This is where you need to find a financial guru. Someone who has a solid plan that has been shown time and time again to help people just like you.
We are big fans of Dave Ramsey and his tips and teachings, and we look to him as a personal finance guru, so this is where his advice comes into action the most for all of us.
He has created his very own paying-off debt strategies for the masses- taking his own personal finance plans and encouraging you to achieve the same success!
They are called the Dave Ramsey Baby Steps that are absolutely a proven and successful method to get out of debt.
You don’t have to just take our word for it, so we will break down Dave Ramsey’s 7 Baby Steps for you below so you can see just how effective his plan is.
Who is Dave Ramsey and Why Should You Listen to Him?
Dave Ramsey is basically every drowning-in-debt person’s hero — a real “Cinderella story,” if you will.
Well, not really a Cinderella story, because there was no magic involved in his results. It was his own diligent work and dedication, which may as well be his superpower as a personal finance expert!
To make a long story short, he worked hard to come back from bankruptcy. As a result, he has become a national bestselling author and the host of a popular radio show and podcast.
Dave Ramsey is a true financial expert who helps millions of people to achieve true financial freedom. He’s created ways for people to get out of debt, using the debt snowball method, in addition to the Baby Steps that we’re discussing.
He’s even created the Financial Peace University course, an amazing online course that goes through how to pay off all debt, get your finances back on track, and obtain the financial independence you need.
You can read all about his journey and his epiphanies throughout his journey in any one of the many Ramsey’s books. He also uses these books to share inspirational stories from others, advice to live a more frugal lifestyle, tips on how to manage your money more effectively, and of course, how to save money in general.
Before You Start Dave’s Baby Steps: Get Motivated!
One of the very first pieces of advice from this personal finance master, as you dive into the Baby Steps, is to make what we’ll call the Dave Ramsey budget.
The two main features of a Dave Ramsey budget are:
- a zero-based budget (meaning you assign a “job” to every single dollar of income you bring in each month)
- cutting out as much of the “extras” as possible.
As Dave always advises in regards to how to save money on groceries, for example, is to eat just “beans and rice, and rice and beans.”
That’s not to say you literally need to eat only that, but the point is to cut out the fancy foods and survive on what’s healthy and cheap enough to meet both nutritional and budget needs.
But it’s hard to stay motivated when you’re trying to figure out how to budget AND stick to it. So what are some tricks to staying motivated?
Understand Your WHY
Nothing you ever endeavor to do in life will truly see results unless you have a solid, motivating, TRULY compelling reason WHY you’re trying to do it.
Maybe you’ve had a bad week at work and just want to go out to dinner on a Friday night. You’ll need something more convincing in order to stay home (and within your budget) and NOT go out instead.
If your car needs a big repair, you may start to wonder if this is your chance to just go get what you want instead of fixing up your “old clunker.” You need a strong voice in your head reminding you why you aren’t driving your dream car yet.
Whether your big goals are debt freedom, buying a new car with cash, or simply saving up for a comfortable retirement AND having a nice inheritance to leave behind for your kids, you need a “why” to keep you moving.
You need to have something compelling enough to keep you focused when your debt pay-off journey gets hard.
Create a Support System
First, you’ve determined what your big, epic financial goals are. Now it’s time to come up with a plan B, just in case.
How will you deal with any setbacks?
There is always a chance that you just might not handle it as well as you thought you would.
You might be tempted to back down from your efforts and just accept where you are in life as your reality.
As soon as you decide to start a debt payoff journey, make it known to those closest to you.
Share your why with them, your reasons for going through your plans, and what your goals are.
Share your debt specifics if that’s within your comfort zone, you may get support and even advice to help you on your journey.
You can also find a group of people who are willing to have frugal fun with you. Maybe they, too, enjoy free hobbies like hiking instead of always going out for drinks on the weekend.
We all need a little help and encouragement sometimes, and your financial efforts are no exception. You never have to be alone!
There is really ONE visual that by and large will make the biggest impact on your success as you work through Ramsey’s Baby Steps.
A solid, easy-to-use, visually-based budget template.
What do I mean by that?
I mean a quick-hit template that you can update at a minute’s notice. Hang it on your fridge door and you’ll visually know if you’re on track or not each month.
If you’re the type that prefers a digital budget, that’s totally fine too. You might consider something like Mint or Personal Capital to help you keep track of where your money is and what it’s doing for you.
But if you don’t use a visual budget and keep it visible, then consider trying a different debt tracking chart. If you don’t like the debt avalanche method, just the debt snowball method- or vice versa!
You need to find the ways that work best for you at each step of the process.
Something even as simple as the thermometer method — a simple way to track your progress where you can record every milestone along the way.
Make a Commitment to Change Your Life
The last way to stay motivated is to commit to staying motivated.
I know, it’s like asking you to go to the gym when you’re sick, right?
But combine the whys, the support, and the visuals, and put them all together with a vision board and you’ll have it made!
Got a dream vacation home in mind as a reward for the end of your journey? Print one out or cut from a magazine, and keep it in sight as much as possible.
Planning on a customized dream car, paid in cash? Put the picture plus a savings thermometer up on the wall. When you’re ready to start saving for it, track that progress and let it propel you along.
What Are Dave Ramsey’s 7 Baby Steps?
The main tenet of Dave Ramsey’s get out of debt financial advice is to follow his baby steps.
He has put exactly what it takes to become debt-free and achieve financial freedom and breaks it down into more bite-sized pieces to work on.
It is, after all, much easier to take big tasks in smaller chunks than wondering what to work on next.
Baby Step 1: Save $1,000 For Your Emergency Fund
Let’s face it, life happens. “Fit hits the shan” and it can become a mess real quick!
The last thing you want to do when trying to get out of debt is to get into more debt. It’s an endless and chaotic cycle, robbing Peter to pay Paul when you hit hard times.
Having a fully-funded emergency fund will help you avoid that scenario!
The first of the Baby Steps is to bulk up your emergency savings and prevent creating further debt while trying to pay off all debt later on.
You drag yourself deeper into debt when you can’t afford bigger expenses that come up, like medical surprises, so paying off debt becomes more difficult as it snowballs.
Ramsey says you should aim for $1,000 in your emergency fund should give you a good cushion for the problems you run into.
Baby Step 2: Pay Off ALL Of Your Debts (except your mortgage, it’ll come later)
This is the longest and hardest step, for sure, and sometimes the hardest for people who have a lot of debt to dig themselves out of.
But trust us, this step is hard because it is worth it- being able to pay off your debt opens up your entire world!
It’s the hardest because, really, who doesn’t have at least credit card debt or student loan debt to their name?
You’re going to put EVERY PENNY you have towards what you owe other people, and get them off your back. You want to pay off debts 100% and be in the clear.
Dave Ramsey actually created a famous debt payment plan called the debt snowball method.
He of course prefers using the debt snowball method, although any method is fine so long as you are always making the most progress possible.
The debt snowball method is especially helpful for someone with limited household income. You’ll be paying off the debts smallest to largest.
You simply list out the debt from smaller to largest and start paying off the little guy. The interest rate has no impact, though you still have to make minimum payments on all your debts.
For example, you would pay off your credit card debt of $1,200, then work on your $4,000 car loan, and finally your $13,000 student loan.
It’s easy to see the impact you make with using the debt snowball method- by knocking off small debts, you’re able to see your progress and get more motivated!
Another takeaway we’d like to add is that a big part of all this is getting out of debt- so don’t put yourself back into it! Be careful not to rack up the credit card debt or add another loan unless there are dire circumstances!
Baby Step 3: Save 3-6 Months Of Expenses In An Emergency Fund
Have you started an emergency fund yet? It’s one of the hardest things to do when you have all those bills and debt to take care of!
6 months of expenses can be difficult to achieve at first, but is a great goal for your savings, so starting with 3 months is totally feasible without that debt looming over you.
Now that you’re debt-free (more on mortgages will be later), you’re sort of still in the “I owe money” mentality.
But while you’re in the penny-pinching mode, now is the time to get an emergency fund started!
Here you’ll capitalize on that by stashing away enough money to be able to pay all of your monthly bills in full, for 3-6 months. This will help soften the blow if you experience a big blow, like the loss of a job or a medical event.
It can be a difficult step, but you will certainly need a fully funded emergency fund as things happen around you.
Better to have it and not need it, than need it and not have it. Just like umbrellas and coats!
Baby Step 4: Invest 15% Of Your Household Income Into Saving For Retirement
Once you’re done with the first 3 Baby Steps, you’ll have paid off your debts and you’re feeling ready in case of catastrophe with a stocked emergency fund.
Now it’s time to ensure that your retirement won’t become a catastrophe in itself!
You need to think of your future and plan for it- and you’ll never be any younger than you are now, so it’s time to start!
You can pop 15% of household income into Roth IRAs and pre-tax accounts, whatever best suits your needs and interests.
There may be options for pre-tax retirement options at your office, like a 401(k), or you can look into starting your own IRA account. You just need to know which retirement account is better for your interests.
You’ll want to try and get pre-tax retirement accounts as you’ll be making higher deposits.
Baby Step 5: Save For Your Children’s College Funds
Are you the type of parent that plans to help your child cover college tuition costs?
We certainly aim to!
Well, college is incredibly expensive and you’ll need to plan well to get your children’s college fund off the ground.
After your finances are in order and your retirement looks bright, you’ll start setting aside money for them.
Baby Step 6: Pay Off Your Home Early- Goodbye Mortgage Payments!
Now you can truly pay off all debts- let’s get rid of that last tiny loose end!
With your financial picture clicking along nicely, you’ll get that last lingering debt off your shoulders – your mortgage.
Just like you did with Baby Step 2, you’ll push any extra cash towards your monthly mortgage payment.
It’ll be a huge weight off your shoulders to pay off your home early! You’ll be debt-free in every way, shape, and form!
Baby Step 7: Build Wealth And Give Wealth
The final step of Dave Ramsey’s Baby Steps is to keep on going!
You’re free and clear of your financial loose ends and able to live how you want!
Now you can further develop your wealth and do more. That may look different to you, like not using your credit card as much, trying to live more frugally, or any other positive money habits.
Build wealth and give wealth sounds pretty clear, doesn’t it? You can grow your income, maintain that wealth, and give wealth to those in need.
You are in a good place and can help others get there too! So continue to build wealth and give wealth where you can.
You can donate money to charities, build up a nice inheritance for your children and/or grandchildren, and be more generous in many aspects of your life!
Why Is It Important To Follow These Baby Steps In Order?
One of the hardest things in handling your finances is figuring out where you should start- but Dave Ramsey takes out the guesswork by giving you streamlined steps toward success.
Firstly because the Baby Steps, when followed in order, have been proven to work time and time again. It’s all about the success rate of others- their achievements and continued prosperity are the proof in the pudding!
As the saying goes, “if it ain’t broke, don’t fix it!” It might honestly be borderline chaotic to try to come up with something different and expect the same success.
I mean, it’s quite hard to put 15% of your income towards retirement, for example, if you don’t even have that much tied up in debt payments.
But more importantly, these baby steps have been carefully designed to work to your benefit.
You may be wondering about starting the steps out of order when you’re already debt-free or mortgage-free.
If you’re finding these 7 Baby Steps after you’ve already got your debts done and over with, you should still start back at step 1 for consistency. Make sure you’re all set with that minimum $1,000 emergency fund. Skip over step 2 since you’re 100% debt-free, and pick up with step 3.
Skip what you’ve already handled, but don’t skip other steps like the emergency fund or retirement investments because each step is still crucial to your life.
But we get that you may get frustrated and hit roadblocks- but that’s part of life and part of everyone’s journey.
It’s worth noting that even Baby Step 1 can be a big hurdle for some people because it really can take quite a long time to get that first $1,000 set aside.
This is in part because when your spending is a mess and you need to keep working on cleaning up your budget, you might only have $25 or $100 each month to set aside. That’s a big mental hurdle to get past (and more support for why Dave Ramsey’s Baby Steps really SHOULD be followed in order).
But it doesn’t have to be hard to start pushing past that first hurdle and making progress.
If your current income makes it seem like this plan is insurmountable for you, then it’s time to consider different ways that you can make more money (that don’t involve asking for a raise).
If you know us by now, you know how much we love a good side hustle idea! We used a side hustle ourselves — this blog, in fact, to not only pay off $25,000 in student loan debt in just 5 months but to completely change our lives.
Now, we both work from home, with our blogging business as our main source of income! All because we were able to pay off our debts!
Trust us when we say it, dreams really can come true if you’re ready and willing to put in the grunt and hustle required to make them happy.
Who Should Use The Dave Ramsey Baby Steps?
If it wasn’t obvious to you yet, Dave Ramsey’s Baby Steps are perfect for literally ANYONE.
It’s for anyone who wants to achieve financial freedom- and we could all use some pointers from a personal finance mentor to achieve that independence!
Whether you’re a single parent, a retiree, or someone who doesn’t even have debt, you CAN make use of these steps.
Just start with the earliest logical step for your situation. You really will see a difference in your financial health and stability.
With only 7 Baby Steps, it’s honestly laid out easily and with many recommendations- plus blogs of suggestions to help you along the way!
Most people have some debt (whether it’s credit cards, student loans, or a mortgage), and many people could use help with balancing out all the other aspects of a good financial portfolio, such as retirement savings or an emergency fund.
We have seen it for ourselves that even when we thought we had things under control, there was still room to learn from others and improve our efforts.
Don’t put off what you can do today! You’ll reach success once you get moving, don’t keep putting it off.
Get started with changing your life today!