After last year’s pandemic, many people are looking to get their finances in shape. One of those ways is through Dave Ramsey’s 7 Baby Steps. Dave Ramsey runs a popular personal finance radio show and has helped out millions of people that listen to the show, as well as read his books, get out of debt.
Whether you just need a little something “extra” to make sure your twilight years are going to be great, or you’re deep in the red and struggling to get out, listening to Dave Ramsey’s Baby Steps program is sure to help you out.
With a total of seven steps, following his guide is sure to be able to help you out when you’re planning your financial future. Each of the steps is different; some of them are continuous, meaning you have to keep going at them, while others, once finished, are no longer necessary.
I believe that the process itself is about planning for the family’s own and the family’s future, paying off debts accrued in the past, and then setting up an emergency fund to plan for the present.
If you are looking for a good debt management course, I recommend the 7 Baby Steps in conjunction with Ramsey Financial Peace University, which I think is worth the minimal cost. Get out of debt, build wealth, and give back.
Many people follow the Dave Ramsey Baby Steps because they break down their personal finances in an understandable way and provide a simple, easy-to-follow guide to paying off debt and building wealth.
Dave Ramsey’s View On Debt
The truth is that you don’t need someone like Dave Ramsey to tell you that your debt is bad. You need to reduce your spending and increase your income to reduce your debt and achieve your financial goals. He uses these 7 small steps to teach you how to get out of debt, invest, build an emergency fund to save for retirement, pay off your mortgage, and more.
Whether you’re in the red or just want to retire one day with minimal stress, Ramsey’s advice is helpful in planning your financial future.
If you follow them, they can become part of your long-term plan for financial freedom and security. Now, these steps have helped thousands and thousands of people to reduce their debts and achieve sound financial positions.
By planning their financial future, the steps are intended to help people incur and stay in debt, as well as prepare for a financial emergency.
If you have been reading personal finance blogs for some time, you have probably heard that this is a popular way to get out of debt. At the very least, I think it is an excellent experience, and if you feel you can make improvements in your financial management.
What are Dave Ramsey’s Baby Steps?
You may be asking what are Dave Ramsey’s Baby Steps? The answer is that Dave Ramsey’s Baby has 7 steps. Ramsey’s steps are:
- Save $1,000 in an Emergency Fund
- Pay Off All Debt (Except Your Mortgage) Using the Debt Snowball Method
- Save 3–6 Months of Expenses in a Fully Funded Emergency Fund
- Invest 15% of your household Income in Retirement
- Save For College
- Pay Off Your Mortgage
- Give to Charity
The 7 Baby Steps was created by Dave Ramsey, the man who worked his way back from bankruptcy and became the best-selling author of “Dave Ramsey’s Money Plan.”
A big mistake I saw as a financial advisor is not to invest your money and make sure that you work with it as quickly as possible. I can show you how to get ahead with money by using the plan of money expert DaveRamsey, so come here and read on.
There is much more to the course, although there are probably some baby steps that are not as obvious or obvious as most people know. Baby steps are the first step in the process of financial planning, debt management, and debt reduction.
Dave Ramsey’s Baby Steps have been used by millions to reduce debt and create wealth for nearly 30 years. Dave Ramsey’s 7 baby steps are the steps you can take to pay off your debts, build prosperity for yourself and your family, save for emergencies, and much more. There are thousands of peoples who have used these small steps not just to pay off a ton of debt, but to build the wealth that they are to people like you and me.
There are a total of seven steps, some of which have already been completed and others are underway to change the way you view and control your money for the rest of your life.
I want to give you a viable way to complete these steps and help you stop paycheck to paycheck. Learn all about the Baby Steps below, but take it slow and you will slowly move towards financial freedom. In the end, Dave Ramsey’s baby steps will make you break the bad money habits that keep you broke, and perhaps even make you feel rich…but it is MUCH better if you are.
Do you have to complete Dave Ramey’s 7 Baby Steps in order?
The short answer is that is possible to do Dave Ramsy’s 7 Baby Steps in any order, but following the baby steps in order is probably the easiest and most manageable. The most important part is being on the same page as everyone else in your household. It can be difficult, yes, but it is definitely the most vital.
Once you get that out of the way, go ahead and start working on the other parts of spending money conservatively: stop excessive spending, selling extra stuff, maybe pick up a side job, and start following the plan.
What is Dave Ramsey’s 80/20 rule?
The answer is that Dave Ramsey’s 80-20 rule for a healthy life is that managing finances is 80 percent behavior and 20 percent knowledge. It also applies to building a healthy life which is broken down as personal wellness is 80 percent behavior and 20 percent behavior.
How long does Dave Ramsey’s baby steps take?
The short answer is that Dave’s Ramsey’s 7 Baby Steps can take you from 1 month to a few years to complete. The length of time depends on your financial situation and how aggressively you pay down your debt and complete the budget process. Most people are able to get control of their expenses in 6 months and see results in a year.
Dave Ramsey’s 7 Baby Steps Positives
The biggest positive for people that complete Dave Ramsey’s 7 Baby Steps is the paying down or elimination of debt. Financial debt is a leading cause of anxiety and frustrations for people and their relationships.
The second positive I see is actively saving for emergencies and retirement. Unfortunately, most Americans don’t have any savings for emergencies, let alone money save for retirement.
The last big positive to completing the program is giving back. For me, this is something I really like to do, but I felt I never had enough before I budgeted. Donating money to charity or helping out friends and family is one of the best things you can do.
Dave Ramsey’s 7 Baby Steps Negatives
The biggest negative to Dave Ramsey’s 7 Baby Steps is that he classifies all debt as bad. As a former financial advisor and someone that has done thousands of financial plans, Ramsey is wrong about all debt.
There is good debt like mortgages, business loans, and other debt for assets. This is especially true in today’s rising inflation environment. I recommend readers check out Robert Kiyosaki’s Rich Dad Poor Dad where he explains assets versus liabilities.
I advise people to be cautious about taking on debt for assets but to avoid taking on debt for liabilities.
An example is mortgages. The current mortgage interest rate is 3%. I believe we could be looking at a 6-10% inflation rate. The house is now appreciating at a faster rate than the interest for the mortgage. Debt in this case is good because the mortgage’s value is going down due to inflation.
Another example would be a business loan. Most people have to take out a loan for business. If the business is able to return more money than the interest and principal, then it is positive. The business will theoretically increase in value over time as an asset.
Save $1,000 in an Emergency Fund
Baby step 1 is very simple: make sure you have an emergency fund, in case of, well, emergencies. With an emergency fund, you can avoid incurring expensive debts. Since you have money to cover financial emergencies, you’ll not be forced to take out a loan, use a credit card, or go to a payday lender to borrow money. Consequently, you can protect your credit score and history.
So, if you’re setting up an emergency fund, $1,000 is a good amount to save up for. Try to have 6 months of expenses saved up. Once you’re able to do it, make sure the account is in an easily accessible place, such as a savings account.
Now, when I say emergency fund, I mean emergency fund. This isn’t to dip into for anything other than replacing a broken appliance, fixing your car, or another, terrible circumstance that calls for it. To quote Ramsey, “Christmas is not an emergency! Your kids growing out of their clothes is not an emergency! You knew those were coming!”
This first baby step serves two primary purposes: saving $20/week, not going into debt. If you are spending more than you are making, you won’t save any money, let alone $20 a month. The backbone of the entire baby step process is to have a sound budget. The most important thing is to be devising a budget and identifying ways to either increase income or decrease expenses as you move through the baby steps.
Now, the first step is definitely the easiest. For the average person, it shouldn’t take more than a month or two if you manage to budget properly, and maybe make some extra cash on the side. But, if you have different circumstances, this can take longer than that. But that is okay! As long as you’re aiming for this goal, you are in the right mindset, and should keep doing your best!
Pay Off All Debt (Except Your Mortgage) Using the Debt Snowball Method
Baby step 2 pay off all debt – the famed “Debt Snowball” method of fighting debt. Don’t worry, it may sound terrible, but it’s actually a good thing! What you need to do is look at all of your debt, then list them in order from smallest to largest. Once you do that, do nothing but the minimum payment on your debts except for the smallest one.
That one, you should pay as much as you can each month. Then, when you pay off the smallest debt, take all the money you were paying on that debt and use it to pay off the second smallest debt. Then when you pay off that debt, move on to the next one. On average, this should take around a year to a year and a half to finish, but as always, this can vary due to how much debt you have and how much you make.
The idea behind the debt snowball method is to pay off all of your debts first. The psychological benefit of eliminating a loan or type of debt outweighs that of paying off high-interest debt first. A study by Northwestern in 2012 substantiated this theory.
In theory, going from three types of debt to just two types is, in theory, more important than going from $40,000 in debt to $35,000. Saving more and earning more at work until you have paid off your debt.
Save 3–6 Months of Expenses in a Fully Funded Emergency Fund
Baby step 3 – We’re almost halfway there, so don’t stop now! Take that money you were throwing at your debt and build a fully-funded emergency fund. 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.
Build a fund to cover 3–6 months of your expenses and save the resNow that you’ve got your debts paid off, the next step is to expand your safety net. Use your budget and extrapolate how much you need to cover anywhere between three months to half a year of expenses. Now that you don’t have to spend money on your debts, you can spend that extra money here.
Depending on your circumstances, this should take around six months. That is, if you have already completed the first steps, and have also stopped your spending habits that are detrimental to this.
Invest 15% of your household Income in Retirement
Baby step 5 is to invest 15: Now that your debts are paid off, and you’ve got yourself a safety net, it’s time to make your money work for you instead of the other way around. In other words, build wealth.
Besides, there can be many reasons why you should invest a portion of your household income in retirement. For instance, the profit you receive from your retirement investments can help you live in retirement without any financial troubles. If you also invest your retirement money wisely, you can improve your quality of life by taking trips around the world and doing the things you want to do and not just the things you have to do. Lastly, investing your money in retirement allows you prepare for any uncertainty in the future.
With all that said, investing and saving for retirement can be important. If you can manage it, you should invest about 15% of your household income to get you ready for retirement. If you can, look into contributing to your 401(k).
You can contribute a total of $18,500, the max, and if your company matches your contribution, the better! Once you get that maxed out, you can move on to another investment: the Roth IRA. This accepts $5,500 a year.
Take the 15% of your gross household income and start investing it into your retirement. Start with your company’s 401(k) plan and invest up to the full employer match. Then invest the rest into Roth IRAs—one for you and one for your spouse (if you’re married).
Of course, this would be a good time to talk to a professional investor, to make sure it all goes smoothly. Now, this baby step is a bit different than the others. Investment is something you want to do as long as you can, so once you start, don’t stop!
Save For College
baby Step 5: Now, this doesn’t mean that you should be heading to college, but it’s never too late to learn! No, what this step is for is investing in your children’s future. Student loans are only getting more and more outrageous, so making sure they can get through college without getting themselves into debt will only be a benefit. Now, this is one of the more variable steps; the more children you have or the higher education they are looking for, the more expensive this will be, and the longer it will take. Of course, if you don’t have any kids, or don’t plan on having them, then congratulations! You’ve already finished this step. Good for you!
Pay Off Your Mortgage
Baby Step 6: Pay off your home early: With your debts paid, your investments running, and your children ready for college, it’s time to take care of paying your home early. Refinancing from a 30-year mortgage into a 15-year one can save you lots of money.
If you can’t quite do that, you can also make an extra mortgage payment each quarter, which can save you up to ten years and more than $50,000 in just interest fees. Once you’ve managed to set that up, it can take anywhere from five to fifteen years depending on your plan.
Ramsey recommends paying off your mortgage early, no matter the interest rate on your loan. Ramsey: You should make extra payments against your mortgage principal without facing penalties. The average American has a monthly mortgage budget line of around $1,400.2
What if that disappeared, not because of magic, but because you paid off your house in full? Ramsey: “100% debt-free” Your mortgage is the only thing between you and complete freedom from debt.
On the other hand, if you fail to pay off your mortgage on time, you may end up dealing with the possibility of bankruptcy to get rid of the mortgage lenders. Generally, filing for bankruptcy in a federal court may allow you to stop making payments to a mortgage lender while the proceeding is pending. But despite the relief from the said lender, filing for bankruptcy may have consequences that you should be wary of. In that case, talking to a bankruptcy attorney may be an excellent idea. They may be able to give answers to questions like ‘What happens when you file for bankruptcy?’ to help you understand the situation better.
Give to Charity
Baby Step 7: Now that you’ve come this far, it’s time to be a good person. With all the money you’ve saved and invested, it’s time to donate your money to deserving causes, now that you are plenty wealthy. As long as you keep your investments in control. With this, you can donate to charity, pay tithes in church, and help out friends and family in need. As with step four, this is also an ongoing step!
