Dave Ramsey’s 7 Baby Steps: Pros, Cons, & Our Take

If you haven’t heard of Dave Ramsey, you are probably in excellent financial shape. For many, he represents a financial savior for those who have too much debt and want to improve their money management through Dave Ramsey’s 7 baby steps.

Who Is Dave Ramsey?

He has strong convictions about personal finance, backed by his experience, making his own mistakes, research, and religious beliefs. Testimonies shared by many of those who succeed in becoming debt-free demonstrate the value of Dave Ramsey’s significant contribution over the decades.

Dave Ramsey And 7 Baby Steps

Step 1  Save $1,000 For Your Starter Emergency Fund Dave wants you to do two things before dealing with the emergency fund. You need a budget and get current with your creditors if you are behind with payments. Pay your basic living necessities first, and pay what is due on your credit cards and student loans.

Step 2 Pay Off All Debt (except the mortgage) Using The Debt Snowball The debt snowball requires you to list all your debts in order of smallest payoff balance to largest, excluding your home mortgage, irrespective of the loan’s individual interest rate. All loans are put on the list even they are loans from a family member with zero interest.

Step 3 Save 3-6 Months of Expenses for a Fully Funded Emergency Fund Establishing an emergency fund of three or six months is dependent on your circumstances. Do you earn a steady or irregular income, have better job security because you are a tenured teacher, or work for a new start-up company? Those who make lumpy compensation or face higher risks of losing their job should go for the more extended funding to feel financially secure.

Step 4 Invest 15% of Your Income in Retirement Tackling wealth building comes up in step four is retirement investing. The plan is to invest 15% of your gross income annually, not counting the company match or social security benefits. As a rule of thumb, Dave offers some flexibility of 12% to 17% of retirement contributions.

Step 5 Save For Your Children’s College Fund If you have not saved for college or not nearly enough, Dave suggests looking at work-study programs where companies may pay your tuition for your part-time labor.

Step 6 Pay off Your Home Mortgage Early Dave dislikes most types of loans, except for the home mortgage. He wants families to eliminate this mortgage as quickly as possible in this step. His recommendation is to find any money in your budget outside of living retirement and investing in college. If you can pay cash for your home, all the better.

Step 7 Build Wealth, Give, And Live Like Nobody Else Dave wisely tells his readers that wealth is not “an escape mechanism” and is in line with our sentiments. As I remember my grandmother’s words, “Poor or rich, money is good to have,” money is not everything.

 Dave Ramsey’s personal finance empire has captured the attention of millions of people that have too much debt, and need help resolving this significant problem and have an opportunity to build wealth. Dave deserves much of the praise he gets.

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