Step1: Save 1000 € as an Emergency Fund
Open a separate account and save 1000 € as fast as you can. Your emergency fund is there for unexpected events like your car breaks down. The idea is to prevent you from going further into debt.
Step 2: Pay Off all your Debt except for the House
List all your debts smallest to largest and start paying extra on the smallest one. Knock the debts of smallest to largest until you are debt free except for your House / Apartment.
Step 3: Fill your Emergency Fund
Fill your emergency fund with cash for 3 to 6 months worth of expenses. Calculate your expenses and start saving towards that goal. For many families this is between 10 000 € to 15 000 €.
The idea of the emergency fund is to protect you against the bigger surprises in life and prevent you from going into debt ever again.
At this point your stress level regarding finances should be significantly lower.
Step 4: Invest 15% of your Household income
With no payments and a fully funded emergency fund you have setup yourself for success and it’s time to start investing for your future. This step is all about building long-term wealth and saving up for retirement.
Already with a 300€ monthly investment in good stock market funds you will become a millionaire during your working life.
Step 5: Pay Off your Home Early
There’s only one debt left and that’s your Home. Can you imagine how life will be with no house payment. Start making extra payments on your house and create goals when you will have reached certain milestones.
Note! You will be working on Step 4 and Step 5 simultaneously. If you live in a country where Collage is not government funded you will need to add a step of saving for your children’s education.
Step 6: Build wealth and Give
This is the last step. Now you can build wealth and reach for Financial Freedom. This will give you the possibility to be insanely generous and also leave an inheritance to future generations.