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.
Next In Series: Dave Ramsey’s 7 Baby Steps: Step 1 – Save Up $1,000 to Start Your Emergency Fund
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Can’t wait to get started!!
I have reviewed Mr. Ramsay’s program from a friend and believe in the philosophy whole heartedly and always have. My spouse however is committed to OPM to the point that while I have never taken out a loan other than a student loan, which I regret, he now pays loan sharks over $10,000/mo. along with debt of every kind, some of which he obtained through less than perfect means. We have six children together, his practices now have the IRS levying my meager paycheck along with my student loan garnishment. He has depleted MY ckg. acct. to the point that the checks I wrote for bills became NSF cks and the bank threatened legal action against me until I reminded them that their leak of confidentiality allowed him knowledge of my acct. My meager paycheck – student loan garnishment, and tax levy (which has wiped out all that I’ve tried to save) leaves me with approximately $1,200/mo. to pay for house at $670.00, Utilities avg. $600.00. Gas exp. on an old van at $400.00 and nothing left for groceries etc. (Medical is taken as pre-tax from ck). His business is too important… to be home for his children. I work nights so I can be home with them after school. I’m willing to work another job, but have few hours available. Please advise.
Anonymous Please, it sounds like you have a marriage problem. While your finances are troubling, I think the marriage you’re in isn’t healthy. My recommendation would be to seek out a marriage counselor in your area and attend with him. If he won’t go with you, go by yourself and see if there’s anything you can do to help change his mind about the way he’s spending money. God bless you, and I wish you the best.
I don’t quite understand why we should pay ALL dept first before building an emergency fund. What if an emergency comes up and you end up with more dept for not having any money saved? I know many people follow these steps and are proof that it works but I’m just curious on what you think.
Hey Arcelia, thanks for writing. Keep in mind that Dave recommends a baby $1,000 emergency fund before any debt is paid off (Baby Step 1). In addition Dave recommends getting “gazelle intense” and paying off your non-mortgage debt as quickly as possible (this should take around 2 years or less for most people, and is Baby Step 2). Then, before the mortgage is paid off, you start your fully-funded emergency fund in Baby Step 3. I can tell you from personal experience that Dave’s method works, and there are very few circumstances where it would not work. Let me know if you have any further questions! Happy to help over here at The Christian Dollar.
I have 3 small children and it is impossible to pay for gas inside…. Any suggestions…. I know how much I budget in gas each month but is it that bad that I swipe my card for only this reason?
Hey Audi. You’ll be glad to hear that I’ve heard Dave Ramsey himself say that he uses a debit card at the gas station for convenience. As for the envelope system, my recommended cash categories are: groceries, entertainment, clothing, and fun money – these are the categories many people struggle with. Thanks for leaving your question, and stop by TCD anytime!