Learn about financial guru Dave Ramsey’s Baby Steps and start your journey to financial peace today!
I’m a HUGE fan of Dave Ramsey. He has single-handedly changed my mentality about money…honestly, he has changed my life. He was the sole reason I was able to pay off my six figure student loan debt. Dave simply has the easiest, most straightforward, fool-proof financial plan to get you out of debt (and to help you to stay out of debt too!).
Now Dave has what I would call an empire. I mean, he is the author of over 15 books, hosts a 3 hour radio show every weekday, organizes numerous live events every year, develops courses to educate people about money…the list goes on and on.
But the best part? You don’t have to read all his books, or spend hours a day listening to the radio, or even attend a class. His plan is SO SIMPLE that it can be summarized in seven easy steps (referred to as the ‘Baby Steps’) and anybody can follow it. Seriously, just read the quick-and-dirty descriptions of the baby steps below, and take the first step (ahem, baby step) to the rest of your life. Was I just being super corny? yup. Was I exaggerating? not at all. These baby steps will change.your.life.
Before you begin your new financial journey, you need to do a few things first. The tips below will help you plow through Baby Steps 1 and 2.
On Day 1 (do this before starting the Baby Steps):
– Stop all of your retirement contributions (even if your employer matches your contributions). This is supposed to make you feel uncomfortable – it will give you the extra push you need to pay off your debt ASAP.
– Start living as frugally as possible (no eating out at restaurants and definitely no random trips to Target)
– Sell as much of your stuff as you can (you don’t need that extra TV, computer, couch….sell it all!)
– Create a budget. This is going to be hard at first, and require a lot of guessing. But with tracking your spending over the next few months, you’ll get the hang of what budget numbers work for you. Do not let an imperfect budget delay starting the baby steps.
Dave Ramsey’s 7 Baby Steps
Baby Step 1: Save $1,000 in an emergency fund. This may take you a couple months, or you may already have an emergency fund. Remember, this fund should be $1,000 – not a penny more, not a penny less.
Baby Step 2: Pay off ALLLLLLL of your debt (except for your home mortgage) using the Debt Snowball method. Pay off your credit cards, student loans, car loans, furniture loans, personal loans…you get the point. It is important that you use the Debt Snowball method.
Baby Step 3: Increase your emergency fund to 3-6 months of expenses. Expenses is the key word here – it’s NOT 3-6 months of income (can you tell I was confused at first?). Estimate how much you spend each month (including housing, utilities, food, daycare, etc) and multiply by 3, 4, 5, or 6 months, depending upon what you feel comfortable with.
Baby Step 4: Save 15% of your (before tax) income in retirement. Invest this money in mutual funds.
Baby Step 5: Save for your kids’ college fund. Try this calculator to find out how much you should be saving for your kids college based on their age and estimated tuition rate.
Baby Step 6: Pay off your home mortgage. Yup, do it – pay it off early. Kill this debt like you killed your other debt in Baby Step 2.
Baby Step 7: Get filthy rich. Be generous, and give. This step is going to be so easy once you’ve conquered the previous steps. I mean, you won’t have ANY debt…NO mortgage payments…no scary college tuition bills for your kids…retirement is covered…you will be swimming in money.
Debt Snowball Printables
Do you need a little help or motivation to get your snowball rolling? I’ve got a solution for you! I’ve created three printables to help you on your debt-freedom journey. Just sign up below and you’ll receive three printables in your inbox over the course of three days.
These baby steps aren’t suggestions – you’ll understand the power of this plan if you follow the steps exactly. Don’t cheat, don’t tweak, don’t personalize the baby steps. In the 25 years Dave has been in personal finance, his method/steps have never changed! I think that speaks volumes to his program. He has helped so many people get out of debt.
If you want more details on the baby steps, I highly suggest you read his book, The Total Money Makeover. And of course, ask me any questions in the comments section below!
Are you following the Dave Ramsey plan? If not, what plan (if any) are you following?