordable home.
• Begin prepaying home mortgage.
• Begin investing wisely.

Observations and Questions

• As a reminder, Baby Step 4 told us to begin investing 15% of income into Roth IRAs and pre-tax retirement plans.  In this 5th Baby Step we are to fund college for the kids.  Dave’s advice throughout each step is to complete that step before moving to the next step.  So, with all the debt gone, an emergency account saved and 15% of income dedicated to retirement the focus becomes saving for education.
• If you remember, the Money Map Destination 4 had a step within to begin saving for children’s education.  Once this savings has begun (along with retirement and major purchases), the Money Map tell us to buy an affordable home and begin prepaying the mortgage.
• I think it’s important to note a few key differences that are becoming clear after going through this exercise.  The Baby Steps seem to draw clear lines around what has to be completed before moving to the next step.  It mainly uses milestones to tell you when a step should be completed in the grand scheme of things.  The Money Map uses the word “begin” a lot (retirement, children’s education, investing, etc.)  and many of these are completed in later phases.  The Money Map seems to provide action items (specific steps or action that should be taken) in each phase.  Again, I think a lot of the action items in Dave’s Baby Steps are assumed, i.e., create a budget.
• The Money Map scripture in this destination is Ecclesiastes 5:13-15.  “Savings are put into risky investments that turn sour…he man who speculates is soon to where he began—-with nothing.”

What are your thoughts on this phase?  Are you convinced yet that a particular approach (Baby Steps or Money Map) work best for you?  Which do you think at this point provides you the clearest guidance for your situation?

If you’re just joining, this is article #4 in a series about The Baby Steps and Money Map. I invite you to follow along with me as I walk you through both approaches, discuss my observations, hopefully, stimulate your thinking and raise some questions. I’ll round out the series with some summary thoughts.

Baby Step 4 – Money Map Destination 4

What does the Baby Step say?

• Invest 15% of income into Roth IRAs and pre-tax retirement plans.

What does the Money Map say?

• Begin savings for major purchases (home, auto, etc.)
• Begin saving for retirement.
• Begin saving for children’s education.
• If you want to start your won business begin saving for it.

Observations and Questions

• We see some key differences between Destination 4 and Baby Step 4.  The Baby Steps are more specific on what amount should be contributed to retirement.
• The Money Map recommends savings across four areas including retirement.  Note:  Baby Step 5 is college funding.
• I think it’s important to have a plan to save for major purchases beyond retirement and children’s education.  Once the emergency savings is fully funded (after debt is paid off) it’s important to create a car savings each month.  Otherwise, when the need for a car presents itself, one will be forced to go back into debt.  It’s also important to have seperate savings contributations for a home if that hasn’t already been purchased.
• The Money Map scripture in this phase is Proverbs 21:5.  “Steady plodding brings prosperity.”

What are your thoughts on this phase?  Do you think the Baby Steps left out important areas of savings, or were they meant to be high level and convered in Dave’s book, The Total Money Makeover: A Proven Plan for Financial Fitness.

Photo by Ann Cleaver.

If you’re just joining, this is article #2 in a series about The Baby Steps and Money Map.  I invite you to follow along with me as I walk you through both approaches, discuss my observations, hopefully, stimulate your thinking and raise some questions.  I’ll round out the series with some summary thoughts.

Baby Step 2 – Money Map Destination 2

What does the Baby Step say?

• Pay off all debt wtih the debt snowball.

What does the Money Map say?

• Pay off all credit cards and increase savings to one month’s living expenses.

Observations and Questions

• It’s obvious the Money Map takes a more conservative approach to emergency savings because it recommends saving up one month’s living expenses before paying off all debt.  It advises to only pay off credit cards and then focus on building a bigger savings.  Do you think this is a good approach?  Dave Ramsey feels strongly about focussing all attention on debt, but others believe the emergency savings should be built up at the same time.
• The Money Map scripture in this phase is Proverbs 22:7:  “The borrower is servant to the lender”

What are your thoughts on this phase?

Is there a right or wrong answer or a better or worse solution?  You can see that both are clearly working towards the same objective of financial freedom or peace.  Both focus on savings and debt elimination which eventually positions one to build wealth and give more.  But more on that later.

Versus the right or wrong or better or worse question, it may be more appropriate to determine which approach works best for your situation.

I invite you to follow along with me in this series as I walk you through both plans, discuss my observations, hopefully,stimulate your thinking and raise some questions.  I’ll round out the series with some summary thoughts.

I plan to do one post for each phase (this one includes phase 1), so there will be 7 posts in total (including the summary post).

Disclaimer:  I’m a Money Map coach so you might expect a bias towards the Money Map.  I’m going to do my best to take an objective view point.  I’m not necessarily for the Money Map.  I’m all about finding what works best for the situation.

Baby Step 1 – Money Map Destination 1

What does the Baby Step say?

• Baby Step:  $1000 in an emergency fund

What does the Money Map say?

• Begin using a spending plan & save $1000 for emergencies.

Observations and Questions

• Crown suggests creating a spending plan as part of destination 1.  I think Dave assumes you have one when starting The Baby Steps.  I haven’t gone through Financial Peace University (FPU), so I’m not sure.
• Is $1000 the magic number?  I’m just curious as to what is so special about $1000.  I’ve only heard this number from these two sources.  Why not $1500 or $2000?  One thought is that $1000 isn’t a small amount of money, but it’s not big savings either.  It can probably handle most small to medium emergencies.
• Crown uses a scripture theme for each them which is pretty cool.  “The wise man saves for the future but the foolish man spends whatever he gets.” (Proverbs 21:20 TLB)
• Things to do sooner than later are also included on the Money Map.  I recently wrote an article on these suggestions.

What are your thoughts on this phase?

All the articles from the series:

• The Baby Steps and Money Map – Post #2
• The Baby Steps and Money Map – Post #3
• The Baby Steps and Money Map – Post #4
• The Baby Steps and Money Map – Post #5
• The Baby Steps and Money Map – Post #6
• The Baby Steps and Money Map Round Up

Manage your finances wisely

1.  The Bible is the best resource for guidance in managing your finances

There are over 2200 scriptures about money, debt, saving and more.  If you get the Biblical financial principle of stewardship and follow it, you’re on the road to financial freedom.

2. There is no try in managing your personal finances

You must do it.  To many times I hear people say they will try to spend less or not use a credit card.  Unfortunately, there is often never any weight behind those words.  Tell yourself you will learn to manage your finances, control spending and get out of debt.  Don’t let there be another option.

3.  There are timeless financial steps that can be applied to your situation today

At the end of the day, it all comes down to one simple formula I always here Dave Ramsey talking about.  Inflow must equal outflow.  If you’re spending more, you’re getting yourself into debt.  Create a budget and manage to your plan.

4.  It’s important to keep it simple and find the tools that work best for you

Some people like pencil and paper and some people like software.  Also, if you try to over manage your finances, for example, 50 subcategories in your budget, you’ll almost certainly not find the time to keep up with it.

5.  You can’t hit the easy button to put your finances in order

Sorry, no one said it was going to be easy.  As in most cases, you can’t change things over night.  It requires work, commitment, intensity and perseverance to turn your situation around.

6.  Change starts with you.  No one else can do it

You have to decide when you’re going to get out of debt and start managing your money wisely.  Don’t think you have a problem with money or are doing just fine?  Consider looking at Dave Ramsey’s Baby Steps to see where you are and if you’re moving forward.

7.  Collaborative networks of people accelerate knowledge transfer and the ability to replicate best practices

Through the internet, blogs, forums and more, you have a real opportunity to learn from others who are on the road to financial freedom.  Take advantage of it.  Talk to them online and read what they are doing to mange their money wisely and live debt free.

Can you think of other guidelines?  I would enjoy hearing from you.

Did you start getting more serious about money and personal finance when life also started to get more serious?  For me, that started when I first got married.  All of the sudden it wasn’t just about my goals anymore.  There was someone else in the picture.   Building an emergency savings, investing for retirement and paying off those school loans all became topics of conversation.  Going out and spending money without little regard for next month quickly changed.

A few years after marriage, the seriousness of family money talk typically changes even more.  That’s usually when husband and wife start thinking about having children.  Do we have enough money to have a child?  Do we need a house for a family?  Should we have our emergency savings fully funded before having children?  How stable are our jobs?  All of those questions either get discussed or are typically in our thoughts.  The truth, for those who have children, there is never a perfect time to plan their arrival.

With children in the picture, your life focus shifts selflessly to them.  You want the best for your kids and hope and pray they don’t make the same mistakes you did with money.  Therefore, if you’re like my wife and I, you’re motivated to set your finances in order, live debt free and help them prepare for their future.  Consider the below steps to help your children live debt free.

Steps to help your children live debt free

1. Position yourself well financially

You can’t jump ahead and focus on the future without taking care of your situation first.   Follow a good plan with intensity such as Dave Ramsey’s Baby Steps.  Eliminating debt as a top priority creates room in the budget for college savings and for expenses as children mature.  Not having a plan to cover expense with cash will limit your ability to follow the next two steps.

2. Set an example financially for your children

I believe the best thing you can do for your children is to set an example.  Children follow our lead and teaching them early how to give, save, avoid debt and spend wisely will help them learn how to mange money.   Proverbs 22:6 (NIV) says “train up a child in the way he should and when he is old he will not depart from it.”

Too often in our society children start managing money when they graduate school and begin their first job.  By this time, they experience the weight of debt from college credit card spending and school loans.  Become their money coach and guide early in their lives.

3. Position your children well financially

Once you are positioned and you’ve accepted your role as coach and guide, it’s time to position them.  Help your children succeed with money by saving as well as guiding them away from credit and debt.  As debt is paid off and avoided, you can begin to save for their future expenses.  Who doesn’t want to pay cash for their children to attend school, or help them purchase their first home?

Positioning our children to live debt free can change your family tree forever.  Set a personal goal to help them enter the work force debt free.

The next article in the series will discuss tools to help you Live Debt Free.  What do you think about these steps to help your children live debt free?

1. Live Debt Free – Biblical Advice
2. Live Live Debt Free – Fulfill Your Life Purpose
3. Live Debt Free – Avoid the Stress of Debt
4. Live Debt Free – Help Your Children
5. Tools to Live Debt Free

How do you know whether to lean more towards the lower side (3 months savings) versus the higher side (6 months savings) of the emergency savings fund?

Dave Ramsey says this is a negotiation between husband and spouse. One person is typically the spender and one person is the saver. The person who is more conservative with money will generally feel more comfortable with having a larger savings account.

Aside from the emotional aspect of the decision, Dave provides some practical advice. Consider the job situation for your family. What’s the stability of the industry in which you’re working? If you have a stable public sector job, you may feel more comfortable with a smaller savings. However, if one spouse is employed in a more volatile industry, the fund may need to be more.

Husband and wife should discuss the amount they both can feel comfortable with when they go to sleep at night. Dave stated he saves more (not because it’s in his nature), but for the comfort or blessing it provides to his wife who is more risk adverse.

Speaking from past experience, it’s easy to dilute your efforts by trying to make debt payments, save for children’s college, contribute to retirement, build an emergency savings plan, tithe and more, all at the same time. I don’t think you can go wrong with following Dave’s practical advice, so I thought I would share his steps with you.

Dave Ramsey’s Baby Steps

1.  $1,000 In An Emergency Fund
2.  Pay Off All Debt With The Debt Snowball
3.  3 To 6 Months Expenses In Savings
4.  Invest 15% Of Income Into Roth IRAs And Pre-Tax Retirement Plans
5.  College Funding
6.  Pay Off Your Home Early
7.  Build Wealth And Give!

Dave recommends putting a temporary hold on retirement savings to get out of debt.  From what I understand in listening to his radio program, don’t use the plan unless you are completely committed to getting out of debt and willing to make some sacrifices to get there.  Postponing retirement savings isn’t ideal unless you can put your debt behind you in a few years or less.

My recommendation would be to start tithing as step one to put the plan and your finances in God’s hands.  Crown Financial Ministries has produced a great article on tithing for more information.

What has been your experience wtih the Baby Steps?