If you’ve looked into anything financial, you more than likely have heard of Dave Ramsey! Dave Ramsey’s 7 Baby Steps have transformed many families’ financial lives.
The trick to the 7 Baby Steps is to make them work for You! Not all situations will require a regimented following of the Baby Steps.
How To Make Dave Ramsey’s 7 Baby Steps Work For YOU!
Below we have outlined the basics of Dave Ramsey’s 7 Baby Steps and how we have adjusted them to fit our needs.
Get your creative juices flowing and discover how to use the 7 Baby Steps as an outline for your financial life!
Baby Step #1: Save $1,000 in a Beginner Emergency Fund
This fund is for UNEXPECTED things that happen that you wouldn’t know to plan for. Like a baseball that goes through the window. There ain’t no sinking fund for THAT!
We use our $1,000 emergency fund as a buffer in our checking account!
I know, I know, it’s Supposed to be in a separate account, right?
Well, since we budget every dollar, I don’t want our checking account to go to zero.
Instead, I ‘hide’ that $1,000. It doesn’t show up in our available balance so, out of sight, out of mind! I write at the top of my register, ‘EF $1,000’. That way, when I go to balance I know to add that amount in.
Baby Step #2: Pay Off Debt
In this step, Dave suggests … wait … he tells you to use the Snowball Method to pay off all debt but the mortgage.
The Snowball Method tackles the smallest debt first and pays it off while paying the minimum on all other debt. It then rolls that money over to the next smallest debt building momentum. This method gives you confidence and motivates you to move forward.
The Snowball Method is a great way to go!
We have also used the Avalanche Method.
The Debt Avalanche tackles the debt with the highest interest rate first while paying the minimum on all other debt. After the highest interest rate debt is paid off, the Debt Avalanche then puts that money toward the next highest interest rate debt until each debt is paid.
We used this method because we knew we would be buying a new house in the near future. Our highest interest debt happened to be on our Costco card which we were close to our credit limit on.
Our goal was to reduce our debt to credit ratio!
We still have a few credit cards that we strive to use in a way that will benefit us. For example, if we have a large purchase to make and have the money set aside for it, we will often charge that purchase if there is no cash discount. We then pay off the credit card but receive rewards from the credit company!
Baby Step #3: A Fully Funded Emergency Fund
Your Fully Funded Emergency Fund is 3 to 6 months living expenses. This fund should be kept in a separate checking account or a money market account that is easily accessible.
It seems like a pipe dream, right?
We are currently working on our Fully Funded Emergency Fund and use a Money Market account to funnel money into!
We continued ‘hiding’ money in our regular checking account until we had $2,000. Then, we transferred $1,000 to a separate account designated for our Fully Funded Emergency Fund!
Baby Step #4: Invest 15% for Retirement
After all debt (except your house) is paid and you have a Fully Funded Emergency Fund, it’s time to Invest 15% for Retirement!
That’s 15% of your Gross Household Income into 401(k) plans, Roth IRAs, and Traditional IRA.
The idea is that now your debt is paid off, you will have no problem setting aside 15% for Retirement!
We have always invested at least the employer match and have increased our percentage over the years. We didn’t wait to be debt free. We have held debt off and on over the years but have never stopped investing for retirement.
Baby Step #5: Save For College
At this point, all debt is paid off, you have a fully funded emergency fund, and you are saving for retirement. It’s now time to save for your children’s college education!
We have failed miserably in this department. Although we’ve had debt, if I could go back in time, we would have saved for college.
Our daughter will be in college next year and we are scrambling to save. We’ve given her an allotted amount to realistically expect from us each year and she will have to get creative to cover the rest.
What if we had started saving for college when she was born? We wouldn’t need to worry and scramble right now.
Baby Step #6: Pay Off The House
Whew! This would be HUGE! It’s the only debt standing in the way of freedom from all debt!
I LOVE the idea of paying off our house!
Our thought is we will downsize in about 10 years and have enough equity in our home to pay cash.
Fingers crossed on that one!
Build equity in the house you have!
Baby Step #7: Build Wealth And Give Generously
It’s time to build wealth, give generously, and leave an inheritance for future generations.
How FUN is that?
I’m on board!
I do believe there are ways to give generously without money so you don’t have to wait until Baby Step #7 to give!
Give generously of your time and talents!
If we had waited to invest for Retirement until all debt was paid, we would be pretty nervous about now.
If we had saved for College throughout the years, we would be breathing easier now that college time is here.
You know your situation and can adjust Dave Ramsey’s 7 Baby Steps accordingly!
You have the outline for your financial life! Bend it to work for YOU!
JOIN OUR EMAIL LIST
Subscribe (free!) to gain access to my Resource Library full of Printables! Once subscribed, you will receive weekly emails with Printables, Ideas, and Money Tips for your Everyday Life!