Here Are Dave Ramsey’s 7 Baby Steps To Turn Around Your Finances
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Angela Mae
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Zuri Anderson
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If you’re struggling to get your finances in order, there’s good news: Dave Ramsey has created a series of “Baby Steps” to turn your finances around and get you back in control.
You might have heard of these steps before. But if you haven’t, or if you’re considering whether they’ll work for you, here’s what you should know.
Dave Ramsey’s Baby Steps: A Roadmap
In a recent post on X, Dave Ramsey shared his seven Baby Steps. Here’s what they are and how they work.
Build a Starter Emergency Fund
Save $1,000 in a starter emergency fund. This will cover minor, one-time expenses you’re not prepared for like a flat tire or small medical bill. It’ll also keep you from racking up that credit card debt.
Use the Debt Snowball Method
Experian found that the average American owes just over $105,000 in consumer debt. This includes mortgages, student loans, auto loans, HELOCs, credit cards, personal loans and retail cards.
Ramsey’s second Baby Step is to use the debt snowball method to pay off all those debts, excluding your mortgage. This method entails paying off your debts in order from the smallest to the largest balance, regardless of interest. With each eliminated debt, you’ll have a little more to put toward the next one and so on until you’re done.
Max Out Your Emergency Fund
Next, save three to six months’ worth of expenses to fully fund your emergency fund. Say you need $5,000 a month to maintain your current lifestyle. You should have $15,000 to $30,000 set aside for emergencies. This will cover you in the event of major life changes, like a loss of income.
Invest 15% of Your Income
You should be setting aside 15% of your household income for retirement, said Ramsey. This is a general guideline, but it can help you prepare for a comfortable retirement. As for where to put your money, options include tax-advantaged accounts like IRAs or 401(k) plans.
Save for the Kids
Next, start saving for your children’s college education.
According to the Education Data Initiative, the average cost of attending college is $38,270 annually. Multiply that by four years (the typical bachelor’s degree program) and you’re looking at spending roughly $153,000.
Costs can be much lower for public schools and state residents. Still, if you have kids who might attend college, it doesn’t hurt to start saving for that while they’re young.
Pay Off Your Mortgage
The sixth step is to pay your mortgage off ahead of time.
In 2024, the average mortgage balance was $252,505. As long as there’s no prepayment penalty, paying off yours early could save you thousands — or hundreds of thousands — in interest. It’ll also substantially lower your cost of living.
Build and Give
Lastly, Ramsey said you should continue building wealth while giving back. The idea here is that you’re now debt-free, are on the road to a successful retirement and your kids are set. So, you can now be generous by giving back to those causes that matter.
Do These Steps Really Work?
According to Ramsey, following these seven steps will work every time. The only caveat is that you have to take responsibility for your own actions and stick with them.
“Day in and day out, you’ve drawn a line in the sand, and you are NOT going back,” he wrote. “You’re taking control of your fractions and your life. You’re ready to make your money work for YOU, not the other way around.”
This might sound straightforward, but there aren’t any true guarantees.
“On the most basic level, the baby steps can work. Paying down debt as quickly as possible and avoiding other debt is basically the most basic way to get control of your finances,” said Ashley Morgan, attorney and owner at Ashley F Morgan Law, PC. “However, it is not the most reasonable or realistic way to deal with your finances.”
Here are a few additional thoughts Morgan shared:
- Saving $1,000 isn’t enough: “Ideally, you would have enough to cover your biggest deductible (like health and/or car insurance) or one month worth of expenses. You want to be protected from getting into more debt.”
- Delaying retirement savings is irresponsible: “Compound growth for as long as possible and free money from employer matching are two of the most important tools to growing your retirement.”
- Consider your timeline: “If you are only needing six months to be debt free, then six months of no retirement savings is not too big of a deal. But if it will take years for you to save, you are giving up so much for future you.”
Ultimately, Ramsey’s Baby Steps can help get you on the right track, but there’s no one-size-fits-all solution. When it comes to your finances, use your best judgment, brush up on your financial literacy and — when needed — seek professional advice.
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