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Dave Ramsey says: Have fun but settle finances beforehand

(AP Photo)

Dear Dave,

At what point can you spend, and have a little fun, when you’re following the Baby Steps plan?

— Jen

Dear Jen,

Everyone likes having fun, and there’s nothing wrong with spending some cash if you can afford it. I just want people to make sure they have their finances in order first.

I recommend completing the first three Baby Steps before you run out and buy a bunch of toys.

Just to review, Baby Step 1 is saving $1,000 for a starter emergency fund. Baby Step 2 is where you pay off all debt — except for your home — using the debt snowball method. In Baby Step 3, you go back and fully fund your emergency fund with enough cash to cover three to six months of expenses.

Completing the first three Baby Steps puts you on pretty solid financial ground. At this point, once you’ve saved up the cash, it’s OK to take a vacation or buy a reasonably-priced toy.

But don’t have so much fun that you forget about the other Baby Steps.

Baby Step 4 means putting 15 percent of your income into pretax retirement plans, like mutual funds and Roth IRAs.

Don’t neglect saving for college if you have kids. That’s Baby Step 5. Baby Steps 6 and 7 are paying off the house early, and building wealth and giving like never before.

Remember, there are only three things you can do with money — spend, save, and give.

You can do all three without putting yourself in a bind by following my plan!

— Dave

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