Posted By LAF Editor on October 18, 2014
Two jobs in one household just isn’t cutting it. After paying federal and state income tax, and social security, reducing taxes in a vary limited fashion as an employee, deducting from the second income work related expenses, ie the cost of the second car, travel, day care (which can offer a tax credit), work wardrobe, eating out, etc. which all adds up pretty quickly, the bump in income tax bracket eats your financial gain. The take home can be quite measly. You still have college debt and so does he. Now there’s a second baby and still no college fund for the first. How did we get here and how can we change the situation and get back home, freeing ourselves to invest in our children and households, reduce expenses and plan a better financial strategy for the future?
For starters, get out of debt. Dave Ramsey’s debt snowball offers much hope. Here’s how it works.
When you were a kid rolling a snowball in the backyard, the best way to do it was to pack some snow into a tight ball, then start rolling it through the yard. Your snowball would become a snow boulder much quicker than it would if you just built it up by hand. That’s exactly how the debt snowball method works.
The debt snowball is perhaps the most life-changing Baby Step you’ll experience in your total money makeover. Once you’re on Baby Step 2—that means you are current on all your bills and have your $1,000 starter emergency fund saved up—list your debts smallest to largest by amount owed. Don’t worry about interest rates. We don’t care if one debt has a 2% rate and another one has a 22% rate.
Now it’s time to make progress.
Pay minimum payments on all of the debts except the smallest one then attack that debt with a vengeance. We’re talking gazelle intense, sell-out, get-this-thing-out-of-my-life-forever energy. Once it’s gone, take the money you were putting toward that debt, plus any extra money you find, and attack the next debt on the list. Once it’s gone, take that combined payment and go to the next debt. Knock them out one by one.
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