Where Do Toys Fit In The Baby Steps?

Jennifer wants to know when it's okay to get a boat or a motorcycle in the Baby Steps. Dave gives Jennifer his recommendation.

QUESTION: Jennifer on Facebook wants to know when it’s okay to get a boat or a motorcycle in the Baby Steps. Dave gives Jennifer his recommendation.

ANSWER: I recommend that you do the first three steps before you buy any toys. Baby Step 1 is $1,000 saved in the bank. Baby Step 2 is you pay off all of your debts except your home by working off your debts smallest to largest in what we call the debt snowball. Baby Step 3 is you go back to the $1,000 account and raise it to a fully funded emergency fund of three to six months of expenses. Then you can start saving and buying toys.

Baby Step 4 is 15% of your income going into retirement. You can buy toys as long as you keep doing that over and over. You need to be putting money aside for your kids’ college, and you can keep buying toys while you’re doing that as well. Then any extra money you find, you start throwing it at the house. If you have a fully funded emergency fund, if you want to save up and buy something at that point, that’s a good time to talk about doing it.