At this point, I really don’t think Dave Ramsey requires any introduction. He has basically become the face of personal finance and debt management. It’s no wonder then that his seven baby steps have become the Pinnacle of managing your wealth. So what are these 7 baby steps from Dave Ramsey you ask?
The seven baby steps were created by a man that had gone through a bankruptcy, worked his way back up, and ended up becoming a national best selling author, very popular radio host, and financial Guru. That man of course is Dave Ramsey and his seven baby steps.
So without further Ado, let’s take a closer look at Dave Ramsey 7 baby steps, analyze how you can incorporate those into your own life, and win with money.
- What are the Dave Ramsey Baby Steps?
- Baby Step 1: Save $1,000 For Your Emergency Fund
- Baby Step 2: Pay Off All Personal Debt (Except your mortgage)
- Baby Step 3: Save 3-6 Months of Expenses In Your Emergency Fund
- Baby Step 4: Invest 15% of your income towards retirement
- Baby Step 5: Save for your children’s college fund
- Baby Step 6: Pay off your home early
- Baby Step 7: Build Wealth and Give
- Final thoughts
What are the Dave Ramsey Baby Steps?
Before taking a look at the seven baby steps, it’s equally important to understand what they are and what they represent.
A great way to look at it is walking up a flight of stairs. To get to the top of the stairs, everyone has to start at the bottom. You take your first step, then your next, until you’re at the top. Sure, you might skip a few steps but you also risk tripping and falling all the way back to the bottom.
The Dave Ramsey Baby Steps work the same way. If you want to do better with your finances, get out of debt, and save for retirement, you’ll have to take steps towards those goals. One baby step at a time 🙂
In summary, Dave Ramsey’s 7 Baby Steps are:
|Step||What to do|
|Step 1||Save $1,000 For Your Emergency Fund|
|Step 2||Pay Off All Personal Debt (Except your mortgage)|
|Step 3||Save 3-6 Months of Expenses In Your Emergency Fund|
|Step 4||Invest 15% of your income towards retirement|
|Step 5||Save for your children’s college fund|
|Step 6||Pay off your home early|
|Step 7||Build Wealth and Give|
Baby Step 1: Save $1,000 For Your Emergency Fund
The very first of Dave Ramsey baby steps you need to make is to save $1,000 in your emergency fund. Statistically, according to GoBankingRates, only about 31% of Americans can cover a $1,000 emergency.
Doing Simple Math, it means that 69% of Americans borrow money if they have a $1,000 emergency. If you have to go to the ER, your car breaks down, or maybe your furnace goes out in your home, best statistical you will have to borrow money to cover those expenses. That is absolutely no way to live.
Instead, Dave Ramsey suggests that you save at the very least $1,000 for any emergency in an emergency fund. This money is to only be used for emergencies and emergencies only, so once you reach $1,000, lock it away and don’t touch it unless it’s an absolute crisis.
Baby Step 2: Pay Off All Personal Debt (Except your mortgage)
Now for baby step 2, the goal here is to pay off all of your debt excluding your mortgage. But remember, only start working on Step 2 after you complete step one. No skipping steps!
That is absolutely the number one thing that holds a lot of people back financially. Having that looming cloud over your head is a heavy burden to carry. It is also a huge financial obligation that hold you back from Building Wealth.
The trick here is to you pay off your debts using the debt snowball method. This is simply pay off all your debts, smallest to largest. So if you’ll smallest credit card has a balance of $200, pay that off before you start working on your $2,000 car payments balance. Remember, smallest to biggest.
Baby Step 3: Save 3-6 Months of Expenses In Your Emergency Fund
If you are now on baby step 3, congratulations! You are now completely dead free and on your way to Building Wealth! To better protect yourself from any emergencies and unexpected expenses, it’s very important to build that emergency fund cushion.
At this point, you likely only have about $1,000 in your emergency fund. Now it’s time to build that emergency fund up to cover 3 to 6 months of your monthly expenses. Save that I’m out and storage in a high-interest savings account or money market account.
Remember, this is an emergency fund and not a trip savings account. This money will only be used for emergencies and emergencies only. It’ll remain untouched until an actual emergency arises.
At this point, you also have experience saving, and any saving pattern figure it out. Just keep going with that and build this emergency fund. It’ll feel much better in the end not having to worry about unexpected emergencies and having the ability to completely cover them.
Baby Step 4: Invest 15% of your income towards retirement
The thing about retirement is that nobody worries about it until it’s almost too late. There are two facts in life. Death and time will always move forward.
What this means is you will, at some point, get old and too weak to work. This means that to you will need some kind of retirement savings to live off. A lot of people have the misconception that Social Security will be enough to live on. This is simply not true.
If you think about it, once you retire you will still have groceries, utilities, bills, and health care expenses to worry about. Because of all this, saving for your retirement should now be your primary focus.
The first place to look at is with an employer-sponsored 401k. If you have this offering, make sure you Max the amount of contributions you are able to every year. If you already Max in this out, then start considering other retirement accounts such as a Roth IRA.
Just remember to angel investor 15% of your household income towards retirement.
Baby Step 5: Save for your children’s college fund
If you have children, or are considering having some of the future, then it’s never too late to start investing for their college.
Over the decades, College tuition has become increasingly expensive. Planning ahead for your children’s college fund is the financially responsible thing to do. This not only caters for your children’s education, but also their retirement as well.
Once you reach baby step 5, you have mastered saving and living within your means. As long as the other baby steps are covered and catered to, then you can start saving towards your children’s college fund.
Again, remember not to skip any of the steps and do them one at a time. One baby step at a time.
Baby Step 6: Pay off your home early
Once you have reached the step, you have paid off all of your other debts except your home. If you have a mortgage, then you can start tackling this debt.
With paying off a mortgage early, they are some things you need to remember. For starters, make sure that there are no possible penalties for paying your mortgage off early. These penalties are usually written on your mortgage agreement that you signed at closing. If not, then contact you or lender for information on that.
Once that is cleared up, then you can start tackling your mortgage debt and pay it off early. Can you imagine hey life living without any Mortgage payments and putting that money to better use? Sounds amazing!
Always feel free to work with your lender to figure out how early you can pay it back, are you can make extra payments, and calculating how early you can pay off your mortgage.
Baby Step 7: Build Wealth and Give
Baby step 7 is the very last step and the epitome of Dave Ramsey’s 7 baby steps. Once you reach the step, you will start building your Wealth Beyond your wildest dreams.
Once you reach baby step 7, you have paid off all your personal debt, have a healthy emergency fund, saved for your children’s College, been contributing 15% of your household income towards retirement, and paid off your mortgage. Now it’s time to just grow.
Once you start building the wealth, you will be in a much better position to give more and better other people’s lives. You have reached a level only so few have ever reached, and it was only through perseverance and hard work.
Just always remember to consistently max out your 401K and Roth IRA so that your retirement is guaranteed and protected.
Dave Ramsey developed these 7 baby steps to be as easy to understand as possible. They are simple, straightforward, and apply to anyone regardless of their situation and circumstances.
It is absolutely important to remember that these steps are to be taken one at a time and in order. It might be tempting to skip a step or two, or do them out of order, but by doing so, you might end up worse off.
I most definitely recommend implementing these steps in your life as they can only better your financial situations and improve your financial future.
If you have any questions or thoughts, make sure to leave them in the comments below 🙂
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