Dave Ramsey’s Baby Steps

Every one of us has received a lecture about money management at some point in our life. We realize the importance of money management only when we start handling our finances.

We all need a little guidance on these things. Dave Ramsey is one such person who provides such guidance. He has carefully curated 7 baby steps to help people manage their money.


With his guidance, you can not only manage your finances well but also plan for your future and pay your debts without them being a burden on you.

But first, let’s get you familiar with who Dave Ramsey is and why are his baby steps so famous.

Who Is Dave Ramsey?

Dave Ramsey is a world-famous financial author who rose from bankruptcy. He is now a personal money management expert.

Besides this, he is also a radio talk show host, TV personality and bestselling author. He has helped hundreds of people become debt-free by giving them financial advice.

What makes his advice reliable is his advice and books come from personal experience. He has helped people turn around their financial life completely.

He teaches “Financial Peace University” at various stage events all around the world. These 7 Baby Steps are a part of this FPU class itself.

Now let us look in detail what are Dave Ramsey’s 7 magical baby steps to financial freedom. These steps will help you gain financial stability.

What Are Dave Ramsey’s Baby Steps?

These 7 steps are a roadmap for you to plan future emergencies or payments of debts. One way or another these steps are ultimately bound to help everyone with their finances.

Baby Step 1: Save $1,000

Dave Ramsey gave a brief about this step when he introduced it. He said, “Unexpected expenses happen to everyone.

And for some reason, they tend to happen more when you’ve just committed to getting out of debt.

To avoid being tempted to use your credit cards to handle these unexpected costs, save a quick $1,000 and put it aside as a buffer from those emergencies.”

This step starts with depositing a grand in your bank account. You may wonder what difference will a grand make?

The answer to this is, the $1000 you save as an “emergency fund” will help you during emergencies. If you are paying off a debt you can use this emergency fund.

This will not affect your debt payment because you won’t have to make that expense out of the money you kept aside for your debt installment.

After you use some money out of this emergency fund, start depositing small amounts into the fund again until it reaches $1000 again.

The plus point about this step is that it builds a saving habit in you. Later, as time passes you can increase this fund to whatever amount you like or continue with $1000.

Baby Step 2: Pay Off Debt

According to Dave Ramsey, the best way to pay off debt is the snowball method. But other experts say that the best method to pay a debt is the debt avalanche method.

In this method, you start by paying the debt with the highest rate of interest. But “what is the snowball method?”, you might wonder.

Dave Ramsey is of the view that the snowball method will act as a motivation to stay on your road to financial stability and will also give you a head start.

The snowball method involves the following steps:

  • List your debts from smallest to highest.
  • Pay the minimum amount for all your debts. But don’t make any payment for your smallest debt.
  • Start paying off the smallest debt until the installments are finished with any extra cash that you have.
  • Next, pay off the second smallest debt with your extra cash.
  • Keep paying off all the debts in descending order until all your debts are paid off.

The trick here is, to pay the small debts firsts. The “Paid in full” will give you the motivation to pay off your debts as quickly as possible.

Baby Step 3: Finish the Emergency Fund

All the financial experts are of the view that one household should have an emergency fund saved equal to 3 to 6 months of household expenses.

This fund will act as a protector for your family during grave emergencies.You might think that saving this much amount of money is nearly impossible.

But Dave has simplified this method for all those in need. If you have followed the second step and completed it, this step will be easy for you.

The money-saving habit you just built will come in handy here. Keep saving all the extra cash that you have and increase your emergency fund until it equals 3 to 6 months of household expense.

Baby Step 4: Maximize Retirement Investing

Retirement may seem like a very far away event. But it is good if you start planning ahead of time. Here also, the saving habit comes into play.

According to 2020, the highest amount you can invest in your retirement investment annually can be $19,500 for 401(k)’s and $6,000 for IRAs.

Dave Ramsey suggests its readers and listeners invest up to 15% of their income. That is how you are advised to do it.

Also, an important thing that is to be noted here is that people above 50 years of age can add more money to retirement accounts than the IRAs limit.

A simple thing Ramsey is trying to convey here is that saving is the key to a secure future. That’s is why we need to follow the rules.

Baby Step 5: Fund Kids’ College

Every investment requires cost and benefit analysis. Similarly, the education of your kids is also an investment.

Before applying you weigh the cost vs the benefits you’ll get after completing your education from a particular college.

Planning for the college fund is also an essential step to stable financial health. Discussing and researching thoroughly about college prospects is important.

The amount of money you want to add to this fund is up to you. Many colleges offer good benefits and charge less. Consider browsing through all the options first and then apply.

You can also suggest your child apply for scholarships and grants. Also, note that community colleges are better and charge less.

Consider opting for them because the returns from these colleges are also more. If you analyze this step and consider all things your kids can go to college without debt.

Baby Step 6: Pay Off Home Mortgage

All your major finances have been taken care of up until the fifth baby step. The only major expense now left is to pay off your home mortgage.

This is one of the biggest expenses to pay off and probably takes years to get paid in full. But Dave Ramsey has come up with an easy solution to pay off the home mortgage.

Once you have created a retirement fund, emergency fund, paid off smaller debts, and set aside funds for your kids’ college, you can completely focus on paying off your home mortgage.

This extra cash can be:

  • Gifts
  • Tax refunds
  • Work bonus
  • Overtime pays

Save this and use it to pay off your home mortgage. Here again, saving plays a crucial role. The biggest benefit of this is that you’ll have to pay less interest over the year.

Baby Step 7: Build Wealth and Give

Voila! You have completed all the major steps of Dave Ramsey’s baby step. Now it’s time to save and grow your wealth.

Now that you are debt-free and have created all the necessary funds for a secure future you can start saving and investing.

Investing in bonds, shares, etc. is a good way of growing wealth without having to put in any extra effort. But make sure to max out your retirement investment first.

Once you are done with that, you can accumulate wealth and use it the way you like or can help those in need.

You can also donate to charities and churches if you wish to. After all, being humble is very essential.


Here’s the complete guide of Dave Ramsey’s baby steps to financial stability. These steps have hundreds of people around the world.

They not only help you with your current financial struggles but also help you plan for a secure future. And the best part is that it covers all the major aspects of a person’s financial condition.

Dave Ramsey is a guy who has the first-hand experience of how debts and emergencies can turn a person’s life around.

Having suffered from these dark times himself, these baby steps are personally tested and experienced by him. This makes them even more trustworthy and reliable.

But make sure to follow all the steps and never give up in between. The key takeaway here is motivation and determination.