If you’re looking for financial stability and don’t have an idea of where you should start, the Dave Ramsey 7 Baby Steps could be a great place to begin. We have all been burdened by our younger self’s rash decision, whether that is relationship choices or starting a college course that you didn’t finish. One of our foolish younger selves’ main issues always seem to be, is build up a good chunk of debt. Sometimes this debt can be a burden for many years after, with interest being the biggest sum of money that you pay.
The Dave Ramsey 7 Baby Steps is a way of using the debt snowball technique and only concentrating on one thing at a time. Taking things step by step is a great way to alleviate any stress from yourself, which could happen when thinking of every little piece of debt you have and your future financial goals such as new cars, a mortgage, and a family.
With the Dave Ramsey Baby Steps, you can live a debt-free life. Finding financial security has never been easier with the Baby Step Method from Dave Ramsey.
In our guide, we will be explaining a little bit about the man himself and taking an in-depth look into what the Baby Step Method entails and how you can apply it to your life. Sit back, relax, and find out how you can be financially free.
Who Is Dave Ramsey?
Dave Ramsey has been described as one of the pioneers of the debt-free movement. Over the years, he has gained a lot of wealth but has also lost it completely.
Due to this cycle of gaining a lot of money and gaining a lot of debt, Dave has made it his life’s passion for the past twenty years to structure a step-by-step process where others can stay debt-free. This is by making sensible money decisions and creating real wealth.
His main philosophy around finance is based on timeless principles. Some would say these are outdated, but Dave’s main focus is to help people live within their means. Helping not to be stressed or overwhelmed with debt that is too big for them to handle.
The Dave Ramsey Show can be found every week live on Youtube. On this show, couples and singletons can appear to do their ‘Debt-Free Scream.’ This is a live on-air appearance showing and celebrating that they have cleared all of their outstanding debt. This kind of encouragement for hard work is particularly directed at the American culture. Students have a high loan debt to pay off, and is usually the first financial obligation they encounter when taking their first steps into adulthood.
The Dave Ramsey Show mainly targets an American audience, but the steps can be slightly changed for more worldwide viewing and consideration.
Dave Ramsey’s 7 Baby Steps
Baby Step 1: Save $1,000 for Your Starter Emergency Fund
In today’s climate, only 39% of Americans can pay cash for a $1,000 emergency. This means that 61% of the population are borrowing, selling, or simply falling into debt when life throws a $1,000 curveball your way. Your car starts smoking, your kid has a nasty fall and needs some stitches from the ER. Your dishwasher stops washing your plates. It’s important to be cash ready with a fully-funded emergency fund.
How? Start saving more money and spending less! Saving up that $1,000 reserve quicker than you think. It takes a little focus, hard work, and dedication, but it can be done. Try selling stuff, using coupons, planning your meals, eating out a little less, using or selling those old gift cards you’ve acquired, downloading money-saving apps, or even just saying no to your extra expenses. The way to save or earn over $1,000 is nearly endless. Try to pick a few and start saving today.
Baby Step 2: Pay Off All Debt (Except the House) Using the Debt Snowball
Debt is only good for one thing; holding you back! You don’t want to be held back, you should be thriving, and this is where it begins. So you’ve got your $1,000 emergency fund saved up, and if in the case of an emergency, you have got that money ready rather than falling deeper into debt. Now it’s time to start attacking your existing debt with a vengeance. The best method to use is the ‘Snowball Method.’ Pay off all of your debts one at a time. Start from the smallest one you have, moving towards the biggest. This will help you gain momentum until you can officially say you are completely debt-free.
How? Well, if you use the money-saving tips we mentioned from Baby Step 1, you can put all of your extra cash into defeating your debt problem. In fact, it’s well worth turning up the heat in this step. You’ve completed the emergency fund baby step, so why not take a little extra sacrifice. It’s not forever, and when you’re completely debt-free, you will look back at those times and see that your hard effort was well worth it.
Baby Step 3: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund
The debt has completely gone. Well Done! Pat yourself on the back! Now it’s time to boost your emergency fund so it’s able to handle bigger problems that may happen, such as a job loss. Based on your regular income, try and figure out how much money you need to live for three to six months. That is if your regular income went away. We advise if you’re in a single income household to try and aim for the six months of expenses and the three months of expensive if you’re in a two-income household. Save up this amount and then place it into a high-interest savings or money market account. It’s always good to choose an account with check-privileges so you can get to it if you really need it.
How? If you’re already in the pattern of saving up, keep going. Carry on clipping those coupons. Keep all of those money-saving apps downloaded to your phone. Maybe even start brewing your own coffee at home rather than that little trip to Starbucks. If these are the money-saving habits you have started using, keep them! They are good habits to have. Continue these steps, and you will be debt-free and sitting on a good amount of wealth.
Baby Step 4: Invest 15% of Your Household Income in Retirement.
Retirement can seem like forever away, not a problem for today. That kind of thinking can leave you working for the rest of your life. In baby step 4, we want to destroy that idea and get you on your path to the golden years. Baby Step 4 is all about putting 15% of your gross household income into a retirement account.
How? Here is a simple breakdown. When starting this step, you should first take a look into your employer’s 401(k). If you have this, you should max out the number of contributions you can put into this fund. That’s if you can. This will equate to $18,500 a year of your own money. There is also an employer match that you may be eligible for, but not all companies do this, so it’s good to try and find out. After this, call for back up! The Roth IRA allows $5,500 a year. Remember that this employer match isn’t part of the 15% you’re investing. It’s just a nice little bonus.
We do know that all of this is fairly confusing. It is important not to make any plans like this before finding a reputable investment professional. These people know all of the investment lingoes but can explain and talk to you in a way that everyone can understand. They will listen to all of your preferences and help guide you through your investment journey. This is how you can really set up the retirement fund of your dreams, lets you really enjoy your later years.
Baby Step 5: Save for Your Children’s College Fund
Do you not have any kids? Or your kids are all grown up? Well, you can skip this step and move onto Baby Step 6. If that is not the case, it’s time to start researching and saving some extra cash to further your kid’s educations. You should know that you will be working on baby steps 4, 5, and 6 all at the same time, but start them in order.
So why should you start thinking about your kids after you think about retirement? The main reason is that you will definitely retire at some point, but your kids may not go to college. Also, the is no reason you should put your children in overly expensive universities. That means you won’t be able to pay your bills when the time comes, and you stop working. Putting your retirement first isn’t a selfish choice. It’s smart.
How? The first thing you should do is look at an opening educational savings account or ESA. This could also be in a 529 college savings fund.
The next thing to remember is this: Going to college without falling into debt can happen! Grants and scholarships can happen, which would be the perfect scenario. If this doesn’t happen, your kids should always consider in-state and community college options. Or maybe even just getting a job through their study period to pay towards their tuition fees. Using these baby steps and tactics will let your kids get a diploma without the debt. This will benefit your kids when it’s time for them to take their Baby Steps to save.
Baby Step 6: Pay Off Your Home Early
Based on the average American, a monthly mortgage budget lies around $1,400, but what if that disappeared? Of course, not by magic, but you had completely paid off your home. The time has come that you have stopped renting from the lending company and your home sweet home is yours. It does seem like an impossible task, but it can really be achieved.
How? The first thing to look at is refinancing. Do you have a 30-year mortgage? Do you have an adjustable-rate mortgage? If you do, try and switch to a 15-year plan. Has your house going up in value? have your rates increased? If this is the case, then refinancing could be a real game-changer in baby step 6. Another great tip is to pay one extra payment per quarter. If you do this, you will pay off your mortgage 11 years earlier and save up to $65,000 in interest on its own!
Baby Step 7: Build Wealth and Give
The final baby step in Dave Ramsey’s guide is Baby Step 7, and this means it’s time to start growing your wealth beyond what you ever thought it could be. However, it won’t feel too much of a stretch anymore because you will reach them easily. When that time comes, you’ll not only be living like anyone else, you know, you will be in a position to share the wealth and give like no one else. You will have the bonus of not being tied up to any debts or mortgage worries. It’ll be free to share all of the money you can with your favorite charities or even your local church. You can be in a position of easy generosity, with no expenses to pay other than your living costs. What a beautiful feeling that will be!
How? Do you remember the 401(k) and Roth IRA you set up in step 4? Completely max them out. As your retirement fund grows, use your remaining wealth to have some fun, you’ve lived a lot of frugal years, so it’s time to let loose. Or you could even help the less fortunate. Either way, you will feel great knowing you’re financially stable for the rest of your life.
Why Should I Follow the Baby Steps in This Order?
1. To focus on one goal at a time
As you look to the future and figure out all of the money goals you want to aim for, it can get overwhelming. It seems like there is a lot to do in such a small amount of time. Remember, there is time, and this proven path to achieving your future financial stability is a manageable task. Try and see this method just as you would climbing a hill, one step at a time.
2. To avoid going into debt again
It is important to notice that the initial three baby steps are all about avoiding the future and paying current debts off completely. These baby steps will fast track you into a debt-free lifestyle. The initial $1,000 emergency fund is a starter, letting you dip your toe into the world of saving. It will keep you going whilst also giving you that extra sense of security while you’re eliminating your debt. Baby Step 3 is all about having cash ready if any disaster happens. Having the few extra months savings that are there for only emergencies will keep you in a strong position to not fall back into your borrowing ways.
3. To keep your priorities in check
Being in the moment seems to be one of the most important things. Staying in that frame of mind can make you fork out far too much money for your child’s birthday party. They don’t really need that 4 tiered fairy cake with all the toppings and decorations. However nice it will be you want to teach your children about the value of saving. Getting rid of your debt is a much better gift to anyone. No matter how good a big box with a sparkly ribboned bow looks on your Instagram.
In truth, it is a better gift to yourself than all the extra little things you feel you really need. Dave Ramsey’s baby steps help you focus on a better standard of living beyond one that goes into social media. Keeping on track of what really matters in life.
4. To watch and celebrate your progress
When you reach your goal of each Baby Step, it’s time to celebrate, and we really do mean that. Throw yourself a low-cost party, invite friends and family, and enjoy your time together. Even the smallest of milestones deserve some celebration if you feel a sense of pride after completing them.
When you take the Dave Ramsey 7 Baby Steps one-by-one, you will be able to watch your improvements take place and really applaud them. Using this guide will also give you direction on what you need to do next as these Baby Steps come one after the other.
Take the steps to success with Dave Ramsey 7.
Before The Baby Steps: Making A Decision To Change
Whenever you decide to make a life change, it is important to know why you initially make the change. Start by defining your core values and what is important to you. If you can do this and feel that your end goal aligns with your core values, you will trigger positivity in your life.
Having a positive life will make your decisions much easier. Keep this in mind before you decide to make any life-changing decisions.
What Should I Do to Get Started With the Baby Steps?
Budget. That is the only answer. Baby Step 0 is starting with a budget today. A budget will show you where your money is going and give you the power to tell it where you want it to go. Creating a budget will naturally set up accountability for yourself. Having a budget helps you create goals.
If you plan on going anywhere with your life, then there are a few vital things you need to use. Knowledge, Empowerment, Accountability, and Goals. All of these will help you get to the stages you want to be at, and they all come with having a budget.
All you need to do is start with a Budget.
What are the 7 baby steps of Dave Ramsey?
1. The Emergency $1,000
In the first step of the ‘Dave Ramsey Baby Steps,’ your goal is to save $1,000 as quickly as possible. This fully-funded emergency fund will help to cover those unexpected life happenings that you cannot plan for. And believe us, there are plenty of them. Having this emergency fund will help you stop delving deeper into the world of borrowing when you’re trying to work your way out of debt.
2. The Snowball Method
In Baby Step 2, it is time to pay off your student loans, credit cards, and car payments. Begin by listing all of your outgoing debt payments except your mortgage payments. Please put them in order from smallest to largest, no matter the interest rate. This method is called the snowball method, and it will help you become debt-free one by one.
3. Save 3-6 Months in a Fully Funded Emergency Fund
With all your debts paid off, it doesn’t mean you should slow down. You can now use the money you were throwing at your debt to fund your emergency fund fully. You want this fund to cover between 3 and 6 months’ worth of your expenses. Having this amount saved up will protect you against any big surprises that life throws you at. If you lose your job or your car completely breaks down, you will be able to handle the costs that are needed without slipping back into the world of debt.
4. Invest 15% Into Your Retirement Fund
No matter your age, it is time to get serious about your retirement. Take 15% of the gross household income and begin to invest in your retirement. It’s never too early to start thinking about the future. Start by inquiring into your company’s 401(k) plan and receive the full employer match. Invest any of the leftover money into Roth IRAs. Do separate ones for both you and your spouse if you’re married.
5. Save for your Children’s College Fund
By the time you’ve got to Baby Step 5, you will have paid off all of your debts apart from your mortgage payments. You will have also just started saving towards your retirement. The next thing to do is put money aside for your children’s college expenses. We recommend using a 529 college savings plan or an Education Savings Account (ESAs).
6. Pay off Your Home Early
Step 6 of the Dave Ramsey Baby Steps is a big one. It’s your final debt and one that will take you the longest to pay off. Your mortgage. The mortgage payments are the only thing between you and true financial freedom. Can you truly imagine life without any house payments? Any money that you have extra that can be put towards your mortgage payments can save you tens of thousands of interest.
7. Build Wealth and Give
The great thing about living a completely debt-free life is that you can do whatever you want. The last step in the 7 Baby Steps by Dave Ramsey is the most fun. It’s living your life like no one else. Keep building on the wealth that you created and be generous. Leave an inheritance for your kids, and why not even their kids. That’s the kind of legacy we would all like to leave.
How long does Dave Ramsey’s baby steps take?
Taking the Dave Ramsey Baby Steps can feel like it will take a lifetime, and there is no set answer to how long it will take you to complete all of the Baby Steps. The average time for you to complete Baby Step one of having a starter emergency fund of $1,000 should be a month or less. If you are truly trying to budget and take control of your spending, this can be very doable.
For the second Baby Step becoming completely debt-free, it should take between 18 and 24 months. This gives you around 2 years to complete the first two steps, and by the time you have got into the habit of living on more of a budgeted income, there is no reason that you cannot have Baby Step 3 completed within 3 years.
Baby Steps 4, 5, and 6 are all going to be happening simultaneously, but you should start them in the correct order. Saving for your retirement will be an ongoing payment until the time is right. When you feel you should work anymore or reach a certain age, retirement will be inevitable. It is important to start your retirement before saving for your children’s college fees for two reasons. You will always retire whatever the scenario and your children may not go to college in the end. The second reason is that you shouldn’t put yourself in a position of struggle to fund your children’s college fees. The thought of community college or even getting a job as they study may be a little foreign to your child’s mind, but it can teach them a lot while growing into becoming an adult.
Step 6 can take around 15 years. It is recommended that you change your mortgage payments to a 15-year plan. Doing this will help you reduce your interest payments close to $65,000, which is a lot of money that could go to yourself or your children.
Step 7, build wealth, and also share your wealth. This step can last a lifetime. Generosity can never go a miss no matter your age.
Overall we believe that these living steps can and should be a guide you live by for the rest of your life. Living without any debts throughout your life is a rewarding thing. It leaves you to have complete freedom with what you want to do. It can also help with stress and worrying thoughts as you won’t be thinking that you can’t enjoy that nice meal or buy a new pair of trainers because you have a looming credit card or mortgage bill to pay.