When is it okay to have a little fun and get a boat or a motorcycle when youíre doing the Baby Steps?
I always recommend that folks complete the first three Baby Steps
before running out to buy a bunch of toys. Baby Step 1 is to save up $1,000 in the bank for a starter emergency fund. Baby Step 2 is to pay off all your debts, except the house, using the debt snowball method. Then, on Baby Step 3, we go back and fully fund the emergency fund to contain three to six months of expenses.
After youíve gotten this far, itís okay to have a little fun and save up for a toy. But donít forget about Baby Step 4, which is putting 15 percent of your income into pre-tax retirement plans, like mutual funds and Roth IRAs. Donít neglect saving for college, either, if you have kids. Thatís Baby Step 5.
Baby Steps 6 and 7 are paying off the house early and building wealth
and giving. Everyone likes having fun, and thereís nothing wrong with a few toys if you an afford them. Just make sure you donít sacrifice your financial health for the shiny things!