Finances are a struggle. They’re the epitome of adulting and not everyone has them figured out. It takes a lot of effort and self-discipline to get things together, so I’m going to walk you through a popular financial strategy known as Dave Ramsey’s 7 Baby Steps that will hopefully make things easier.

You probably already know that personal finance is an ever-growing topic because it has an effect on everyone. Every individual is exposed to money in some capacity and it is important to understand how it works.



Who is Dave Ramsey?

Dave Ramsey is one of the world’s foremost experts on personal finances and has been instrumental in helping people take back control of their finances. He hosts the popular podcast The Dave Ramsey Show and his book, The Total Money Makeover, is a must-read.


More about Dave Ramsey

The former realtor lost everything and filed for bankruptcy in his early years.

Somehow, he managed to get out of debt and began another path of helping others take the same quest.


Known for his Christian background and no-nonsense approach to personal finance, Ramsey gradually rose to become one of the most trusted and sought-after financial advisers in the United States.

He has a huge fan base of followers. With an estimated net worth of $55 million, Ramsey is a living proof that you, too, can turn a bad financial situation around.


Dave Ramsey’s 7 Baby Steps – Path to Financial Freedom!

So, what’s so special about the 7 steps? Nothing really. It’s simply age-old, practical components of financial management and wealth building.

Though most people think of it as an all-encompassing approach to finances, it should only be considered as a minimum of what you should do.

As many critics of Dave Ramsey note, there are some components and considerations that are missing. I’ll discuss those at each step.

So here is breakdown of Dave Ramsey’s 7 baby steps. I strongly believe they will help you with your finances when correctly implemented:


Step 1: Save $/£1,000 to start your emergency fund

This is the most significant thing you can do for yourself financially. You never know when you will have to deal with a situation that requires a large amount of money. Maybe your alternator goes out or it rains and you find out your roof is leaking and needs to be patched. Having an emergency fund will let you cover these expenses without getting in debt or dipping into your savings (if you have any).

Where to Keep Your Emergency Fund?

Putting this cash in an online savings account is a great choice since it will give you a good interest rate and you’ll have easy access to it if ever needed.

I recommend using an online savings account so the money isn’t easily accessible. Yes, you can get to it but you can’t just go down to the ATM and pull funds out. At a minimum, you may want to consider having the savings account at a different bank than your main bank. That way there is at least a small barrier so you don’t just transfer money over to your checking because the balance is getting low.

Your contingency plan does not necessarily have to be of $/£1000. It’s ok if you consider, especially in today’s economy, that you can need a larger fund to have a better sense of protection. If your expenses are really low, a $/£500 emergency fund might make more sense. The ultimate goal with this step is to not have to incur debt to handle an unforeseen event.

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Step 2: Pay all your debts except for the mortgage

After you save $/£1,000 emergency fund, Baby Step 2 is paying off all your debt. This step does not include your mortgage. Use the debt snowball method for the best results. It is the most effective strategy to achieve Baby Step two.

There are many ways to pay off your debt. Some people try to tackle all their debt at the same time. They pay a little bit extra every month on everything, even the house, but gain no traction. Other people focus on targeting the highest interest rate debt first. However, in my opinion, the best way to get out of debt ASAP is the debt snowball.


To get the ball rolling, make a list of all your debts, from the smallest balance to the largest. Continue making minimum payments on all your debts. Then, focus on eliminating them one at a time, starting with the smallest one.

Once you have eliminated the first debt on the list, move on to the second one. You must focus on reducing one debt at a time as you continue making minimum payments on everything else.

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Step 3: Save 3-6 month’s worth of expenses

This will be your larger emergency fund, or cushion if you or your spouse happen to lose a job or have unexpected medical bills.

It is meant to be your fallout for large unexpected life events. A job loss, a death in the family, an injury preventing you from working can cause some serious hardship if you aren’t prepared.

What may seem like a tsunami to some, may feel like a small rainfall to someone with a beefed-up savings.

Some jobs are easier to replace than others. If you work in a field where job security may be scarce, then you should save more money. Some experts even suggest saving up to 9 month’s worth of expenses.

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Step 4: Invest 15% into retirement

You want to retire comfortably right? Do you really want to work when you’re retired?

Dave suggests saving 15% of your income for retirement. A lot of people think that this amount is huge, do me a favour, add up all of your debt. How much percentage of your income goes to your debt?


Probably more than 15%, right? If you get paid $2,000 monthly and have a car payment of $195, that’s 10% already. Then you probably have your loans and some credit card debt, am I right?

All that money you were putting towards debt can now go into retirement.


Step 5: Fund college for your children (university for my UK people)

Depending on the age of your children you may simply be saving for your children’s college education or you may be assisting in paying for college.

No matter the age of your children again this is a personal choice step.  You may choose to help with college education or you may choose to assist your child in applying for scholarships.

How you choose to follow through with this step is again your choice and based on your finances.


Step 6: Pay off your home

Mortgage debt works differently from other types of consumer debt, making it easier to put aside until after you’ve got other healthier financial habits in place. You’ll still be continuing Baby Steps 4 and 5 in this step, but now you can focus on getting rid of this last hurdle.

If you’re still paying off your mortgage, now is the time to get rid of it. As you did with your debt in Baby Step 2, you’ll put all of your extra money towards paying down the mortgage on your home.

This allows you to own your own home outright so that you don’t have to worry about mortgage payments as you head into retirement.


Step 7: Build wealth and give

The last step is to create a legacy by giving back with your money. That can look like helping out friends and family or donating to charitable causes that are meaningful and important to you.

You can also focus on building wealth to live a more comfortable life in retirement, to create an inheritance for your kids, or to create a foundation to continue your legacy after you’re gone.

It’s your call on how to use your money now that it’s not obligated to debts.


Dave Ramsey’s 7 Baby Steps – Final thought

Believe it or not, a lot of people have followed these Dave Ramsey’s Baby Steps and walked away with financial independence. I know that’s something you’d like to have.

The reality is:

It’s not that difficult to follow these steps. Sure, you’ll get stumbled on some of these. But that’s the part of going through these steps.

If these steps are so easy, then, a lot of people would be doing them and a lot of them would be successful by now.

The fact remains:

Those who tried and followed these steps could see big, better financial changes in their lives.

Have you done any of Dave Ramsey’s baby steps? If not, are you willing to try them to improve your financial situation?

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