Financial Snowballs – The More, The Better

I was reading an article the other day that talked about financial snowballs. If you know anything about Dave Ramsey’s Total Money Makeover system, you know that his key to paying off debt quickly is to “snowball” your debt payments into other bills as the debts get paid off. So, for instance, let’s say your current debt load looks like this:

Debt #1            Minimum Payment               Balance

credit card                    $25                                 $3000

credit card                     $50                                $5000

car loan                          $250                               $8,000

student loan                  $3000                            $30,000

mortgage                      $1500                              $200,000

The goal with Dave Ramsey’s snowball method would be that once you had the first credit card paid off, you’d put the $25 minimum payment onto your next credit card, making the minimum payment $75, and you’d continue snowballing the payments until all of your debts are paid off. The extra payments would help that happen faster.

Similarly, financial snowballs use that power of increasing cash flow to help you achieve individual financial goals, and ultimately, financial independence. Here are some examples of financial snowballs that can help your money get on more solid ground.

Financial Snowballs

You might use one of these snowballs or a combination of them to help get your money situation more secure. The great thing about the variety of financial snowballs available is that you can mix and match them to fit your individual goals and needs at any time. It’s the process of time and continued deposits into the individual snowballs that makes them work, whether you’re putting $10 a month into each one or a $1,000 of work into each one. Obviously, the more money you can contribute the better, but don’t let that stop you from putting something into savings, because it all adds up.

Retirement Accounts

Retirement accounts can often help you double your money faster as many retirement vehicles have a match value in place. So, if your employer offers you a match on retirement contributions of up to three percent, and you’re contributing three percent monthly, you’ve effectively doubled your money immediately, even without growth earnings that come with market increases.

Also, because of the tax deductibility of many retirement vehicles, you’re lowering your taxable income which means you’ll pay less in taxes, giving you more money to snowball into other places.

Don’t forget the Roth IRA either: just because it may not offer you an employer match or tax deduction, it’s still a great financial snowball because you’ll reap the financial benefits once you start withdrawing money as you won’t have to pay taxes on those withdrawal.

529 or other College Savings Accounts

529 contributions aren’t tax deductible, but the earnings do grow tax free. This is a great way to make a financial snowball for those planning on paying their child’s college expenses. And, bonus: there’ll be less interest to pay on student loans that won’t need to be taken out because of the money saved to pay college costs.

Emergency Funds

For years we refused to have an emergency fund because money was so tight. Then one day we decided to start putting away 1% of our income into a savings account. We figured we probably easily wasted one percent of our money – even on our super tight budget – so we started saving it instead. Then, when that became a comfortable savings amount we upped our emergency fund contributions to 2% of our income.

By snowballing our emergency fund savings, we were able to gradually get used to living on less, and today we have thousands of dollars in the bank to cover any type of financial unexpected. I’m a firm believer in contributing to an emergency fund no matter how tight your budget is. Start with a dollar out of every paycheck if you need to. Or look through your expenses and see how much money you’re wasting each month, and determine to put half of that amount into savings automatically after you get paid.

Over time, you’ll have more money set aside for an emergency than you ever dreamed you would.

Non-Retirement Investment Accounts

Non-retirement snowballs are almost as important as retirement snowballs. Everyone has different goals for using non-retirement investments. Maybe you want to pay cash for your house or pay it off super early. Maybe you want to fund a yearlong sabbatical from work. Maybe you have big travel plans. Or maybe you want to retire early. Whatever your goals, a non-retirement snowball will help increase your chances of reaching them.

Debt Payoff

People don’t often think of paying off debt as increasing financial worth, but it does. A net worth balance sheet has two side: assets and liabilities. When your asset side goes up, your net worth goes up. When your liability side goes down, your net worth also goes up. So, if you’re paying $800 on principal to your mortgage each month, you’re increasing your net worth by $800 each month, provided the value of your house remains stable.

Health Savings Accounts

This often overlooked financial gem has two blessings: first, it lowers your taxable income as HSA contributions are tax deductible. Some people use HSA contributions toward post-retirement health expenses, and that’s a great financial idea. However, there are many pre-retirement health expenses that people don’t normally think of as tax deductible that can be paid from an HSA.

In our case, we took a few thousand dollars off of our taxable income this year because we paid for our daughter’s braces and some dermatology expenses for me out of our HSA. This will lower our tax base and lower the amount we pay to Uncle Sam at the end of the years. That means a higher tax refund for us to snowball into other more profitable investments.

The More, the Better

The more financial snowballs you have rolling downhill in an attempt to increase your financial stability, the faster you’ll reach your financial goals. Again, the amount you put into each is important, but the habit of adding to them regularly is more important. Consistently through automation is the key.


What financial snowballs are you rolling in order to improve your money situation?



12 comments on “Financial Snowballs – The More, The Better

  1. Too many to count, which I guess is a good thing but can also be tough to really understand progress, as well as keeping eyes to see what is being met and what’s slipping. I have developed a very personalized spreadsheet over the years that aligns with our goal keeping. None of the ‘out of the box’ packages or apps seem to do the trick.

    1. Smart move on developing the spreadsheet, MB. I love that you made your own that works for you. We’ve done that on many different aspects of our personal finance plan and it’s working!

  2. We are rolling the retirement and college savings accounts. I agree that while there are lots of possible ways to approach improving your finances, it’s important to get some balls rolling and consistently contribute to them.

    1. Good for you guys for kicking it on the retirement and college funds. We have a lot of snowballs rolling right now but it’s working for us.

  3. I like the concept of financial snowballs, never relly thought of building wealth that way. We have three, emergency, retirement and college savings accounts. Having these in place certainly, makes us sleep better at night. 🙂

    1. You guys are doing so well, Brian. I can’t even imagine the pressure you’d be under paying for college for two kids if you still had that massive credit card debt. Way to go!

  4. Love the snowball approach! While we aren’t doing a debt snowball right now, we are using all the other snowballs you mention. Often the hardest part is getting that snowball started, but once you do, it magically grows and grows!

    1. Yay! You’re batting 1,000! It does indeed seem like magic, but the cool part is that it’s not and that anyone can do it!

  5. One thing we really see with the debt snowball is the amount of interest we are paying going down. When we started our journey out of debt 5 years ago, we were paying $660 in interest per month. Now, we’re down to $170. That’s about 25% of what we were paying before. I must admit I love that.

  6. I’m a huge fan of “wealth” snowballs. Especially for short/mid term goals. You can continue making “minimum payments” to long term goals like retirement, but you get to throw every extra dollar at an intermediate goal. That helps to keep the motivation in tact.

  7. I’m also a fan of the “snowball” approach because it starts small and builds into something so much bigger. That ‘build’ happens over time so it feels like nothing but when you look up you see this massive pile of money in front of you.

    The key is to start the snowball. Even if its a few dollars per week. Or 1% if your income like you did. Just start small and increase it over time.

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