There's Rice At Home - The 7 Baby Steps
Let me start by saying…
THANK YOU! To everyone who read and engaged with me on last week’s post. The conversations have been so encouraging.
I’ve made a few tweaks to last week’s post - you can download the Financial Plan Prayer as an info-graphic (right click and save) and I updated my stats - I was lovingly reminded that this wealth series isn’t about me per se, but about sharing the things I’m learning and have learnt. So thank you again to everyone! Now let us begin!
7 BABY STEPS
You’ve read the title and you’re thinking “what’s this about?” - well if you remember, last week I mentioned that making Jollof Rice (as with any other dish) requires steps and not all steps can be done at once, so in today’s post I’ll talk about 3 of the 7 Baby Steps that were taught on the Financial Peace University (FPU) course.
Now I’ll say this, I’m not an expert in any way so it’s important that you do what works for you [and as God leads] when it comes to your wealth journey, so you may or may not agree with the steps, however, whichever stance you take I hope you’re encouraged to do some additional research for yourself.
STEP ONE: Save $1,000 in a starter Emergency Fund
African parties! Growing up and going to parties (and even now) there’d come a time during the event when aunties and uncles alike bring out their ‘ike’ (bowls, Tupperware) and head to wherever food was being served to do “take away” - party food to be eaten later in the week. This is your emergency fund.
Having money hit your account can feel like a party, but it’s important to put some aside for a specific cause, in this case, an emergency fund.
Emergency funds are exactly that, money that is ONLY used for an emergency i.e. a flat tyre or for expats like myself, an unexpected trip back home can be covered by this fund. The fund gives you peace of mind because you know the money is available without having to borrow or increase your debt.
Why $1,000? Because it’s a nice round starting figure that can cover a lot of ‘minor’ emergencies. Remember this is a starting fund, there’s more to come. And as my very wise accountability partner advised save the equivalent in your currency, for example, save £1,000 or save 5,000 AED (approx £1,000). If you use your fund, you must replenish it and at any given time you should always have your starter fund full (except when it’s being used).
Dave Ramsey encourages saving towards this fund as quickly as you can before going on to any other step. I on the other hand have been saving and starting on the other steps (I’ll explain further).
STEP TWO: Pay off all your debts except your home, using the Debt Snowball
When I did FPU I was so excited about this step, this was what I really wanted to learn.
So back to the party. African’s know how to party! They’ve been occasions where people have planned to have a party for their toddler that’ll go on till 5pm, followed by an adults-only party that would go on till dawn (in celebration of the toddler LOL). This is how the debt snowball method works, start by paying off your smallest debt first and work your way to your largest debt (regardless of interest rate).
The idea behind the debt snowball is more about developing a habit and a winning mindset and not just paying off debts. So how does it work?
[Slay Mama] Rita has saved £1,000 towards her emergency fund. She stops saving and focuses on paying her debts; she owes just under £3000 to a few people and banks. In order to combat her debts she has:
Listed them from smallest to largest
Has mentioned the minimum payment for each and a new payment amount in the last column.
Her current “new payment” to Iya Bisi is zero because this month she made a little extra money from overtime and decided to pay Iya Bisi in full. Her minimum payment to Iya Bisi plus the £35 of her next debt gives her a new payment figure for Ms. Vero and she repeats the process till she's debt-free. It’s important to note that when paying Ms. Vero back at £45 per month, Aunty Rita is still paying her minimum amounts for her other debts, she only increases her payments once a debt has been paid in full (and closed).
The goal is to pay off debts in full as quickly as possible, so whenever I’ve had extra money, I’ve put it towards my debt. I am using this method in my own “Layide-way” and by this I mean, I have continued to save and pay my debts at the same time. Yes, it may take ‘longer’ to pay off my debts, but I personally want to develop a habit of saving and to stop saving while paying off debt really didn’t appeal to me.
You can read more about the debt snowball method HERE.
STEP THREE: Fully Funded Emergency Fund of 3-6 Months Living Expenses
Both the children’s party and adult party are done now, so you prepare your plastic containers for the next party the following Saturday. This time instead of taking one container, you’re taking two. At this stage, after becoming debt-free it’s time to start adding to your emergency savings fund.
Living expenses is limited to:
Rent
Utilities
Travel (travel ticket or petrol money)
Groceries
You want to calculate your total monthly living expenses, multiplied by the number of months and then divide by the number of months you’d like to have the full fund saved by. For example, Aunty Rita has the following:
Rent: £750 p/m
Utilities: £150 p/m
Travel: £60 p/m
Groceries: £100 p/m
Total Living Expenses: £1,060
Aunty Rita has decided that she wants her full emergency fund to cover six months worth of living expenses.
£1060 x 6 Months = £6360
Aunty Rita has completed her budget and now that she’s debt-free, has decided to save £300 per month towards this fund. It should have taken Aunty Rita two years to have her fund saved in full, but it’s taken her a year and three months because she been making extra money from her new side hustle selling Aso Ebi fabrics she’s never used.
I hope you’ve enjoyed today's post? Come back next week to see how Aunty Rita has implemented the next 4 Baby steps (she’s well ahead of me, but I’m proud of her lol).
The next four steps focus on retirement, saving for children’s education (university), mortgage and building wealth (to give).
Aunty Rita’s story can be found in part two of the “Sometimes I Wear Gélé” series.
At the end of this series, I’ll share a review of where I’m at with my wealth goals.
I’m looking forward to sharing with you all and I’m also looking forward to hearing your wealth stories!
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