The 7 baby steps of personal finance, lessons I have learned from Dave Ramsey

In the last few years I have developed an interest in personal finance and sharing what I learn with others. One of the simplest places to start is with financial guru, Dave Ramsey’s 7 baby steps. Read below to discover what I learned from him! Please note it is important to get yourself on a budget first (if you are not already on one) so you are ready to implement the baby steps. Without a budget you cannot plan for your financial future. The baby steps must be done in order to be the most effective!

The information

The seven baby steps he teaches:

  • Baby step 1- Start a $1,000 emergency fund

Many Americans (and others) live paycheck to paycheck or worse by relying on credit cards when we can’t quite make the 2 ends meet. Dave Ramsey advocates for not using credit cards at all. The reason for this is because most of us do not pay the balance off every month, as we say we will. And even if we pay off the balance each month, studies show that we spend more when using a credit card instead of cash. The $1,000 emergency fund gives you a little cushion for starting over with your financial plan. Save up this little bit of cushion before chopping up all those “emergency credit cards.”

  • Baby step 2- Pay off all debt using the debt snowball (except your home)

Once you saved up your $1,000 emergency fund and chopped up your credit cards make a list of all your debts. Put these in order of smallest to largest and pay them off in that order. Don’t pay them off in order of interest rate. The reason for this, he says, is because paying off some little debts gives you the momentum to pay off larger debts. It gives you a sense of accomplishment.

  • Baby step 3- Save an emergency fund of 3 to 6 months worth of expenses

Most financial advisors recommend an emergency fund but Dave says to put it in something easily retrievable such as a money market savings account. He says NOT TO INVEST THIS MONEY. You should think of this money as insurance. If you invest it than accessing it in an emergency is not always possible, without taking a substantial loss at times. Save up this money and put it in an account you don’t see everyday. That way you kind of forget about it until you have a real emergency (hospitalization, car wreck etc).

  • Baby step 4- Invest 15% of income in retirement plans, such as Roth IRA and pretax retirements plans (such as 403b’s and 401k’s)

Once you are more prepared for life with your debt paid off and an emergency fund saved, it is time to plan for your future. He recommends putting 15% of your family budget into retirement plans. Always take advantage of your employer matching funds available at work and then put the rest in a Roth IRA, if you are eligible. See my article Roth 401k comparison with traditional 401k and Roth IRA accounts for eligibility and benefits of a Roth versus a traditional pre-tax plan. Very few companies offer the employer provided pension plans of yesteryear but even if your company does, they are usually meant to be used in conjunction with another retirement plan (i.e. you generally cannot live on these alone when you retire).

  • Baby step 5- Save for your children’s college

There are many tax advantaged savings plans, which can help you save for your child or children’s future. Providing your child with an education is much more helpful to their long term success than providing their every hearts desire when they are young. Avoiding school loans is also in integral part of teaching children financial responsibility as they become adults.

  • Baby step 6- Pay off home early

Dave recommends paying for your home in cash originally instead of taking a home loan but says a home loan is acceptable if you are not in debt, if you can take a 15 year loan not a 30 year, and your payment is 25% or less than your income. But if you do have a home loan, plan to pay it off early when you get to baby step 6. This extra money (that you previously put to your mortgage) helps you accomplish baby step 7.

  • Baby step 7- Build wealth and give

This is the fun baby step! When you have taken care of all of your financial obligations, your income becomes a tool for investing and helping others. Dave says, “you have to live like no one else, so later you can live and give like no one else.”

These baby steps are only the beginning of the wealth of information I have learned through Dave Ramsey’s multiple books, his course called Financial Peace University, and his radio talk show The Dave Ramsey Show. To learn more visit or check out the book The Total Money Makeover for a good starting place.

The backstory

The first time I heard the name Dave Ramsey was a few years back. A friend of mine told me she had to start doing her own nails because her husband had put her on a strict budget. Manicures were not in the budget! She kept mentioning “the budget” and Dave Ramsey in our conversations and it made me curious. I have never liked to be the person that doesn’t know about a reference someone else is making. So, I asked her what I should read if I wanted to learn about this guy.

My friend told me to read The Total Money Makeover. I did read it and found it really interesting. I had always thought of myself as pretty good with money. I had a plan. Don’t spend more than I make, pay extra on my house when I can, and save for retirement. It wasn’t a sophisticated plan but I thought it was working okay. However, after reading The Total Money Makeover I realized how much I didn’t know about personal finance.

I really didn’t know how much to contribute to my retirement (although I was at least contributing), I was paying on a whole life insurance policy, and making a few other blunders. After reading The Total Money Makeover I wanted to learn more and took the Financial Peace University Class created by Dave Ramsey. That class taught me a lot about investments, insurance, taxes, health care plans, and many other things.

I don’t study personal finance because it is my goal to be a multi-billionaire one-day. I study about personal finance because I want my family to be taken care of and because I have heard too many horror stories of elderly people that are not able to afford daily necessities like medicine and food. Many of these people had good jobs when they were younger but were just never taught how to manage their money. Dave says you have to tell your money how to behave.

I obviously don’t have everything figured out but the information I find helpful I like to pass on to other people. I have appreciated information that was passed on to me in my life. The 7 baby steps gave me a starting point in learning about personal finance and to this day I carry a card in my wallet that has the 7 baby steps printed on it. It is a great place to start and it is a roadmap that I don’t want to lose track of. Hope this information is helpful to some of you!

If you are interested in reading The Total Money Makeover yourself I have added a link below so you can easily find it on amazon. To find it in printed version or for your Kindle click link below!

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