Want to eliminate your debt and take charge of your money but aren’t sure how to even start? Dave Ramsey’s 7 Baby Steps method is easy to understand and follow. In my early days of researching money and finance, I stumbled across Dave Ramsey. His simple approach to money really helped me get my head around important financial concepts and learn how to take control of my money and my debt while inspiring me to build my wealth. If his works helped me on my road to financial freedom and semi-retirement by age 37, they can certainly help you.
Dave Ramsey’s 7 Baby Steps will show you how to save for emergencies, pay off all your debt for good, and build wealth. You don’t need a degree in finance to take control of your money. Anyone can do it. With each step, you’ll change how you handle money—little by little.
Who Is Dave Ramsey?
More than 25 years ago, Dave Ramsey fought his way out of bankruptcy and millions of dollars in debt. What he learned turned into Financial Peace University—the program that has helped more than 5 million people change their financial futures. Now, his radio show and podcast, The Dave Ramsey Show, reaches more than 13 million listeners each week. But you don’t need to enroll in any program to become debt-free. Why burn more money? Just listen free to his podcasts, visit his website for free financial education, and follow the 7 Baby Steps.
What Are the 7 Baby Steps?
- Baby Step 1 – Save $1,000 for your starter emergency fund.
- Baby Step 2 – Pay off all debt (except the house) using the debt snowball.
- Baby Step 3 – Save 3–6 months of expenses in a fully funded emergency fund.
- Baby Step 4 – Invest 15% of your household income in 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.
Why the Baby Steps Work
Dave Ramsey’s simple method works because his website and supporting articles focus on education, encouragement and empowerment. With it and the steps he espouses, we learn how to better manage our money, something few of us ever learned from our family or while at school. The method builds momentum with small wins along the way that produce results and a feeling of competence that encourage us to continue. It also empowers us with the information we need to make financial decisions with confidence in every aspect of our lives. It’s a proven plan that’s helped millions of people ditch debt and build wealth.
Every Journey Begins With One Step
What does your dream future look like? You can get there! Just take it one step at a time. The 7 Baby Steps won’t be easy, but they absolutely work if you follow them. But it’s up to you to get started. Are you ready? Start now to get out of debt and build wealth.
Here’s a fuller look at the 7 Baby Steps.
Baby Step 1: Save $1,000 for Your Starter Emergency Fund
In this first step, your goal is to save $1,000 as fast as you can. Your emergency fund will cover those unexpected life events you can’t plan for. And there are plenty of them. You don’t want to dig a deeper hole while you’re trying to work your way out of debt!
Baby Step 2: Pay Off All Debt (Except the House) Using the Debt Snowball
Next, it’s time to pay off the cars, the credit cards, and your student loans. Start by listing all of your debts except for your mortgage. Put them in order by balance from smallest to largest. Once you’ve paid off a debt, add the same amount of money you were paid each month on that debt to the payment on the next debt. This is called the debt snowball method, and you’ll use it to knock out your debts one by one.
Baby Step 3: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund
You’ve paid off your debt! Don’t slow down now. Take that money you were throwing at your debt and build a fully funded emergency fund that covers 3–6 months of your expenses. This will protect you against life’s bigger surprises, like the loss of a job or your car breaking down, without slipping back into debt.
Baby Step 4: Invest 15% of Your Household Income in Retirement
It’s time to get serious about retirement—no matter your age. Take 15% of your gross household income and start investing it into your retirement. Start with your company’s 401(k) plan and receive the full employer match. Invest the rest into Roth IRAs—one for you and one for your spouse (if you’re married).
Baby Step 5: Save for Your Children’s College Fund
By this step, you’ve paid off all debts (except the house) and started saving for retirement. Next, it’s time to save for your children’s college expenses (that is, if they make it through Algebra II and Chemistry unscathed). Ramsey recommends 529 college savings plans or ESAs (Education Savings Accounts).
Baby Step 6: Pay Off Your Home Early
Now, bring it all home. Baby Step 6 is the big dog! Your mortgage is the only thing between you and complete freedom from debt. Can you imagine your life with no house payment? Any extra money you can put toward your mortgage could save you tens (or even hundreds) of thousands in interest.
Baby Step 7: Build Wealth and Give
You know what people with no debt can do? Anything they want! The last step is the most fun. You can live and give like no one else! Keep building wealth and become insanely generous. Leave an inheritance for your kids and their kids. Now, that’s what we call leaving a legacy!
Stepping into a Debt-Free Life
Dave Ramsey is a leading voice in the debt-free movement. He’s helped millions take control of their money and get out of debt using an approach that doesn’t require hefty financial knowledge or a financial planner. Anyone can understand his straight-forward concepts. Are they always easy? No, but they are necessary for crawling out of debt.
When it comes to getting control over your money, the 7 Baby Steps are a good start but come with a caveat. The Ramsey method focuses on eliminating debt over building wealth. This is an important distinction. The method is great for getting out of debt but if you’re not focusing on building up 3-6 months of an emergency fund, let alone contributing to retirement until AFTER you’ve eliminated all debt but your mortgage, you may become debt free but have missed out on years or decades of building wealth. You don’t want to work hard for 10 to 20 years to become debt-free at 60 or 70 only to have no or little money in the bank in retirement.
For that reason, I can recommend the 7 Baby Steps for those with small amounts of debt that will take a handful of years to pay off but not for those with massive debt levels in the tens of thousands (excluding mortgage debt). At those levels, it usually will take too long to pay down the debt (unless you can pay down thousands each year). You simply won’t be putting money away into retirement or other money making endeavors you will need in order to retire. Instead, you’ll be stuck on Baby Step 2 – Pay Off All Debt for most of your life and not progress to other wealth-building steps that are just as important for your financial health.
For those with massive debt in the tens of thousands (or anyone really), I recommend the 70/30 Rule because you’ll pay down debt while building wealth from day 1. But if you’re only worried about debt, then the 7 Baby Steps is a worthwhile method and about as good and understandable as they come. We need to learn money management, personal finance, and debt-free strategies. Starting here will serve you well so please start the journey and see how much it changes your life for the better.
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