What Are the 7 Dave Ramsey Baby Steps?

Dave Ramsey Baby Steps


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Are you wondering what the 7 Dave Ramsey baby steps are?

While I’m sure we have all heard of Dave Ramsey, personal finance expert and author of the bestseller Total Money Makeover, perhaps you haven’t heard of his money-management plan known as the 7 Baby Steps.

Or you have heard of it but aren’t sure what they are. Whichever it may be, here are Dave Ramsey’s 7 baby steps and a break down of each one. We’ll also discuss commonly asked questions about the steps.


Key Takeaways:

  • Dave Ramsey’s 7 baby steps is a money-management plan for becoming debt-free and achieving financial independence.
  • The plan is meant to educate, encourage, and empower people to take control of their finances.
  • The plan involves building an emergency fund, paying off your debt, investing for retirement, paying off your home early, and building wealth.
  • The steps will require sacrifices, but it’s well worth it.

The 7 Dave Ramsey Baby Steps:

Dave Ramey’s 7 baby steps will teach you how to save for unexpected expenses, become debt-free, save for retirement, and build wealth.

As you can see, while the 7 baby steps will take some time to accomplish, they’re pretty straightforward and an excellent blueprint for many people trying to get their financial situation in order.

However, it may not be the right money-management plan for everyone. It’s essential you consider your own unique financial situation.

Breaking Down the 7 Dave Ramsey Baby Steps

Now that you know what the 7 baby steps are, here is a break down of each one and what they entail. This way, you can determine if it’s the right money-management plan for you.

Baby Step 1: Build a $1,000 Starter Emergency Fund

What Are the 7 Dave Ramsey Baby Steps

The very first thing you should do when you start Dave Ramsey’s 7-step plan is to save $1,000 in a starter emergency fund ASAP.

Small unexpected expenses can quickly add up and put you further into debt. The last thing you want is to dig a deeper hole, and an emergency will prevent that from happening.

With an emergency fund, you can pay for unexpected expenses with cash instead of putting them on a credit card. In other words, not go further into debt while you’re trying to climb out of it.

Considering this, building an emergency fund is the first step in your journey of becoming debt-free and achieving financial independence.

According to CNBC, more than 50% of Americans can’t afford a $1,000 emergency expense with their savings! This demonstrates why having an emergency fund is so vital to becoming debt-free.

Baby Step 2: Pay off All Debt Except Your House Using the Debt Snowball

After building a starter emergency fund, Ramsey suggests you pay off all your debt – except your house – such as credit cards, vehicles, and student loans, using the snowball method.

Simply put, the snowball method is a debt repayment strategy in which you pay off your smallest debt first while making the minimum payment on all others. Once you’ve paid off your smallest debt, you move on to the next smallest debt, and so on.

For instance, let’s say someone has three forms of debt:

  • Car loan: $10,000
  • Credit card: $4,000
  • Student loan: $15,000

Using the debt snowball method, they would completely pay off their credit card debt first while making the minimum payment on their car and student loan.

After they paid off their credit card debt, they would move on to their next smallest debt: their car loan, while making the minimum payment on their student loan.

Once they’ve paid off their car loan, they would then focus on their student loan.

Baby Step 3: Save 3 to 6 Months of Expenses in Your Emergency Fund

Now that you’re debt-free, it’s time to finish building your emergency fund by saving 3 to 6 months of expenses. While $1,000 was a great start, it’s not enough to cover all financial emergencies.

Financial experts believe saving 3 to 6 months of expenses is ample to prepare you for just about anything. In other words, it’s just enough to keep you out of debt in the future.

While saving this much may sound difficult, it should be far easier now that you’re not making debt payments and can put that money towards this goal instead.

Why you need an emergency fund:

  • If you lose your job: You’ll have enough time to find a new one without worrying about paying for necessities like food and rent.
  • Medical bills: Unexpected health issues won’t force you into massive debt.
  • Car breaking down: You’ll have enough money set aside for necessary repairs, a tow truck, or even a brand new car in the worst-case scenario.
  • Home repairs: You can make fixes to your home whenever necessary instead of having to live with the damage, a broken appliance, etc.

With that said, the best place to put your emergency fund is a high-yield savings account. You want it somewhere easily accessible but still safe and interest-bearing.

Baby Step 4: Invest 15% of Your Household Income for Retirement

What Are the 7 Dave Ramsey Baby Steps

Step 4 is pretty big. Now that you’re debt-free (aside from your house) and don’t have to worry about taking on debt from unexpected expenses, Ramsey wants you to start regularly investing 15% of your gross income for retirement in a 401(k) and Roth IRA.

Ramsey has said this step is very important because “if you’re still working at 67, it should be because you want to, not because you have to.”

According to the Social Security Administration, the average social security benefit was just $1,539.68 per month as of May 2022!

Like building a large emergency fund, while saving 15% of your gross income each month may seem difficult, it should be much more manageable by the time you’ve reached this baby step.

You’re no longer making payments on debt and don’t have to worry about unexpected expenses.

That said, to determine how much you should save for retirement for your unique situation, simply multiply your monthly gross income by 0.15.

For example, if your monthly gross income is $5,000, you should be saving $750 per month for retirement.

Baby Step 5: Save for Your Children’s College Fund (i.e., 529 Plan)

By baby step 5, you should have built an emergency fund, paid off your debt – except your house – and started investing for retirement.

It is now a great time to start saving for your children’s college fund through a 529 college savings plan or an ESA (Education Savings Account). You can talk to your bank or credit union about setting one of these up.

According to the National Center for Education Statistics, the average cost of tuition and room and board at a four-year private college was $36,880 for the 2019-20 academic year.

Considering this, saving for your children’s college fund is a great way to set them up for financial success in the future. In fact, avoiding student loan debt is one of the most significant factors for young adults staying out of debt.

Baby Step 6: Pay Off Your Home Early

Can you imagine life without a mortgage payment!? According to US Census Bureau data, the average monthly mortgage payment in 2019 was $1,487 and has increased by nearly $200 since then.

Although this baby step takes the longest to accomplish, it’s well worth it. Paying off your home early is a great move to make because you will save several thousands of dollars in interest and be truly debt-free in every sense of the word.

So use your disposable income and pay off your mortgage as quickly as possible!

Note: Ensure your lender doesn’t charge a prepayment penalty for making extra payments against your mortgage principal.

Baby Step 7: Build Wealth and Give Back

Congratulations, You did it; you built an emergency fund, became debt-free, and have saved some money! These are all significant financial accomplishments and should be celebrated.

With that said, Ramsey now wants you to keep building wealth and start giving back to your community.

Aside from building more wealth, this step involves leaving an inheritance for generations to come, helping loved ones in challenging financial situations, and donating to nonprofits near and dear to your heart.

There’s no better legacy than one of generosity!

However, as you give back, be sure to maintain your financial safety nets, such as your rainy day fund, retirement and savings accounts, your children’s college fund, and your status as debt-free.

Now that you’re in control of your money, rather than it being in control of you, it’s essential you keep it that way.

Frequently Asked Questions

Here are a few frequently asked questions about the 7 Dave Ramsey baby steps:

How Long Does Dave Ramsey’s Baby Steps Take?

How long it should take to complete Dave Ramsey’s 7 baby steps is different for everyone. Completing the steps will depend on factors such as your income, how much debt you have, and your dedication.

Committing yourself and making sacrifices is simply the best way to finish the baby steps in an appropriate timeline. When you encounter a setback, pick yourself up and keep moving forward.

You should also keep the big picture in mind. Frequently remind yourself how good you will feel when you’re finished.

What Do You Do After Dave Ramsey’s Baby Steps?

According to Advance Capital Management, after you complete Dave Ramsey’s baby steps, you should maintain a debt-free balance sheet, invest excess cash, consolidate your retirement accounts, downsize once you retire, and continue giving efficiently.

Other sources also recommend you start a business, invest in real estate, and create passive income.

With that said, here’s an excellent video by Marriage Kids and Money about life after Dave Ramsey’s 7 baby steps:

What Are the Dave Ramsey Baby Steps for Singles?

Dave Ramsey’s 7 baby steps for singles are the same as they are for couples. That said, Ramsey Solutions does offer 8 money tips for singles to help them improve their finances:

  1. Get on a budget
  2. Find an accountability partner
  3. Get out of debt
  4. Set goals and make them happen
  5. Make sure you have insurance
  6. Save for retirement
  7. Work that side hustle
  8. Learn how to manage your money

Final Thoughts on the 7 Dave Ramsey Baby Steps

Dave Ramsey’s 7 baby steps is a money-management plan for becoming debt-free and achieving financial independence.

The steps involve building an emergency fund, paying off your debt, investing for retirement, paying off your home early, and ultimately building wealth and giving back.

While it’s undoubtedly a worthwhile money-management plan, it isn’t foolproof and may not be suitable for everyone. It will largely depend on your own unique financial situation.

With that said, what are your thoughts on Dave Ramsey’s 7 baby steps? We would love to hear about it in the comments below!

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