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Financial Peace Baby Step # 4 – Invest 15% for Retirement

I supposed it’s hardest to talk about the baby steps I am far from achieving but it is necessary.Though we may be far from this baby step we need to be reminded this is a goal. Some people may be ready to start investing so I am going to give an overview of what Dave Ramsey’s financial peace baby step number 4 is about.

Many people feel they can skip to this step without having achieved debt freedom (besides the house) and saved 3-6 months expenses. Many feel it’s important to start the retirement before getting out of debt or saving. From what I understand of Dave Ramsey’s teaching, this is not a good idea. You will not truly be financially secure if you have debt hanging over your head or no emergency fund savings.

I was reading over the Total Money Makeover workbook just now and was reminded of an interesting reality of retirement.

Investing for retirement in a Total Money Makeover doesn’t necessarily mean investing to quit your job. Too, often retirement in America has come to mean “save enough money so I can quit the job I hate.” That’s a bad life plan. If you hate your career path, change it. Retirement in a Total Money Makeover is defined in terms of SECURITY. Security allows a person to make choices – work may be one of those choices. A person may want to write a book, take up art lessons, play eighteen holes of golf a day, spend more time with grandkids, or study something he’s always wanted to study.

Retirement in a Total Money Makeover also includes the concept of FINANCIAL DIGNITY. This happens only with a plan.

The picture I see when Dave mentions “financial dignity” is that of the older gentleman Walmart greeter. I often think to myself, “Does he want to work here or does he have to work?” More than likely the old gentleman Walmart greeter has to work because he didn’t plan for his future. This is not to say that working at Walmart is not dignified but if the older gentleman had planned ahead he might be able to spend most of his time doing what he enjoys instead of working at a minimum wage job.

Plan for retirement is very important and in order to plan correctly you need to have some other things in place first. Dave goes on to say in his book..

Let’s review where you are by the time you reach this stage in your Total Money Makeover. You have attacked your debt, and it is gone. With the extra money you had in your budget after eliminating your debt, you attacked the goal of building an emergency fund with three to six months of income in it, and you have that funded by now. You are at a crucial time. The only thing you have left to pay off is your house. What you do with the extra money that you poured into the emergency fund and debt payoff is now yours to INVEST.

Dave Ramsey suggests investing 15 percent of before-tax gross income annually toward retirement. He does not suggest any more (because house is still not paid off) or any less.

It is wiser to start investing for retirement as SOON AS POSSIBLE so the money has the maximum time to grow.

He recommends investing before the house is paid off and the college fund is started.

Your children’s college degrees won’t feed you at retirement. You need some MONEY in retirement to LIVE in a paid-for house. I’ve counseled too many seventy-five-year-olds who have a paid-for house and no money. They end up selling the family home, or mortgaging it to eat. That’s a bad plan.

If you don’t already have Dave Ramsey’s Total Money Makeover book I suggest you buy it. There is a ton more information about retirement planning. He truly has sound financial advice that will benefit your family.

Related Articles:

Finacial Peace Baby Step #1

Finacial Peace Baby Step #2

Finacial Peace Baby Step #3

May 16, 2007 | Filed Under Dave Ramsey Financial Freedom, Financial Peace Baby Steps 

3 Responses to “Financial Peace Baby Step # 4 – Invest 15% for Retirement”

  1. Bryan on May 16th, 2007

    Hi Mona,
    Let me put my view on this issue,i believe debt free life is always should be a target.If you are under high debt then how can you provide a secure life to your next generation.One more thing may be funny but still I want to share it that I have heard in India people are buying Teak Wood tree for having a lump sum return after 20-25 years for their children.Isn’t it very interesting?!

  2. Bryan on May 17th, 2007

    Hi Mona,
    Please check the result of Blog Hunt as your blog is in the race of final 5 there.Please keep your look over there.

  3. Bill Compton on June 4th, 2007

    Hi Jim. Photos i received. Thanks

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