Dave Ramsey’s 7 Baby Steps: Stop Living Paycheck to Paycheck

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Inflation, soaring rates and the resumption of student loans have taken a toll on many Americans’ wallets, forcing many of them to live paycheck to paycheck. And if you’re in debt, you’re not alone. The average American owes a total of $104,215 — including mortgage, HELOC, student loan, auto loan and lease, credit card and personal loan balances — according to data from Experian.

No matter how much you owe, chances are that you feel like it’s too much. This is where Dave Ramsey’s “7 Baby Steps” come in. By following this well-known finance expert’s strategy, you, like many others who’ve tried it, can get out of debt, save money and build wealth.

“Personal finance is 80% behavior and only 20% head knowledge,” Ramsey said in a press release. “People don’t need more facts and figures when it comes to money. They need something deeper. Something more personal. And we’ve got rock-solid confidence in the principles [we] share…”

He continued, “More than 10 million people have already used our plan to get out of debt and build wealth. Why shouldn’t you be next?”

Here’s a look at each of the seven baby steps Dave Ramsey recommends to help you stop living paycheck to paycheck.

Step 1: Save $1,000

If you don’t have money put aside, small, unexpected expenses can quickly put you into debt. Therefore, it’s not surprising that the first of the Dave Ramsey baby steps is to save $1,000 as fast as you can.

This will give you the means to pay an unexpected expense in cash, instead of putting it on a credit card or finding yourself in a tough situation where you actually have no means to pay it at all. Getting into debt over a small expense isn’t as uncommon as you might think.

While 68% of adults are able to cover a $400 emergency expense using cash or its equivalent, 32% do not have the cash to do this — and 11% couldn’t pay the expense by any method — according to the 2021 Survey of Household Economics and Decisionmaking, conducted by the Federal Reserve.

If you think saving $1,000 sounds impossible, Ramsey has plenty of tips that can make it easier than you realize. Some of these include cutting all nonessentials, using cash-back apps, buying generic, canceling unused subscriptions and sticking to your grocery list.

Step 2: Pay Off All Debt

After putting a little money aside, Ramsey wants you to eliminate all of your debt — except your house — using the snowball method. This means you’ll pay the minimum payments on everything but your smallest debt.

You’ll put all your extra money toward eliminating your smallest debt. When you’ve paid it off, you’ll move on to your next-smallest debt, and so on.

Step 3: Save 3-6 Months’ Worth of Expenses

After paying off your debt, it’s time to start saving again. This time, you’ll be working to build a proper emergency fund — not just one that can cover up to $1,000 in expenses.

This makes sense, as experts generally recommend having three to six months’ worth of expenses put aside in your emergency fund. This will ensure you’re able to pay your bills should you lose your job or are otherwise unable to work for a while.

Saving this much will probably be easier than you think, considering you can put all the money you were spending on debt payments toward this goal now. You can also continue to cut costs like you did in baby step one.

Step 4: Invest 15% of Your Gross Income

Now that your money isn’t going toward paying off debt or saving for emergencies, you can start putting it toward your retirement.

The average monthly Social Security check is just over $1,800, according to reporting from U.S. Money News, putting unprepared retirees in a tight financial bind. This is why Ramsey’s fourth baby step is focused on supplementing your Social Security income with other retirement savings, so you can be free to enjoy your golden years.

Specifically, Ramsey wants you to invest 15% of your gross income for retirement. This aligns with benchmarks set by major financial firms, including T. Rowe Price and Fidelity.

Dedicating this much of your paycheck to retirement can initially seem like a lot. However, by the time you’ve reached this baby step, you’re no longer in debt and you’ve built a solid emergency fund to handle unexpected expenses.

Step 5: Save for College

U.S. News reported that for the 2024-2025 school year, the average in-state cost of tuition and fees to attend a ranked public college is $11,011. To attend an out of state college, students will pay $24,513. And a private college education will be the most expensive at $43,505 annually. These costs are 5.5% higher than they were in the 2023-2024 school year.

Given this, it makes sense that one of the Dave Ramsey baby steps is to save for your child(ren)’s education. Specifically, he recommends using 529 college savings plans or other education savings accounts.

Step 6: Pay Off Your House

Hopefully, you were able to buy your home at a low interest rate. Regardless, paying off your home early will feel great, save you thousands of dollars in interest and allow you to be truly debt-free.

The average monthly mortgage payment, according to the National Association of Realtors (NAR), was $2,209 as of April 2024, an increase of almost 13% since last year. Imagine being able to put this money in savings or toward something else you truly enjoy.

Step 7: Build Wealth and Give

Being completely debt-free and equipped with plenty of money in savings is a major accomplishment. When you reach this stage, Ramsey wants you to keep building wealth and give back to others.

This typically involves leaving an inheritance for your children and grandchildren, but it doesn’t stop there. You might also provide financial support to nonprofits close to your heart or loved ones who truly need it.

Having the means to help others will feel amazing, especially since you worked so hard to get to this place.

Final Take To GO: Following Ramsey’s Step-by-Step Guide

There’s no specific timeline for making your way through the Dave Ramsey baby steps. Completion will depend on many different factors — i.e., income, amount of debt, dedication — so success cannot be measured on a set timetable.

The best way to achieve victory is to commit yourself to the program. Reducing expenses will involve plenty of sacrifices that won’t always be easy to make. Remember to keep your eye on the big picture and stay focused on how proud you’ll feel when you’ve finally completed the last step. If — and when — setbacks occur, pick yourself up and get right back on track.

The bottom line is that your net worth won’t grow if you can’t pay off your credit card debt or better negotiate your necessity spending. If you are one of the many Americans who live in the larger share of households surviving paycheck to paycheck, make sure to take advantage of Ramsey’s straightforward financial advice to help dig yourself out of this cycle.

Caitlyn Moorhead contributed to the reporting for this article.

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