WEBVTT 00:00:00.400 --> 00:00:04.940 George, 00:00:04.960 --> 00:00:08.680 30 years ago, when I started teaching this stuff, I was first teaching people how 00:00:08.710 --> 00:00:15.620 to get out of debt, live on a budget, be generous, live on less than you make. 00:00:15.640 --> 00:00:17.180 You have a plan, you avoid debt, 00:00:17.210 --> 00:00:20.500 you save money for emergencies and later for investing. 00:00:20.530 --> 00:00:24.940 All of those principles work, but people kept saying, Which one do I do first? 00:00:24.960 --> 00:00:27.760 I started laying out, Well, you should do this first and that first. 00:00:27.790 --> 00:00:31.320 You should have an emergency fund before you start your 401k. 00:00:32.840 --> 00:00:35.120 Then I figured out it's easier to have 00:00:35.140 --> 00:00:37.740 an emergency fund if you don't have any payments. 00:00:37.770 --> 00:00:40.380 So you need to get out of debt first. Because, of course, 00:00:40.410 --> 00:00:44.160 I learned my lesson the hard way, going bankrupt and getting out of debt. 00:00:45.080 --> 00:00:49.960 Learning how important it was to be debt-free as a part of building wealth. 00:00:50.720 --> 00:00:55.700 All of that started to formulate after a few years of teaching 00:00:55.730 --> 00:00:59.800 in various settings and what became Financial Peace University. 00:00:59.830 --> 00:01:02.020 It used to be called Life After Debt. 00:01:02.050 --> 00:01:06.210 It started becoming what we now call the Baby Steps. 00:01:06.240 --> 00:01:08.440 The interesting thing is that now 00:01:08.470 --> 00:01:11.440 the Baby Steps have gone into the Total Money Makeover Book, 00:01:11.470 --> 00:01:17.620 which has sold almost 10 million copies, and they have become the proven plan, 00:01:17.650 --> 00:01:21.770 the shortest distance between where you are now and wealth. 00:01:21.800 --> 00:01:23.720 Where you are, if you live like no one 00:01:23.750 --> 00:01:27.480 else later, you can live and give like no one else. 00:01:27.510 --> 00:01:30.640 What is the shortest distance? 00:01:30.670 --> 00:01:35.900 We need a path to run on because the way you eat an elephant, it's overwhelming. 00:01:35.930 --> 00:01:41.210 Do I do my 401k with a match or my kid's college? 00:01:41.240 --> 00:01:43.290 Or do I have an emergency fund? 00:01:43.320 --> 00:01:46.290 Or do I pay on this 18% credit card debt? 00:01:46.320 --> 00:01:50.280 Or, or, or, or, and nothing gets done. 00:01:50.310 --> 00:01:52.780 You get paralysis of the analysis, you get frozen. 00:01:52.800 --> 00:01:55.800 Absolutely. These baby steps have worked for me. 00:01:55.800 --> 00:01:57.740 They've worked for millions. It's really simple. 00:01:57.770 --> 00:01:59.540 If you do it, they work. 00:01:59.560 --> 00:02:01.080 It It all starts with Baby Step One, 00:02:01.110 --> 00:02:05.720 having this foundation, saving $1, 000 for a starter emergency fund. 00:02:05.720 --> 00:02:07.400 This is just a small buffer between you 00:02:07.430 --> 00:02:09.580 and life before we start tackling the debt. 00:02:09.600 --> 00:02:12.860 Exactly. If you have $1,000 already, great. 00:02:12.880 --> 00:02:15.140 Just set that aside. That's your Baby Step One. 00:02:15.170 --> 00:02:17.660 Any money you have that's not retirement, 00:02:17.690 --> 00:02:22.340 anything you can sell that is not retirement, you're going to liquidate it. 00:02:22.360 --> 00:02:24.680 If it's not retirement, you got some stock over here that grandpa 00:02:24.710 --> 00:02:27.610 left you, you got a gold bar under your bed. 00:02:27.640 --> 00:02:31.280 I don't know what it is, but you got any money that's above $1,000. 00:02:31.280 --> 00:02:32.760 Maybe you got $10,000 in savings account. 00:02:32.790 --> 00:02:36.380 That's $9,000 you got that you don't need past Baby Step 1. 00:02:36.410 --> 00:02:39.060 We're going to put it all on Baby Step 2. 00:02:39.090 --> 00:02:40.920 Baby Step 2 is the famous one. 00:02:40.920 --> 00:02:44.120 That's the debt snowball where you list your debt, smallest to largest. 00:02:44.120 --> 00:02:45.760 You pay minimum payments on everything 00:02:45.790 --> 00:02:49.260 but the little one, and you attack the little one with a vengeance. 00:02:49.290 --> 00:02:53.700 Side note, Baby Step 1 should not take you more than 30 days. 00:02:53.720 --> 00:02:54.820 Maximum. 00:02:54.840 --> 00:02:56.720 You need to work extra, sell some stuff, 00:02:56.720 --> 00:02:59.460 have a garage sale, put the kids on Craigslist, whatever you got to do here. 00:02:59.490 --> 00:03:04.660 Let's get We're going to get busted into this, get a thousand bucks quick. 00:03:04.690 --> 00:03:07.580 Baby Step Two, you should be debt free, but your house... 00:03:07.610 --> 00:03:10.140 Now, you may have to sell a stupid boat. 00:03:10.170 --> 00:03:11.980 You may have to take an extra job. 00:03:12.000 --> 00:03:15.360 But most people that have followed the total money makeover Baby Steps 00:03:15.390 --> 00:03:19.980 in Financial Peace University are debt-free inside of two years. 00:03:20.000 --> 00:03:21.640 Yeah, and that's doing it with some 00:03:21.640 --> 00:03:24.660 gazelle intensity like you talk about in Financial Peace University. 00:03:24.680 --> 00:03:27.700 Once you pay off all that debt, now you've freed up all those payments. 00:03:27.720 --> 00:03:28.880 You have that income back in your life. 00:03:28.880 --> 00:03:31.500 Think about what it would be like to have no payments It's about a house payment. 00:03:31.520 --> 00:03:33.700 Wow. We're breathing easy. 00:03:33.730 --> 00:03:35.900 Then we can move on to Baby Step 3, 00:03:35.930 --> 00:03:40.700 where we save 3-6 months of expenses in a fully-funded emergency fund. 00:03:40.730 --> 00:03:42.600 This is the final buffer where we say 00:03:42.600 --> 00:03:45.060 we're never going back into debt because we are the bank now. 00:03:45.080 --> 00:03:47.180 Yep. Grandma's Raining Day fund. 00:03:47.210 --> 00:03:48.380 Why? It's going to rain. 00:03:48.400 --> 00:03:50.340 Dave, you need to be positive. I'm positive. 00:03:50.360 --> 00:03:51.660 It's going to rain. 00:03:51.680 --> 00:03:53.610 You need to be ready when crap happens. 00:03:53.640 --> 00:03:56.100 There's a pandemic coming around every corner. 00:03:56.120 --> 00:03:58.900 There's something coming. If you have $20,000 cash in the bank, 00:03:58.930 --> 00:04:03.980 3-6 months of expenses, whatever it is, and you have no payments, 00:04:04.010 --> 00:04:07.480 you are the third pig and the three little pigs, 00:04:07.480 --> 00:04:09.380 the one that's in the brick house when the big bad wolf comes. 00:04:09.410 --> 00:04:12.060 You're ready for life. You're ready to go. 00:04:12.090 --> 00:04:13.900 Now you're ready to build wealth. 00:04:13.930 --> 00:04:16.660 But you just now You've gotten up to ground zero. 00:04:16.690 --> 00:04:18.780 You've just now gotten up to even. 00:04:18.800 --> 00:04:20.520 When you have that emergency fund 00:04:20.520 --> 00:04:21.760 and you're debt-free, now you're ready to build wealth. 00:04:21.780 --> 00:04:25.420 In Baby Step 4, you put 15% of your income 00:04:25.450 --> 00:04:30.820 aside into good growth stock mutual funds in retirement plans. 00:04:30.840 --> 00:04:32.420 Start where there's a match. 00:04:32.450 --> 00:04:34.860 Beyond the match, always do Roth. 00:04:34.890 --> 00:04:37.640 If you've exhausted Roth and match 00:04:37.660 --> 00:04:44.180 and still are not to 15%, then go on to a traditional 401k or IRA. 00:04:44.210 --> 00:04:48.780 But do Roths before traditional and do match before Roths. 00:04:48.800 --> 00:04:52.160 It's mathematically in your favor to do that up to the 15%. 00:04:52.190 --> 00:04:57.340 Don't do 20%, don't do 11%, do 15%. 00:04:57.360 --> 00:04:59.280 While you are doing Baby Steps 4, 00:04:59.280 --> 00:05:01.900 you're also going to be doing five and six simultaneously. 00:05:01.920 --> 00:05:05.520 Absolutely. Baby Step 5 is where we're saving for our 00:05:05.520 --> 00:05:08.000 children's college fund, and this is going to look different for everyone. 00:05:08.000 --> 00:05:11.500 There's no set number here because it really depends on your situation. 00:05:11.530 --> 00:05:14.860 Did you have the baby last week or is the baby 18? 00:05:14.880 --> 00:05:17.120 That makes a difference on how much you need for college, right? 00:05:17.120 --> 00:05:18.520 What you got to do for college. 00:05:18.540 --> 00:05:22.100 Is this an oh, crap moment or, Hey, we're going to be diligent and safe? 00:05:22.130 --> 00:05:23.840 Did we wait almost until too late? 00:05:23.860 --> 00:05:26.060 Now, they have to go to college debt-free. 00:05:26.090 --> 00:05:28.760 They cannot participate in this epic 00:05:28.790 --> 00:05:32.820 student loan system failure that is called America right now. 00:05:32.850 --> 00:05:34.580 It is horrible out there. 00:05:34.600 --> 00:05:36.220 Do not let your kids go in debt. 00:05:36.250 --> 00:05:37.900 You do not have to go to debt. 00:05:37.920 --> 00:05:40.340 Go to community college for free for two years. 00:05:40.360 --> 00:05:45.620 Go to in-state school, work six jobs, get scholarships. 00:05:45.650 --> 00:05:48.360 Our student loan problem is a parenting problem. 00:05:48.390 --> 00:05:52.460 Mom and dad let kids sign up for crap they couldn't afford. 00:05:52.480 --> 00:05:54.900 Bad mama, bad daddy. 00:05:54.920 --> 00:05:56.940 They got to have the conversations. That's where it starts. 00:05:56.960 --> 00:06:00.540 There's a reason you say Baby Step 4, invest for yourself before for the kids, 00:06:00.570 --> 00:06:03.540 because there's 100% chance you're going to retire. 00:06:03.560 --> 00:06:06.820 There's a 50/50 chance or less these days that your kid is going to go to college. 00:06:06.850 --> 00:06:08.120 And graduate. Yeah. 00:06:08.120 --> 00:06:08.130 Yeah. 00:06:08.150 --> 00:06:11.320 This is less than 50% chance they're going to graduate. 00:06:11.520 --> 00:06:14.740 This is important. 00:06:14.760 --> 00:06:17.480 While you're doing 15%, you do whatever you need to do for your 00:06:17.480 --> 00:06:19.260 kid's college, whatever you decide to do for your kid's college. 00:06:19.280 --> 00:06:21.140 Beyond that, if you can find any money, 00:06:21.170 --> 00:06:24.180 you do that on baby step 6, and that's pay off your house. 00:06:24.200 --> 00:06:25.580 Start chunking on the house. 00:06:25.600 --> 00:06:27.940 Now, when you're in one through three, 00:06:27.970 --> 00:06:30.700 you are so intense, your friends are freaking out. 00:06:30.730 --> 00:06:33.020 Your grandmother thinks you need counseling. 00:06:33.040 --> 00:06:35.320 You are gazelle intense like a gazelle running from a Cheetah. 00:06:35.350 --> 00:06:39.920 When you're in four through seven, you're not intense anymore. 00:06:39.950 --> 00:06:41.780 You are now intentional. 00:06:41.800 --> 00:06:44.840 You're just doing it on purpose, but you're no longer on beans and rice. 00:06:44.840 --> 00:06:46.460 You're on beans and rice, rice and beans, 00:06:46.480 --> 00:06:50.180 scorched earth on one through three till you get those three things done. 00:06:50.210 --> 00:06:52.460 Now, get that house paid off. 00:06:52.480 --> 00:06:54.400 The average person following this stuff is 00:06:54.420 --> 00:06:57.620 paying off their home in about seven or eight years. 00:06:57.650 --> 00:07:01.780 Now, that tells us that the whole program is taking about 10 years. 00:07:01.800 --> 00:07:03.720 The average Baby Steps Millionaire, 00:07:03.720 --> 00:07:06.020 the average everyday millionaire that we've studied, 00:07:06.040 --> 00:07:10.180 we're finding them become a millionaire from the time they start with intensity, 00:07:10.210 --> 00:07:15.500 followed by intentionality, become a millionaire in about 10 and a half years. 00:07:15.520 --> 00:07:16.960 11. 2 years, 10. 00:07:16.980 --> 00:07:19.860 6 years are the two numbers we keep running into. 00:07:19.890 --> 00:07:21.920 So this is completely possible. Yeah. 00:07:21.920 --> 00:07:23.180 And once you pay off that house, 00:07:23.210 --> 00:07:27.060 it's time to build wealth and give outrageously in Baby Step 7. 00:07:27.080 --> 00:07:28.000 That's where it ends. Yeah. 00:07:28.000 --> 00:07:29.640 You will be a millionaire shortly after 00:07:29.670 --> 00:07:32.180 your home is paid for if you don't at that moment. 00:07:32.210 --> 00:07:34.700 And then you continue to build wealth 00:07:34.730 --> 00:07:38.220 and you raise your generosity, and you continue to build wealth, 00:07:38.240 --> 00:07:41.520 and you raise your generosity, and you enjoy the money at that point. 00:07:41.520 --> 00:07:43.160 That's where it gets fun. You're giving it away. 00:07:43.160 --> 00:07:44.400 These are the only three things you can do 00:07:44.420 --> 00:07:47.260 with money, and you should do all of them at Baby Step 7. 00:07:47.280 --> 00:07:48.760 That's the route you're going. 00:07:48.760 --> 00:07:50.340 That's where you are, that's who you are. 00:07:50.360 --> 00:07:52.760 That is the Baby Steps.