Publisher’s Note: money expert David Ramsey is CEO of Ramsey Solutions. He has written seven bestsellers including The Total Money Makeover. His radio show, The Dave Ramsey Show, is heard by more than 16 million listeners each week across 600 radio stations and multiple digital platforms. Each week he answers a personal finance question in his “Dave Says” column.
We’d like to prepare for the future, but our debt is preventing us from investing for retirement. Would it be okay to use a home equity line of credit to start investing? We thought the eventual returns might justify this.
No! Never jeopardize something as important and meaningful as your home just to invest. Don’t borrow against your home!
I’m guessing you’re new to my way of doing things, so let’s start at the beginning.
First follow the Baby Steps. Getting $1,000 in the bank as a starter emergency fund is Baby Step 1.
Next, use the debt snowball method to pay off all your debts, from the smallest to the largest, except for your home. That’s Baby Step 2. Then it’s time to reconsider your emergency fund and increase it to a full three to six months in Baby Step 3.
Now is the time to really think about your future and retirement.
In Baby Step 4, take 15 percent of your gross household income and invest it in retirement. Start with your company’s 401(k) plan through to the full Employer Match. Then invest the rest in Roth IRAs. One for you and one for your spouse if you are married.
Here’s the thing Nick, investing becomes easy at this point because you’ve released your income. And this is the most important wealth building tool you have!
Dave Ramsey is CEO of Ramsey Solutions. He is the author of seven bestsellers including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week across 600 radio stations and multiple digital platforms. Follow Dave online at daveramsey.com and on Twitter @DaveRamsey.