Dave Ramsey’s Baby Steps


Dave Ramsey is quite the financial guru, and one of his biggest beliefs is his “baby steps” program- the steps he believes will lead you to financial freedom.  I like Dave Ramsey, and I believe he’s got some great ideas to help people become debt free and lead a financially stable life.  Here are the 7 baby steps:

Dave Ramsey’s Baby Steps

Baby Step 1: Save $1,000 in an emergency fund

This is the first thing you do: you bypass paying off any debt and sell your crap to earn more money to become debt free. This $1,000 emergency fund is in place to help you not dig deeper into debt. During step 1, a lot of people choose to get a “Dave job” (such as babysitting, delivering pizzas, basically anything to bring in extra income) to help fund the emergency fund faster.

Baby Step 2: Pay off all debt except the house

Here’s where you get serious about debt and decide to make a plan to pay it all off. Dave Ramsey recommends starting a list of debts with the lowest amount to the highest amount and working that way. The reason? Gratification. When you completely pay off the lowest debt, you’ll have a sense of accomplishment and want to keep going. The idea is to take the amount monthly you’ve put towards that loan and then “snowball” it into the next loan to get that paid off even faster. Rinse and repeat until your debt is gone.

Baby Step 3: 3-6 months of expenses in savings

Now here’s where you protect yourself from accruing more debt in case something bad happens: you lose your job, the car breaks down, etc. When you’ve got 3-6 months worth of expenses in savings, you’ve got a nice cushion to protect you from adding on more debt.

Baby Step 4: Save 15% of household income for retirement

It’s time to really get serious and plan for the future. Saving 15% of your household income will be a great way to help get you on the track to retirement. Decide whether a 401k, Roth IRA, or Traditional IRA are best for your financial situation.

Baby Step 5: Fund College accounts for your kids

This step is controversial, and you’ll have to decide what is best for you. Some people want to save money in a 529 plan to pay for their kids’ college, some parents may decide to open a savings account for their children to use however they would like in the future, and some may decide not to save any money at all for their kids. It’s such a personal decision!

Baby Step 6: Pay off the mortgage!

Now is the time that you may pay off the mortgage earlier. The thought is: generally a mortgage has a low interest rate so it’s not a huge deal to carry this debt. However, it still is debt and when it’s gone, it is GONE and so freeing! Think of the cash flow that will be generated once the mortgage is paid off.

Baby Step 7: Build wealth and give

Here’s where you’re finally have the freedom to invest your money, give when you see fit, and just live life as you’d like!  Obviously this step will take quite a few years, but is totally achievable.

Do you follow the Dave Ramsey baby steps?

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