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Dave Ramsey's 7 Budgeting Baby Steps

written By
Kimber Severance
Reviewed by
Tracy Rawle
June 23, 2025

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.

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. 


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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

An image of a jar full of coins with dollar signs on them.

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

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

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—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. 
  2. If your car breaks down—you'll be able to pay for the necessary repairs, the tow truck, or even for a new car in some cases. 
  3. Medical bills—don't let your health and necessary medical bills keep you from staying afloat financially. 
  4. Home repairs—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

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 retirement. 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. 

Two people walking down the beach.

Step 5: Save for 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 of debt as a young adult. If you can pay for your kid's college tuition then you'll ensure their financial security in the future, as they'll better be able to stay out of debt. 

Dave Ramsey recommends using either a 529 college savings plan or an education savings account (ESA). Talk to your bank or credit union about setting up these accounts for these specific purposes. 

Step 6: Pay Off Your House

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

stack of coins with a ladder climbing the stack of coins

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. 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. 

Keep Learning

The Total Money Makeover Book Review
How to Budget in 5 Steps
10 Ways to Use a Reloadable Prepaid Card

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