You’ve heard of Dave Ramsey. Perhaps you’re even familiar with his 7 Baby Steps. In this series, Dave Ramsey’s 7 Baby Steps will be explored in depth. The goal here is to clarify each baby step and show how you can use Dave’s plan in your everyday life.
Our Personal Story
Many people look at Dave Ramsey’s plan and feel that it might be a bit off the deep end. After all, can people really live without debt and pay off their mortgage faster than 30 years? No doubt, Dave’s plan is ambitious, but I’m convinced it can be done.
I first discovered Dave while surfing Hulu.com and found his show to be quite inspirational. People were calling in screaming “We’re Debt Free!” and telling their story about how they eliminated the need for credit cards and “put Sallie Mae to the curb.” Hearing these stories was difficult to swallow at first. It was unfathomable that people would fight against the credit system. Wasn’t it just “the way things were?”
Shortly thereafter, I picked up a copy of Dave’s book, The Total Money Makeover. It changed everything. I started questioning the usefulness of credit in our society. Slowly but surely, my perception of credit transitioned from something that was a tool to something that was more of a curse. I began to see how credit card debt, car loans, pay-day lenders, and even mortgages can be a financial burden.
Excited, I told my wife about Dave’s plan, and upon seeing the light, she joined me in the cause. We didn’t have much debt to start out with, but we did pay off nearly $8,000 in student loan debt and over doubled our income because of Dave’s advice. Today, we are almost done completing our 6-months-of-expenses emergency fund and feel more financially secure than ever. Our journey continues, and we’ll follow this plan all the way to its completion.
The Steps Before The Steps
You too can eliminate your debt. You too can build your emergency fund. You too can build wealth. But before all that, there are some daring steps you’ll have to take before you embark on the standard 7 Baby Steps.
Two things must be done:
- Create a written budget before the month begins. Give each dollar a name. If you’re married, make sure to sit down with your spouse and design the budget together. Your budget won’t be perfect at first. In fact, it may have to be modified once or twice throughout the month. The goal here is to be intentional with your dollars. Make sure to spend less that you earn. A great way of making sure you don’t spend more than you earn is to spend this month’s income next month. Get the budget written, and stick to it!
- Commit to spending your money, not Other People’s Money (OPM). That’s right, no more credit cards – cut them up! No more car loans. No more non-mortgage debt. Dave makes the exception to get a 15-year fixed rate mortgage that is no more than a fourth of your take home pay, if you must. But that’s it. No more debt, you hear? Can’t picture yourself not taking out more loans? You might need to sell some things to get to the point where you’re not dependent on credit. Sell the car. eBay stuff. Auction the kids. Okay, maybe not that last one. You get the idea! OPM is the enemy against your financial wellbeing. You won’t need a credit score if you’re not going to use credit. Sure, you might pay a bit more for car insurance or have to make a deposit for your first cell phone, but just imagine all the money you’ll save on interest! It’s worth it. You’ll see why as we move through the 7 Baby Steps together.
The 7 Baby Steps
Now that you’ve created your budget and made a pledge to remove the use of credit from your life, you’re ready to start the 7 Baby Steps. Bookmark this page so that you can click on each Baby Step as this series continues.
Here are the 7 Baby Steps:
- Step 1: Save up $1,000 to start your emergency fund.
- Step 2: Pay off all non-mortgage debt using the debt snowball.
- Step 3: Save up 3 to 6 months of expenses to complete your emergency fund.
- Step 4: Invest 15% of household income into Roth IRAs and pre-tax retirement accounts.
- Step 5: Work on college funding for children.
- Step 6: Pay off your mortgage early.
- Step 7: Build wealth and give!
I’m excited to start this series with you. As we travel through each Baby Step, feel free to post a comment or ask a question. I’ll meet you there.