Six Baby Steps to Financial Freedom:
 

1. Baby Step One: Save $1,000 Cash as a Starter Emergency Fund
   This emergency fund is not for buying things or for vacation; it is for emergencies only. (pg. 102)
    

2. Baby Step Two: Start the Debt Snowball
   The debt snowball method requires you to list all your debts in order of smallest payoff balance to largest. I don't care if some have 24 percent interest and others have 4 percent. List the debts smallest to largest! The reason we list smallest to largest is to have some quick wins. This is "behavior modification over math" - I don't care if you have a master's degree in psychology; you need quick wins to get fired up. And getting fired up is super-important. Every dollar you can find from anywhere in your budget goes toward the smallest debt until it is paid. A good rule of thumb on items (except the house) is this: if you can't be debt-free on it in eighteen to twenty months, sell it. If you have a car or a boat that you can't pay off in eighteen to twenty months, sell it. It is just a car; dynamite the logjam! (pg. 114)
    

3. Baby Step Three: Finish the Emergency Fund 
   A fully funded emergency fund covers three to six months of expenses. You start the emergency fund with $1,000, but a fully funded emergency fund will usually range from $5,000 to $25,000. If you have a "steady, secure" job where you are not on commission or self-employed, you could lean toward the three-month rule. Money magazine says that 78 percent of us will have a major unexpected event within the next ten years. When the big stuff happens, you can't depend on a credit card. If you use debt to cover emergencies, you have backtracked again. An emergency is something you had no way of knowing was coming, such as an accident, job loss, medical bills, blown transmission, etc. (pg. 133)
    

4. Baby Step Four: Invest 15 Percent of Your Income in Retirement
   When calculating your 15 percent, invest 15 percent of your before-tax gross income and don't include company matches in your plan. If your company matches some or part of your contribution, you can consider it gravy. Select mutual funds that have a good track record of winning. Consider investing evenly across four types of funds: Growth and Income (Large Cap) funds, Growth (Mid Cap) funds, International funds, and Aggressive Growth (Small Cap) funds. Always start with a company match (if you get one), and then move on to a Roth IRA (where you pay taxes on money up front). Finally, if you haven't gotten to where you are investing 15% of your income, bump up payments into your 401k or another plan to reach the 15%. (pg. 155)
    

5. Baby Step Five: Save for College
   Remember - college tuition goes up faster than regular inflation. While inflation of goods and services averages about 4 percent per year, tuition inflation averages about 7 percent a year. When you save for college, you have to make at least 7 percent per year to keep up with the increases. Consider funding college with an Educational Savings Account (ESA), funded in a growth-stock mutual fund. If your children are older, or have aspirations of expensive schools or graduate school that you will pay for, you will have to save more than the ESA will allow. (pg. 172)
    

6. Baby Step Six: Pay Off Your Home Mortgage
   Every dollar in your budget that you can find above living, retirement, and college should be used to make extra payments on your home. When asked about mortgages, I tell everyone never to take more than a fifteen-year fixed-rate loan, and never have a payment of over 25 percent of your take-home pay. That is the most you should ever borrow. (pg. 186)
   
    

Other Key Ideas and Big Takeaways:
 

"If you will live like no one else, later you can live like no one else." - What this means is, if you make the sacrifices now that most people aren't willing to make, later on you will be able to live as those folks will never be able to live. (pg. 5)

​

Debt brings on enough risk to offset any advantage that could be gained through leverage of debt. Given time, a lifetime, risk will destroy the perceived returns purported by the mythsayers. (pg. 21)

​

When surveyed, 75 percent of the Forbes 400 said the best way to build wealth is to become and stay debt free. (pg. 23)

​

While it is fine to give money to friends in need if you have it, loaning them money will mess up relationships. (pg. 25)

​

The silly marketing that America falls for has resulted in this: we buy things we don't need with money we don't have in order to impress people we don't like. (pg. 31)

​

(When this book was written - in 2007) USA Today reported that the average car payment is $464 over sixty-four months. Most people get a car payment and keep it throughout their lives. As soon as a car is paid off, they get another payment because they "need" a new car. If you keep a $464 car payment throughout your life, which is "normal," you miss the opportunity to save that money. If you invested $464 per month from age 25 to age 65, a normal working lifetime, in the answer mutual fund averaging 12 percent, you would have over $5 million at age sixty-five. Hope you like the car!! (pg. 32)

​

You have to reach the point that what people think is not your primary motivator. Reaching the goal is the motivator. (pg. 33)

​

Today I am convinced that my wife and I are able to do anything we want financially partially because of the car sacrifices we made in the early days. I believe that we are winning because of the heart change that allowed us to drive old, beat-up cars in order to win. If you insist on driving new cars with payments your whole life, you will literally blow a life's fortune on them. If you are willing to sacrifice for a while, you can have your life's fortune and drive quality cars. I'd opt for the millionaire's strategy. (pg. 34)

​

Smart Money magazine quotes the National Auto Dealers Association as stating the average new car purchased for cash makes the dealer an $82 profit. When the dealer can get you to finance with them, they sell the financing contract and make an average of $775 per car. But if they can get you to lease the car, the dealer will make an average of $1300. The typical car dealer makes their money in the finance office and the shop, not in the sale of new cars. (pg. 35)

​

A good used car that is less than three years old is as reliable as a new car. A new $28,000 car will lose about $17,000 of value in the first four years you own it. That is almost $100 per week lost in value. the trust is that most slightly used cars have gotten all the kinks worked out of them and were not traded because they were bad cars. Since almost 80 percent of new cars are leased, more than likely you are buying a car that came off a lease. (pg. 37)

​

The average credit-card user spends 12 to 18 percent more when using credit instead of cash. It hurts when you spend cash, and, therefore, you spend less. (pg. 42)

​

Your largest wealth-building asset is your income. When you tie up your income you lose. When you invest your income, you become wealthy and can do anything you want. (pg. 51)

​

The typical millionaire lives in a middle-class home, drives a two-year-old or older paid-for car, and buys blue jeans at Wal-Mart. In short, the typical millionaire finds infinitely more motivation from the goal of the financial security than from what friends and family think. The need for approval and respect from others based on what they own is virtually nonexistent. (pg. 82)

​

The power of focus is what causes our Baby Steps to work. When you try to do everything at once, progress can be slow. When you put 3 percent in your 401k, $50 extra on the house payment, and $5 extra on the credit card, you dilute your efforts. Because you attack several areas at once, you don't finish anything you start for a long time. That makes you feel that you aren't accomplishing anything, which is very dangerous. The power of focus is that it works. Things happen. You check stuff off your list. Life gives you an "attaboy" in the form of actual visible progress. (pg. 94)

​

You have reached the Pinnacle Point when you can live off 8 percent of your next egg. Go ahead, multiply your next egg by .08, and if you can live on that number or that number is more than you make, you are coasting downhill. Congratulations! Your money makes more than you do! By doing this calculation, you will discover how close you are to hitting this major financial security milestone. (pg. 212)

​

There are only three uses for money: FUN, INVESTING, and GIVING. You cannot claim Total Money Makeover status until you do all three. You don't have to buy a Harley, invest millions, or give away $25,000 cash, but you do have to do some of each. You should begin doing some of each as you go through the steps. (pg. 216)