Set For Life: Financial Peace of Mind Made Easy

Consider calling a tax accountant. But a few basic principles apply. For those with low to moderate incomes, paying off debt—including the mortgage—is the best tax-planning you can do. Have these suggestions handy for your final plan. Create an investing policy Every professional financial plan includes an Investment Policy Statement IPS that recommends how a portfolio should be invested. It puts in writing the rules that will make you a more disciplined investor.

Having an IPS helps you to stick with your plan and keeps you from changing course when the market gets volatile. This ratio is determined by your time horizon and risk tolerance. The longer your time horizon and the greater your tolerance for risk, the higher the equity portion of your portfolio. As you near retirement and need the security of more stable income from your investments, the portfolio mix will usually tilt towards bonds. Your IPS might also note the volatility you should expect for a given portfolio.

Determine which investments are right for you. The results will allow you to zero in on how you should invest in future to meet your goals. If you have trouble with this section, you can always leave it for now. Write up a will Every adult who owns assets and has a spouse or children should have a will. An accurate and up-to-date will is the only way to ensure your assets will be distributed the way you want them to be. In most parts of Canada children trump partners. Without a will your husband or wife will get a predetermined amount of your assets—the rest goes to the kids.

Create or update your will. If you have an updated will it should be filed with your financial plan. Create your final plan A typical financial plan has five main parts. The second contains your top financial goals, or where you want to go. The third is a simple net worth statement. The fourth lists the steps you must take to achieve your goals. It includes your income and expenses, an overview of your insurance, a section on retirement planning, and a section on estate planning. Finally, the fifth section—usually a separate document—is your Investment Policy Statement, which lays out how your portfolio is to be invested.

The Berglunds are a year-old couple living in Halifax. They have two daughters, Debra and Marie, ages 5 and 2. That money is earmarked for their goals in the following way: The couple agrees to continue using the annual surplus in this way each year until their goals change. In the section on retirement planning, the couple made some assumptions: If they do this, the couple should have more than enough to cover their retirement expenses adequately.

11 steps to financial freedom

Their wills and power of attorneys are all in order. The couple wants a well-diversified portfolio at minimal expense. Thus, their policy states that low-cost index funds or exchange-traded funds are to be used wherever possible. It also states clearly that sudden market price movements are not grounds for revision. This will help stop the Berglunds from making impulsive investment decisions out of fear or greed. Create your financial plan. Worksheet 9 is a blank financial plan with all the sections already labeled for you.

We definitely consider ourselves lucky. But, a big part of why we live a good life is because we make decisions to ensure peace of mind in our household. Part of that is making sure we are on the right financial path. I think many of my readers have embarked on the same life stages as I have. Mal and I work together as a team to manage our money. This includes biannual meetings with our financial adviser, who helps guide our choices. Ensuring our financial security in the future is important to Mal and me.

We know that consistent savings makes a positive impact on building wealth for the long-term. Ryan started Cash Money Life in after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his track his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

Just a few points: Especially with all the Fed rate cuts, and more expected? Ana, Thanks for the comments. I do not confess to be a Ramsey follower… To be honest, I had to go out and research the baby steps. Jesse, paying off mortgages early is one area which people may not ever agree. Going by pure numbers, it may make sense to keep your mortgage payment because of the low interest and tax deductions.

But on the other side, there is the psychological effect of not having any payments.

Dave Ramsey’s Baby Steps - Financial Peace University

I know that when my friend paid off his house and no longer had any debt, he and his family had a new outlook on life. I think the rationale behind paying off your mortgage is to be completely debt free.

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His one step that I disagree with strongly is 6. For me it is huge at least. Random note, but it was an interesting read. The tax savings is huge? How exactly are you going to make gains off of that?! This scam that keeping a mortgage for the tax deduction needs to be killed. The idea is not to take your tax savings and invest to get back your interest. The only relevance of stating there is tax savings is that when comparing your mortgage interest rate to other investments, you can deduct your tax bracket in the calculation.

So my interest rate is 3. It just becomes even better than that when you consider historically low rates right now and the fact that they could be guaranteed for 30 years and wall street will likely return far more than the 2. Dave is trying to teach people how to protect themselves, on a good day or a bad day.

If you become disabled, or unemployed, having your home paid off is a huge win.

If you become hurt, pregnant, disabled, unemployed, laid off you will always have a roof over your head. And having no monthly mortgage payment makes it incredibly easy to invest in your retirement on all the good days. There is no math you can show me that will protect someone as well as owning their own home outright. I agree with Jesse on 6. I do realize though that for some people it makes sense in their heads to pay off the debt early, and sleep tight at night. But in my opinion people who are afraid from debt would not end up with a lot of assets in the long term. My thinking is that the longer you stretch your payments, the better, because eventually inflation would significanlty erode the purchasing value of your fixed payment at year And in the meantime, you could have put those extra funds in stocks gaining from all the time you have on your side and the power of compounding.

The spread is too small to bother with. The mortgage is compounded daily, the savings account quarterly or monthly. Ron, think of this example: I just finished reading Total Money Makeover. I like a lot of his thoughts on changing your behavior to get a better financial outcome. I;m now going back and checking the statistics he references. I have an older edition. I consider myself a Dave Ramsey junkie, and really enjoyed this post as it is a great overview of his Baby Steps.

Looks like JD read your mind with his post this morning. Something must be in the water. I agree with this. The decisions you make have so much more to do with how much money you will have rather than being a whiz about the math. Understanding the math and actually being diligent and self-disciplined are two VERY different things. Erik, I agree, there is a huge personal element in finances that has absolutely nothing to do with pure numbers. Perhaps the best example of this is the prepaying mortgage issue. Some people look at the raw numbers and determine they can probably get a better return by investing extra money in the stock markets.

They probably can over the long term. However, the freedom of not having a mortgage payment is HUGE, and one that many people are willing to forgo extra returns to be able to live their dream of not owing anyone anything. This scam of keeping a mortgage and staying in debt for the tax savings needs to be killed, and you should be helping to do so.

I have listened to Dave Ramsey on the radio for years and I am debt free and it was definitely his influence that has me where I am financially. Not that I am rich, but I have been able to withstand some financial hardships with little impact by being debt free. As is the case with any public figure, there is always someone else with something bigger, better or faster. Fact remains, Dave Ramsey is a genius. He is the first person to not only come up with a simple not easy plan, but has the marketing prowess to garner such adoration from his audience.

Teaching people how to live within their means. Or this plan takes years and years to achieve? All I can tell you is to do what I did when I was your age and in the same position… additional income. I worked two jobs for 5 years to pay off some stupid credit card debt from college, early pay off on my student loan and put myself in a better position long term. Twenty years ago my only real options for that were retail and babysitting. Babysitting kept me in cash. I went from graduating in debt with a low paying job to 15 years later having ZERO debt including my house and car maxing out my K and being able to help out family members who needed it.

I married late and fortunately my husband had no preceeding debt other than a car and his house. It can be done if you are willing to work hard enough. It is not possible to do all those things you listed, at the same time. Step Zero agree that debt is dangerous and do not ever use it again.

Five Ways We Create Financial Peace of Mind in Our House

That cost you nothing. Step Zero is now done. After you do Step Zero and baby step one, then worry about the rest. I am also 24 years of age. These are called baby steps for a reason. Just take it one at a time. Lets say you can only put In that case congrats in 10 months that is taken care of.

There is no time frame on the steps. The nice thing about the Then take that extra If I were you I would put more than 1, in my emergency fund if your loans are higher than 10, Now you need to work more on the student loan. Getting out from under a new car always helps also Dave goes in to a large talk in his class about not having a car payment. Do you go out on Friday nights? After that if you want to keep the car, start paying that down….

Does anyone remember the name of the book that Dave Ramsey talks about from time to time, regarding co-dependency???? All of your house interest is NOT tax deductable. The only amount that truely is, is the amount that is above the standard deductions. I had a 15 year loan and in 4 years I only have half of it left. There are two schools of thought on the topic: Right now I am of the first school of thought because having no mortgage gives me a different kind of freedom.

But ask me again in a few years and I might change my mind. I like the debt snowball concept and having the expenses of a few months in advance also helps. Just came across this blog, a very interesting read. Dear Dave, My husband and I just started a budget. This is the most overwhelming thing that I think we have committed ourselves to do.

Tell me, Dave, did you feel this way? Most of the problem is that we have never, in our 39 years of marriage, been out of debt. This is a new beginning for us. We have a long ways to go but we intend to stick with a budget and get out of debt. Thank you so much for your program and The Total Money Makeover. Thank you so much for helping us find a way to get debt free. Thank you for contacting me. I am not actually Dave Ramsey; my name is Ryan and I am a personal finance blogger. Basically, I am a regular guy who writes about my hobby — which is money and financial planning.

Some friends and I wrote a series about Dave Ramsey, which is how you found my site. Regarding your new budget, congratulations! Yes, it can be intimidating, but it is an important first step toward becoming debt free. I will do the best I can to point you in the right direction. You will also pay less interest in the long run which will be better than any money market fund you can park your money in.

The tax deduction is close to a scam. If you have no mortgage, you can accomplish the same thing by donating to charity. That;s a very good point. I start all improvements all at once. But these steps are all still important, of course. I agree, tapping investments should be the last option. You can certainly start all improvements at once, and DR actually advocates this for the later steps in his program. Some of the steps are more important than others and should be accomplished first. I have listened to Dave Ramsey since I was a child riding in the car with my parents.

Now I am an adult and listen to him all of the time. I have read all of his books and try to catch his show on Fox. I love what he teaches and wish we could spread the word more widely about him. I welcome all comments that are on topic, so long as they are respectful and do not contain curse words, spam, or commercial links. I welcome dissenting views because that is one of the ways I learn best — to look at things from another perspective. For more information, please review my Comment Policy. Some comments are held for moderation. I have an anti-spam feature on my site which automatically blocks some first-time comments and other comments that may be questionable.

I do this because otherwise I would receive hundreds of spam comments everyday — for things like pharmaceuticals, porn, payday loan companies, commercial websites, and comments filled with curse words. As you can imagine, these are unwelcome on my website and I do not tolerate them.

As you probably noticed, your comment was initially held for moderation. I go trough my moderated comments once or twice per day and I immediately approved your comment. If you leave another comment it will probably go through immediately. I am a woman of 53, and I am debt free. I have just started an Avon business, because I am retired, I wanted to do something to make the world look and smell beautiful, so I chose Avon. Any ideas of what to do? Yes, it is an illness, I agree. I need something to replace this addiction. Plz reply soon to my e-mail address if you would be so kind.

Tell me where in this economy But what happens when you get laid off? I know rich guys thing that will never happen Lehman Brothers anyone? People do it every day and the quicker that your learn it the better off you will be. I was in that boat with my then-husband when we bought our house in the late nineties. One commenter from a year ago said that anyone who pays off a house is probably a little bit afraid of debt. Yes, everyone should be. People seem to get confused about these things when they talk personal finance.

They think a personal home and a savings account are investment vehicles. Thinking of either as an investment vehicle leads to bad financial decisions that could cause you to lose more in the end. I agree, debt has a much larger impact on financial security than many people realize. There are many people that just accept debt as a way of life and never aspire to reach the point of being debt free.

I plan on living within my means and working to pay everything off so I can enjoy financial freedom and spend time with my family and doing things I enjoy. We have completed baby step 1,2 and 3. I have a 30 year mortgage. Unfortunately we refinanced the house 3 years ago at a interest rate of 6.

My husband and I have been making 1 extra payment each year sense we refinanced the home. Right now we are in the position to make double payments each month. But this would really limit us from making any spontaneous decisions like going on short weekend trips and so on. What would you recommend? Thank you for taking the time of responding. Martina, My spouse and I are in a similar position. We are also going to up our savings — an account set aside ONLY for the mortgage reduction.

But, it will also force us to pay more on the mortgage too. Seriously — this CAN be fun!