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Dave Ramsey’s 7 Baby Steps

dave ramsey baby steps

Are you trying to get out of debt? Do you want more financial stability and freedom? Are your finances one of the bigger stresses in your life right now? If any of these sentiments apply to you then Dave Ramsey’s 7 baby steps might be just what you need to cure your money blues.

Table of Contents

Step 1: Start an Emergency Fund
Step 2: Focus on Debts
Step 3: Complete Your Emergency Fund
Step 4: Save for Retirement
Step 5: Start a College Fund
Step 6: Pay Off Your House
Step 7: Build Wealth

Dave Ramsey is a guy who, through personal experience, was able to get out of debt and find financial peace of mind. He is now a financial expert with courses and books to help the everyday person get in control of their finances.

The best place to start when trying to regain control over your finances and achieve a full “money makeover” is to start with his 7 step plan. This plan has 7 baby steps that you follow to reach more financial stability and get to the point where you can start building wealth.

Step 1: Start an Emergency Fund

car maintenance

The first step in Dave Ramsey’s 7 step plan is, “Save $1,000 for Your Starter Emergency Fund.”

One of the main reasons people struggle with money is because necessary emergency expenses (like medical bills, car bills, or home repairs) come out of nowhere and drag you deeper and deeper into debt. But if you are preemptively prepared for these surprise expenses then they won’t take you off guard again.

So the very first thing you should do when getting your money in line is to get an emergency fund started. Save up an emergency fund in a separate bank account, until you have at least $1,000 in the account. This will be the start of the emergency fund that will keep sudden necessary expenses from plunging you into deep debts because you weren’t prepared.

Step 2: Focus on Debts

debts

The second step in Dave Ramsey’s plan is to “Pay Off All Debt (Except the House) Using the Debt Snowball.”

The snowball method that Dave Ramsey refers to here means that you start by paying off small debts first, and work your way up to the bigger debts. Debts can include paying off your car, credit card debts, and student loans.

First, make a giant list of all your debts, every single one, except for your mortgage if you have a house. Then, put your list of debts in order from the smallest debt amount to the largest. Then you go through knocking out each debt by eliminating the smallest debts first and working your way up to the largest debt last.

Step 3: Complete Your Emergency Fund

medical bills

The third step is to “Save 3 to 6 Months of Expenses in a Fully Funded Emergency Fund.”

Now that you’ve gotten all your debts out of the way, it’s time to finish your emergency fund. You can use the same money you were using to pay off debts each month and put it toward your emergency fund until it has enough to cover 3 to 6 months’ worth of expenses and bills. Then you’ll really be prepared for anything.

Reasons to Have an Emergency Fund

  1. If you lose your job.
  2. You won’t have to worry because you’ll have enough to last you 6 months. This will give you the time you’ll need to find a new job.

  3. If your car breaks down.
  4. You’ll be able to pay for the necessary repairs, the tow truck, or even for a new car in some cases.

  5. Medical bills.
  6. Don’t let your health and necessary medical bills keep you from staying afloat financially.

  7. Home repairs.
  8. If something happens to your home you’ll be able to fix the problem rather than living with it.

Having an emergency fund is THE key to keeping you out of debt in the future. After getting yourself out of debt, an emergency fund is what will keep you from getting back into debt in the future.

Step 4: Save for Retirement

retirement

The fourth step in the Dave Ramsey plan is to, “Invest 15% of Your Household Income in Retirement.”

After your debts are gone and your emergency fund is taken care of, it’s time to start seeing to other important savings like a 401K. Dave Ramsey recommends you take 15% of your gross monthly income and put it toward a retirement fund each month. To figure out how much you should be putting into your retirement fund each month, take your monthly income and multiply that number by 0.15.

Step 5: Start a College Fund

college funds

The fifth step to Dave Ramsey’s plan is to, “Save for Your Children’s College Fund.”

Avoiding student loan debts can be one of the biggest factors in staying out debt as a young adult. If you can pay for your kids college tuition then you’ll ensure their financial security in the future, as they’ll better be able to stay out debt. Dave Ramsey recommends using either a 529 college savings plans, or an education savings accounts (ESA). Talk to your bank or credit union about setting up these accounts for these specific purposes.

Step 6: Pay Off Your House

mortgage

The next to last step in this 7 step plan is to, “Pay Off Your Home Early.”

Put all the extra monthly income you have into your mortgage so you can finish paying it off early. After this step you will officially have no debts whatsoever! All of your earnings will go to you instead of getting drained away in large debts and payments.

Step 7: Build Wealth

wealth and legacy

Finally, it is time to, “Build Wealth and Give.”

Congratulations! Once you’ve reached the 7th step in Dave Ramsey’s Baby Steps, you can start focusing on building your wealth and leaving a legacy. Don’t forget to keep and maintain those financial safety nets like a healthy emergency fund, retirement account, savings account, and college funds.

Now you are officially in charge of your money rather than it being in charge of you.

Financial freedom is possible for you! Everyone can do it and Dave Ramsey’s 7 baby steps can help you get there. Dave Ramsey also has other resources that can help you implement this plan. You can participate in Dave Ramsey’s program, books, and podcasts.

You can take the actual course with Financial Peace University.

Dave Ramsey also has a free customized plan and assessment that you can do right now, in just 3 minutes!

Listen to the Dave Ramsey Show anywhere you listen to podcasts or radio.

 
Dave Ramsey’s 7 baby steps to financial freedom can help you with so many aspects of your life. They can help you decide when to buy a house or help you get situated for saving for a house. It’s a checklist program that can help you get rid of loans and debt (like student loans), or even help you get to where you can budget for a wedding.

Another way you can get some needed financial help is to take out an Installment Loan at Check City! Installment loans can help you stay on top of your bill payments and avoid late fees, which can really hurt your long-term financial goals.
 

READ MORE

Browse Dave Ramsey’s online store for more great financial resources to help you on your financial journey.

Read more helpful articles on the Dave Ramsey Blog

Learn more about the debt snowball, “How the Debt Snowball Method Works.”

Read Dave Ramsey’s full article on his 7 baby steps, “What Are the Baby Steps?

Stay out of debt through college by using these tips, “How to Stay Debt Free through Grad School.”


Start Planning for Retirement Today

Boost Your Retirement Savings

Struggling with your retirement planning? With the economy booming, it is a great time to start thinking about your future and your retirement. Aside from the retirement plan you pay into at your job, what else can you be doing to have a financially comfortable retirement? We are here to give you some different options and 4001k alternatives to help you start planning for retirement.

Save, Save, and Save

There are many different ways to plan for retirement, but first we would like to introduce you with good old saving! You can do a lot for your financial future by putting aside a set amount of money every pay check. Put it in a savings account that you will not withdraw any money from. This is more than just your “save for a rainy day account.” This is a “save for the rest of your life account” and you will need to treat it as such. Consider a separate account that will help pay for those rainy days so your retirement savings can continue to grow.

Start saving today so you can start planning for retirement.

Consider an IRA

It is yet another way to save your money in another account. If you go for a “Roth IRA” you can have the added benefit of not being taxed on this money when you get it out of your account. Adding a Roth to your retirement plan can add diversity and another level of stability to your assets.

It is always important to contact and talk to professionals before opening a Roth IRA. Make sure it is right for you!

Maintain Asset Allocations

Just because your initial asset allocations were working does not mean they will continue to do so. If you don’t keep track of your asset allocations, you could be investing your money in poor returning investments. By doing this, it will really help you start planning for retirement.

Invest in Stocks

Stocks are one of the most common and best ways to start planning for retirement. Stocks are a great way to increase your savings over a long period of time. They can mature faster than savings accounts will, allowing you to make money at a quicker pace.

Stocks can be a great investment. However, it’s important to be aware of volatility in the market and act accordingly. Know the level of risk, and plan accordingly. If you cannot afford the risk, do not invest in risky stocks! Talk and meet with professionals before investing your money into stocks.

Invest in Bonds

Bonds are a dependable investment for your portfolio. Bonds are can be less volatile than stocks and can grow your money in a steady way. If you are looking to increase your investment in a less risky manner, bonds are a good consideration.

Talk to a professional before investing your money into bonds to see if it best fits your needs and interest.

Insurance

Insurance is a great way to ensure a nest-egg for your survivors. You can purchase a permanent insurance policy; if you’re married you can also purchase survivors insurance. Insurance ensures that your survivors will be taken care of. As said before, speak with a professional to see what insurance best fits your needs.

There are a multitude of ways to begin planning on your retirement. If you start now and invest smart, you can start feeling secure about your financial future. Start planning for retirement today! Thanks for reading.

Budgeting as an Empty Nester

When your children move out of the home, becoming an empty nester can be a big adjustment. When you move into this stage of life, it can be a good idea to learn how to eliminate your debt once and for all. Downsizing your home is a great way to minimize the money that you are spending each month and you may even be able to make money off of your home if you purchase a smaller home.

If you are still in debt, work on paying down the high interest debt first. When you can pay down the high interest debt, you will be able to minimize the total amount of money that you are going to have to pay. Sit down and figure out which debt you will want to pay off first, this way you can be sure that you are able to minimize the total amount of many you pay towards your debt.

When you are tempted with using credit cards, try to keep your future in mind. If you know you are going to be on a fixed income, you will not want to be spending money that is going to make it harder to make ends meet on that fixed income. If you know that you have some money headed your way, but you are not going to be able to pay your bills before the money comes Check City can help. Stop by any Check City location and take out an Installment Loan. Our installment loan has been designed to make it easy for customers to pay the loan back. This way, you can avoid late fees and be on your way to financial freedom. Getting yourself out of debt as an empty nester is a great step towards financial freedom as a retiree.

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