Dear Dave,

 

We’d like to start preparing for the future, but our debt is preventing us from investing for retirement. Would it be okay to use a home equity line of credit to start investing? We were thinking the eventual returns might justify doing this.

 

Nick

 

Dear Nick,

 

No! Never put something as important and meaningful as your home on the line just for the sake of investing. Do not borrow against your home!

I’m guessing you’re new to my way of doing things, so let’s start from the beginning. First, follow the Baby Steps. Getting $1,000 in the bank as a starter emergency fund is Baby Step 1. Next, pay off all your debts from smallest to largest—except for your home—using the debt snowball method. That’s Baby Step 2. It’s time then to revisit your emergency fund, and bulk it up to a full three to six months of expenses in Baby Step 3.

 

Now, it’s time to really start thinking about your future and retirement. In Baby Step 4, take 15 percent of your gross household income and start investing it for retirement. Start with your company’s 401(k) plan, up to the full employer match. Then, invest the rest into Roth IRAs. One for you, and one for your spouse, if you’re married.

 

Here’s the thing, Nick. Investing becomes easy at this point, because you’ve freed up your income. And that’s the most important wealth-building tool you have!

 

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.