Dear Dave: We’d like to own a home someday, but we know we’re not ready for that kind of financial commitment yet. Where does buying a house fit in your Baby Steps plan? — Heather

Dear Heather: Buying a home when you’re broke is the easiest way I know to become a foreclosure statistic. I’m glad you two are being thoughtful and sensible about taking such a big step.

If you remember, in Baby Step 1 I advise people to save up a beginner emergency fund of $1,000. Baby Step 2 is paying off all consumer debt from smallest to largest using the debt snowball method. Then, Baby Step 3 is where you go back and grow your emergency fund to a full three to six months of living expenses.

With all this in mind, let’s call getting ready to buy a home Baby Step 3b. Save up for a down payment of at least 20 percent to avoid PMI (private mortgage insurance). Also, make sure any mortgage loan is a 15-year, fixed rate loan, where the payments are no more than 25 percent of your monthly take-home pay.

Doing it this way may delay your dream of being a homeowner for a while, but it will help ensure your new home is a blessing and not a financial curse! — Dave

Planning for future purchases

Dear Dave: How far in advance do you recommend figuring future purchases into your budget? — Robbie

Dear Robbie: I recommend starting to put money aside, and including it in your budget as soon as you know the need for an item is a real possibility. Waiting until things go wrong or something breaks down will leave you in a real mess, more times than not.

For example, if you’re pretty sure you’ll need another vehicle in a year or two, the smart thing is to start putting money aside now. Do some research on prices, then do the math to see how much you’ll need to set aside each month.

And remember, it’s a whole lot easier to save money when you don’t have things like credit card payments and other debt hanging around your neck. That’s one of the big reasons I want to help people learn to live debt-free! — Dave

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