If you’ve been looking for financial advice, you’ve almost certainly come across the name Dave Ramsey and his 7 Baby Steps. In this article, we will discuss 7 Dave Ramsey Baby Steps.
Dave has quickly established himself as one of the most well-known financial “gurus” in the industry, providing valuable advice to tens of thousands of people.
However, with so many people offering financial advice, it can be challenging to know who to trust and which practical approaches.
He can also be a divisive figure, which has led to some criticism of his workplace policies and practices. But I’m not here to pass judgment on him in these areas.
Instead, I’m looking at his 7 Baby Steps to see if they’re worth following to improve your financial situation.
Who is Dave Ramsey?
Ramsey, a financial freedom guru, radio host, and entrepreneur with a large following, specializes in assisting individuals in completing their entire money makeover.
He discusses credit cards, interest rates, student loans, Roth IRAs, and everyday budgeting, among other topics. His innovative emergency fund and “debt snowball” strategies have earned him a worldwide following.
Dave worked hard to get his family out of debt and maintain their accounts in the black after discovering that they were in a lot of it. In 1992, he began broadcasting on Nashville radio to help people achieve financial stability.
Since then, Dave has hosted his television show, “The Dave Ramsey Show,” and directed the critically acclaimed documentary Maxed Out. It is based on the credit card industry’s unscrupulous methods and credit card debt.
In addition, Dave Ramsey’s net worth in 2019 was estimated to be at $55 million. According to some sources, his net worth is closer to $200 million!
What Is the Purpose of Dave Ramsey’s Baby Steps?
Before you start your entire money makeover, Dave Ramsey has laid out 7 Baby Steps to help you focus on certain aspects of your budget. For those who haven’t been able to stick to a budget before, the method aids in developing solid money habits and the enforcement of discipline.
Your financial plan is broken down into attainable financial goals and actions using the 7 Baby Steps. They’ll also make you feel successful without making you feel overwhelmed by the amount of work you have to perform.
What are Dave Ramsey Baby Steps?
- Save $1,000 in an emergency fund
- Pay off all debt (except your mortgage)
- Save 3-6 months of expenses in an emergency fund
- Invest 15% of your household income for retirement
- Save for your children’s college fund
- Pay off your home early
- Build wealth and give
Baby Step #1 – Save $1,000 in an emergency fund
Unexpected expenses sometimes happen, and they can put a severe dent in our budget, so keeping an emergency fund is a good idea. It’s critical to saving this money as soon as possible, even if it means decreasing your regular expenses for a few months.
Cut your subscriptions, meal prep, or even sell your unneeded stuff to do this (like vehicles, if possible). Your new motto will be to be frugal!
$1,000 puts you in a solid position to move on to the following small stages, knowing you can afford to keep going even if something unexpected happens, such as your water heater breaking.
Baby Step #2 – Pay off all debt (except your mortgage)
Dave suggests a way for paying off all of your debts. This step prevents interest from piling up, as some may have thousands of dollars in debt due to student loans, high-interest credit cards, and other sources.
Dave suggests starting with the smallest debt, whether it’s a $200 credit card or a piece of furniture you put on a payment plan.
Seeing the debt go can provide great encouragement for those who need it to keep going with the challenge and hone in on their debt snowball.
Those with significant debts that will take a long time to pay off would likely benefit immediately. Don’t expect to be debt-free overnight; some people need years to pay off their debt. However, if you want to be financially stable in the long run, getting out of debt (and staying out of debt!) is essential.
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Baby Step #3 – Save 3-6 months of expenses in an emergency fund
After you’ve paid off all of your debts (excluding your mortgage), you should return your attention to your emergency fund. It would be best to have 3-6 months’ worth of expenses in your savings account.
This money will be used to cover higher, unanticipated expenses like job losses and large medical bills. If wiping off debt took months, this stage should be a piece of cake.
Assume you spend $2,500 a month on living expenditures, including groceries, car maintenance, childcare, and so forth.
Three months’ worth of savings would put $7,500 into your emergency fund, but you’ll need to save around $15,000 for six months’ worth of spending.
If you can expand your income through other side hustles and passive streams, you may be able to do this in even less time than you anticipated.
Baby Step #4 – Invest 15% of your household income for retirement
Dave Ramsey’s opinions include the need of diversifying one’s investment portfolio. He recommends putting 15% of your income into various retirement accounts to maximize your retirement savings.
He suggests using a Roth IRA in addition to your tax-deferred 401(k) or 403(b) if you qualify (b).
In truth, you’ll never have “enough” money for retirement, but if you’re looking for a target, investing 25 times your annual costs is a great place to start for financial security.
I strive to utilize more than 15% when it comes to investing, but this is a fantastic place to start. Additionally, services such as Stash, Acorns, and Ally Invest allow you to invest with less money.
Baby Step #5 – Save for your children’s college fund
It’s only logical that Dave Ramsey’s idea of living debt-free and paying for everything with cash will extend to your children.
Note: While I am not a fan of paying cash for everything, if you are in debt or find sticking to a budget difficult, this is a great guideline to follow.
Once your retirement assets are in order, you can begin contributing to a 529 college savings plan to help your children with their educational expenses.
This type of account also offers a tax benefit, but there are other options for saving for your children’s college education. Custodial accounts and Education Savings Accounts are examples of this (ESA).
Baby Step #6 – Pay off your home early
You are paying off your mortgage as soon as feasible boosts your financial freedom significantly. Like any other debt, your monthly mortgage payments are certainly holding you back from living a much higher quality of life.
So, to get rid of the debt, Dave suggests raising these payments by as much as you can afford. Not to add, the sooner you pay this off, the lower your interest cost will be. Consider how much money you could save!
Baby Step #7 – Build wealth and give
You can start building money and giving once you’ve completed all of Dave Ramsey’s baby steps. Dave is a devout Christian who believes in charitable giving and providing an inheritance to family members (Generational Wealth).
But, more importantly, step 7 leads to true financial independence and the ability to spend your money on the things that truly matter to you.
That can be on more travel & vacations or real estate investment.
Conclusion
Whether agree or disagree with all of his advice, the 7 Baby Steps have helped countless people with their finances and can help you as well.
Give his method a try if you’re not sure where to begin, and his plans appeal to you. This could be the financial strategy you need to get out of debt, improve your financial health, better manage your money, and begin to build wealth.
However, don’t hesitate to make changes to these procedures to suit your purposes better or add additional processes you think are missing. Regardless, taking the initiative to focus on your money is a huge step, and you should be pleased with yourself for wanting to do something about it.
