I love Dave Ramsey and his very matter-of-fact approach to finances. His plan is an easy one to remember and a solid one to follow. Some say he leaves a lot missing for the wealth-building phase, but I think Dave Ramsey focuses more on the psychology of money, helping you build that solid foundation you need before you can start taking risks in investing.

Several say they start with Dave Ramsey to get that foundation built, and after they have worked through the baby steps, and learned how to be wise with their money, they graduate to learning about other investors and investments.

I think his steps are an excellent one to start with especially if you are unsure where to begin or have found yourself in trouble with money.

Dave Ramsey’s path for success

1.    Have a written budget – You must have a written game plan with money, or you will lose!

Assign a task/category for every dollar you bring in and stick to it.  Dave Ramsey also has a free budgeting app to help you do this called EveryDollar.

2.    Get out of debt (or better yet, don’t get into debt!) “the borrower is slave to the lender.” Proverbs 22:7.

3.    Live on less than you make – “The wise store up choice food and oil, but fools gulp theirs down.” Proverbs 21:20.

4.    Save and invest – If you don’t save any money, you will not have any money saved.

5.    Be Generous! – Follow these steps so you can be outrageously generous!

Dave Ramsey’s 7 Baby Steps:

1.      $1,000 Emergency Fund – This is your cash raining day fund.

Murphy’s Law – anything that can go wrong will go wrong.  This can help keep Murphy away.

2.      Pay off Debt – Pay off everything except the mortgage using the debt snowball method. (This method is discussed in the Debt section.)

They said this step takes an average of 18-24 months for those that are gazelle intense.

"Gazelle intensity" refers to the extreme focus, energy, and determination to outrun predators. Dave Ramsey uses this term to describe term the extreme focus and commitment that individuals should have when they are working to pay off their debts and achieve financial freedom.

3.      Fully Funded Emergency Savings – Save 3-6 months of living expenses.

This should be unallocated money meaning no bill name attached to it.

The amount for this depends on how secure your income is, or how long you expect it to take to replace your income if something happens to it.

·         3 months – is probably okay if you are in a high-demand field and could find a new job quickly.

·         6 months – this would be better if you feel it could take you longer to find a new job that will replace your income.

(Dave Ramsey says if you are married and you cannot agree on the amount for this step, then the one who wants to save the most wins.)

*Note, Dave says this money should not be in any investments as this is not your wealth-building money.  This is the money you will use if an emergency happens to keep you from going back into debt. This is like an insurance policy. You hope you never have to use it, but it will be there if you need it.

Dave also suggests pausing all investments until step 3 is completed as he feels this is very important to keep you from going backward on your wealth-building journey. Even if you have passed step 3, and then had to dip into your emergency fund, stop what you are doing, pause all investments, and work on step 3 again. Once you have your needed emergency fund amount, then you can again move on.

Your emergency fund amount should be reviewed every few years as life and circumstance change. You may have reached your goal, but then you got married, bought a house, had children, and now your life is more expensive. If so, pause what you are doing, and rework step 3 to ensure you have a sufficient emergency fund.

3b.  Some Dave Ramsey personalities suggest adding this step (after you funded your 3-6 months’ savings) if you are saving for a down payment on a house.  This might not necessarily be a Dave Ramsey step, but it might be good to consider if you are going to be in the market to buy a house soon.

They say it takes an average of 2.5-3 years to complete baby steps 1-3.

 

(After steps 1, 2, & 3 are complete, steps 4, 5, & 6 will be done at the same time.)

 

4.      Invest 15% of your income regularly for retirement

No more and no less right now as you will need the extra for the next two steps.  You will come back to this after steps 5 and 6 are complete.

5.      Start to save for college

If you have kids and plan to help pay for their college, make sure you have a set amount set aside each month for this expense.

6.      Pay off the Mortgage

Take all other money left over after you are doing steps 4 and 5 and attack your mortgage to pay it off faster.

7.      Build Wealth and Give!

After you have completed baby steps 1-3, and you have started baby steps 4 and 5, and completed baby step 6, you can now go back and max out any other retirement accounts and potentially start looking into other investing opportunities. This is the fun step!

They say it takes an average of 10-12 years to complete all 7 baby steps and become a millionaire.

The information above is my interpretation of what I‘ve learned from Dave Ramsey’s books, shows, and others’ YouTube videos about the baby steps. If you want to learn more, I suggest doing your research and/or looking into Dave Ramsey’s Financial Peace University program. FPU is his paid course where you can learn more about his financial baby steps.