Dave Ramsey’s 7 Baby Steps to Financial Freedom
What is Dave Ramsey’s baby steps? Dave Ramsey’s 7 baby steps is a financial plan that will help you get out of debt, build wealth, and achieve financial freedom. This 7 step plan is perfect for anyone who is lost, confused, or unsure of where to actually start.
- Should I invest or pay off debt?
- How much do I need as an emergency fund?
- Do I need to invest in the stock market?
- WHAT DO I DO?!
Getting your finances on track can be a challenging deed, but Dave Ramsey simplifies it in these 7 baby steps.
In this blog post, I am going to discuss what the 7 baby steps are and what you can do to achieve each milestone!
If you want to learn more about Dave Ramsey then you can check out his website here! Now, if you want to set yourself up to be financially successful then follow Dave Ramsey’s baby steps!
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Baby Step #1. Save up for your emergency fund
The first milestone that you need to achieve is to save up a $1000 emergency fund in case any unforeseen circumstances occur. This first baby step is the one that you want to achieve as soon as possible! Don’t even think about investing or buying a nice car until you have at least $1000 stashed away for an emergency.
You shouldn’t have to take out a loan or go in debt just to pay for an emergency. Save up $1000 and give yourself that feeling of relief knowing that you have that cushion to fall back on if anything were to happen.
Need help saving up for that first $1000? Try these!
- Track your expenses with my FREE budgeting template!
- Make saving fun with these money saving challenges!
- Cut your grocery bill down to save money!
- Save even MORE MONEY by avoiding these things!
- Budget your money to leave room for saving!
Baby Step #2. Pay Off All Debts (Except Mortgage) using Debt Snowball
The next stepping stone that you need to conquer (and this can take a while) is to pay off all your debts except your mortgage. That means any student loans, credit debt, personal loans, etc. needs to be paid off using the Debt Snowball method.
The debt snowball method was also designed by the man Dave Ramsey himself. You can read more in details here, but how it works, is that you rank all your debts from the smallest balance to the largest balance.
Regardless of what the interest rates are, you pay off the smallest balance as soon as possible while still making the minimum payments of all the other debts.
Try to obliterate as many debts as fast as possible in order to minimize the amount of interest that you will accrue over the length of this journey.
If you don’t like the debt snowball method then you can try these two methods!
Baby Step #3. Save up 3-6 months of expenses
Remember that $1000 that you saved up from step #1? Now, let’s build a bigger cushion and save 3 to 6 months worth of expenses. This is actually a two-step process because you will need to
- Find out how much is 3 to 6 months worth of expenses according to your lifestyle.
- Start saving for that emergency fund.
We live in a very unpredictable world where many situations are bound to happen; you may be laid off from work, your company goes bankrupt, or worst, you lose your job.
It’s always better to be safe than sorry, so save up 3 to 6 months worth of expenses that accommodate YOUR lifestyle.
That’s right, your lifestyle. Don’t cheat and try to Google “how much is the average person’s 3 to 6 months expenses”.
Everyone lives their life differently and so one person’s emergency fund may not be as big or small as another. If you want to find out how much is your 3 to 6 months expenses then you need to start tracking everything that goes in and out of your pocket.
Dave Ramsey’s Baby Step #4. Invest 15% of your income for retirement
This is where things start to heat up! It’s time to get serious and time to start saving for retirement. This doesn’t apply to just old people! Regardless of how old you are, you should save a small percentage of your income for retirement.
Check out Cheatsheet to see the “15 retirement statistics that will scare the crap out of you”.
Not only will you have funds to be able to retire in the future, but you will also be able to defer your taxes based on your contributions to a Registered Pension Plan or Registered Retirement Savings Plan.
Dave Ramsey’s Baby Step #5. Save up for your children’s college funds
Once you’ve built up a good emergency cushion, paid off all of your debt (except mortgage), and started saving for your retirement, it’s time to save for your children’s future.
There is nothing wrong with going to school, but the problem is many individuals are killing themselves with student loans just to educate themselves in order to make a decent living.
According to Forbes, student loan debt is now the second highest consumer debt category just behind mortgages. This means student loans are higher than both credit cards and auto loans!
If you want to put your kids through college without digging yourself a grave then start saving as soon as possible. Even if your kids are in high school, it’s never too late.
Consider opening a Registered Education Savings Plan to start investing for your children’s future.
Baby Step #6. Pay Off Your Mortgage Early
There’s only one more thing stopping you from complete financial freedom and that is your mortgage.
Dave Ramsey recommends to pay off your mortgage early by refinancing it to a 15-year term with a fixed rate mortgage.
Try out this mortgage calculator to see what the payments will look like!
Dave Ramsey’s Last Baby Step #7. Live Free and Give
At this point in your journey, you’ve already built up a cushion, paid off ALL debts, and even saved for both your retirement and children’s education.
Continue to live your life to it’s fullest while still living in line with Dave Ramsey’s baby steps. That means that you will still need to be aware of your financial conditions.
Continue to save and invest into your retirement, don’t take on unnecessary debts, and definitely keep your emergency fund stash available. If all goes well, consider using your excess funds to help others in need. Give to others, make an impact on the world, and bring joy and happiness to others.
Dave Ramsey’s Baby Steps CONCLUSION
These are Dave Ramsey’s 7 Baby Steps.
- Save up $1000
- Pay Off All Debts (except Mortgage)
- Save up 3 to 6 months of expenses
- Invest 15% of your income for retirement
- Save for your children’s education
- Pay off your motgage early
- Continue to live free and give
QUESTION FOR YOU: What do you think about Dave Ramsey’s 7 Baby Steps? Any likes or dislikes? Comment down below 🙂