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| Photo: listgiant.com |
In 2013, the contribution limit for 403b, 401k, and 457s will increase from $17,000 to $17,500. Traditional and Roth IRAs will increase from $5,000 to $5,500.
I know many of you are thinking, "Contribution? I'm still trying to start an Emergency fund and pay down my debts. Dave Ramsey says to do the 7 Baby steps first before you start investing."
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| Dave Ramsey photo: Daveramsey.com |
- $1,000 In An Emergency Fund
- Pay Off All Debt With The Debt Snowball
- 3 To 6 Months Expenses In Savings
- Invest 15% Of Income Into Roth IRAs and Pre-Tax Retirement Plans
- College Funding
- Pay Off Your Home Early
- Build Wealth And Give!
Personally, I'm still working on the first three steps, but have been doing Steps: 4, 6, and 7.
Step 4: Every month I've been investing 7% into my State Retirement plan, $25 to my Roth, $100 to my 403b (ValuTeachers/LSW), and $100 to my Roth 403b (ValuTeachers/LSW).
Step 6: In 2003, my sister and I bought a house together and paid an extra $100 to $200 per month. It took 7 years off at that time our 30 year mortgage. In Summer 2011, we refinanced to be able to pay off the mortgage in 15 years. Our interest rate went from 5.75% to 3.75% and only went up 30 cents from our previous monthly payments. Any extra payment will reduce the amount of interest you pay.
Plug in your own numbers at the Bank Rate Website by clicking on the 30 year mortgage calculator link. In the example, purchasing a $165,000 home at 7% you will pay $1,097.75 per month; at 4% with a higher Credit Score you will pay $787.74 per month. Thus, with a high credit score, you reduce the interest rate you are paying.
If you look at the amortization table, click on Show/Recalculation Amortization Table at the bottom of the calculation page, you will see that in November 2012 of the $787.74 you pay, only $237.74 goes toward your principal. It is not until September 2018 that you will pay $300 per month toward your principal. Try your best to pay your bills on time so you too will get a high Credit score and low interest rate for your home and save thousands on interest.
Step 7: I give to my church, charities, and invest money into my business. It is at this point that Dave Ramsey recommends you are ready to start contributing to Investments (mutual funds).
What are your thoughts? Should I follow these steps and stop my contribution until I do the first three steps or continue to contribute to my retirement? Please comment below.
