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109: The Problem with Baby Steps
Wealth by Design
English - June 11, 2020 10:30 - 31 minutes - 29.1 MB - â â â â â - 33 ratingsInvesting Business News Business News financialplanning lifeplanning retirementplanning millennials onlineentrepreneur Homepage Download Apple Podcasts Google Podcasts Overcast Castro Pocket Casts RSS feed
Where do you get your financial advice? (Aside from us and the Wealth by Design podcast, of course. đ) Your friends? Parents? Coworkers? YouTubers? âMoney gurus?â
Some of the most popular money gurus out there (we wonât name names) have a process called âbaby steps,â designed to get you started with your financial education. But we have a little bit of a problem with those baby steps. OK a lot of problems.Â
We break down every step in this method, talk about the pros and cons of each, and share our own insight â including what we think you should be doing instead.
WHAT YOUâLL LEARN [00:41] Why weâre tackling this topic [05:15] A disclaimer on debt and money gurus [08:13] Why weâre so starved for financial advice [10:28] Step One: your starter emergency fund [12:35] Step Two: the âDebt Snowballâ [14:45] The good, the bad, and the ugly kinds of debt [16:54] Step Three: your full emergency fund [18:33] Step Four: invest for your retirement [21:07] Step Five: save for a college fund (and a quick story about Ozark) [23:15] Step Six: pay off your home early [25:58] Step Seven: build wealth and give The reality of money gurus and debtThough we kick off this episode with a disclaimer, weâre gonna play it safe and put one here, too: this episode isnât meant to badmouth money gurus out there. Nor is it meant to imply that people who listen to these money gurus are dumb. We simply think there are better sources of financial advice available, sources that are more in tune with what people need today.
Case in point: most money gurus focus on paying down debt a lot. Debt is made out to be this huge, scary, unavoidable thing. If you throw enough money at it, youâll defeat it, and feel a lot safer. This is an attitude our generation has been taught our entire lives! But the reality is, debt is not all bad.Â
âDebt is relative, and debt is fluid. Itâs not black-and-white,â Danielle points out. âThereâs a sliding scale on debt.â
Why were we fed these scary stories about debt? Our parentsâ generation grew up in a high-interest environment, Danielle explains in this episode. It was expensive to borrow money. Thatâs no longer the case, especially now with COVID-19 crisis, but that attitude about debt still trickled down to us. And with the soaring cost of student loan debt, itâs really easy to hang on to that attitude.
What we think of the âbaby stepsâLetâs quickly go over what most financial personalities say are the âbaby stepsâ to financial freedom:
Save $1,000 ASAP. Pay off all debt, starting with the lowest interest first. Save 3 to 6 months for your full emergency fund. Invest 15% of your household income for retirement. Save for a college fund. (because everyone has to have kids apparently) Pay off your home early. Build wealth and give. (mostly to the church, if you follow their steps exactly)Do we agree with these steps?Â
Well, if youâre longtime listeners of our podcast, you know that weâre totally on board with having emergency funds, investing for retirement, and saving for intermediate goals like your childâs college fund.Â
However⌠why are these goals tackled one by one? Why canât you work on them simultaneously? (Hint: thatâs what the bucket strategy is all about.)
That last step, for example. If having a giving strategy is important to you, then you should work it into your plans at the start. And why is âbuilding wealthâ saved for the very end? You should plan to build your wealth from the very beginning! If you donât, youâre losing out on the most important advantages you have: time and compounding interest. Â
Weâre not gonna dive into each of these steps here, but in the episode we do share one thing we like about each, and what we think can be improved. Tune in to the episode to get all the details, and hopefully youâll feel motivated to kick (outdated) advice to the curb⌠and find something that fits you better.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
RESOURCES & PEOPLE MENTIONED
Episode 60: All About Debt: The Good, The Bad & The Ugly Episode 108: Why Itâs Important to Know Your Numbers Episode 103: How to Prioritize Saving for Now, the Future, and In-Between Episode 102: Net Worth is King Join our free Know Your Numbers Challenge! Schedule a free call with us â Are we a good fit for your financial planning needs? CONNECT WITH DANIELLE AND DUSTIN Ask Your Questions On Facebook On TwitterWhere do you get your financial advice? (Aside from us and the Wealth by Design podcast, of course. đ) Your friends? Parents? Coworkers? YouTubers? âMoney gurus?â
Some of the most popular money gurus out there (we wonât name names) have a process called âbaby steps,â designed to get you started with your financial education. But we have a little bit of a problem with those baby steps. OK a lot of problems.Â
We break down every step in this method, talk about the pros and cons of each, and share our own insight â including what we think you should be doing instead.
WHAT YOUâLL LEARN [00:41] Why weâre tackling this topic [05:15] A disclaimer on debt and money gurus [08:13] Why weâre so starved for financial advice [10:28] Step One: your starter emergency fund [12:35] Step Two: the âDebt Snowballâ [14:45] The good, the bad, and the ugly kinds of debt [16:54] Step Three: your full emergency fund [18:33] Step Four: invest for your retirement [21:07] Step Five: save for a college fund (and a quick story about Ozark) [23:15] Step Six: pay off your home early [25:58] Step Seven: build wealth and give The reality of money gurus and debtThough we kick off this episode with a disclaimer, weâre gonna play it safe and put one here, too: this episode isnât meant to badmouth money gurus out there. Nor is it meant to imply that people who listen to these money gurus are dumb. We simply think there are better sources of financial advice available, sources that are more in tune with what people need today.
Case in point: most money gurus focus on paying down debt a lot. Debt is made out to be this huge, scary, unavoidable thing. If you throw enough money at it, youâll defeat it, and feel a lot safer. This is an attitude our generation has been taught our entire lives! But the reality is, debt is not all bad.Â
âDebt is relative, and debt is fluid. Itâs not black-and-white,â Danielle points out. âThereâs a sliding scale on debt.â
Why were we fed these scary stories about debt? Our parentsâ generation grew up in a high-interest environment, Danielle explains in this episode. It was expensive to borrow money. Thatâs no longer the case, especially now with COVID-19 crisis, but that attitude about debt still trickled down to us. And with the soaring cost of student loan debt, itâs really easy to hang on to that attitude.
What we think of the âbaby stepsâLetâs quickly go over what most financial personalities say are the âbaby stepsâ to financial freedom:
Save $1,000 ASAP. Pay off all debt, starting with the lowest interest first. Save 3 to 6 months for your full emergency fund. Invest 15% of your household income for retirement. Save for a college fund. (because everyone has to have kids apparently) Pay off your home early. Build wealth and give. (mostly to the church, if you follow their steps exactly)Do we agree with these steps?Â
Well, if youâre longtime listeners of our podcast, you know that weâre totally on board with having emergency funds, investing for retirement, and saving for intermediate goals like your childâs college fund.Â
However⌠why are these goals tackled one by one? Why canât you work on them simultaneously? (Hint: thatâs what the bucket strategy is all about.)
That last step, for example. If having a giving strategy is important to you, then you should work it into your plans at the start. And why is âbuilding wealthâ saved for the very end? You should plan to build your wealth from the very beginning! If you donât, youâre losing out on the most important advantages you have: time and compounding interest. Â
Weâre not gonna dive into each of these steps here, but in the episode we do share one thing we like about each, and what we think can be improved. Tune in to the episode to get all the details, and hopefully youâll feel motivated to kick (outdated) advice to the curb⌠and find something that fits you better.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
RESOURCES & PEOPLE MENTIONED
Episode 60: All About Debt: The Good, The Bad & The Ugly Episode 108: Why Itâs Important to Know Your Numbers Episode 103: How to Prioritize Saving for Now, the Future, and In-Between Episode 102: Net Worth is King Join our free Know Your Numbers Challenge! Schedule a free call with us â Are we a good fit for your financial planning needs? CONNECT WITH DANIELLE AND DUSTIN Ask Your Questions On Facebook On Twitter