Dave Ramsey’s Baby Steps Explained

Whereas Dave Ramsey’s Baby Steps have often been dissected one at a time, my goal in this post is to give an overview of the steps as a unit and explain why the order is essential.

dave ramsey baby steps explained

Hopefully, these steps can help you create a focused life plan for your finances, regardless of your age or financial well being.

First, the Baby Steps:

  • Step 1: $1,000 in an emergency fund.
  • Step 2: Pay off all debt except the house utilizing the debt snowball.
  • Step 3: Three to six months of savings in a fully funded emergency fund.
  • Step 4: Invest 15% of your household income into Roth IRAs and pre-tax retirement plans.
  • Step 5: College Funding
  • Step 6: Pay off your home early.
  • Step 7: Build wealth and give.

The Power of Focus

Dave’s premise with the Baby Steps is that people can accomplish great things IF they can just be focused. When you read over these seven steps, you think, “Yes. I need to be saving. But I also need to be investing for retirement. I should get my house paid off early. But I also need to be getting out of debt and saving for my kid’s college.”

You would readily agree that all of these goals are important for successful financial planning. The problem is that your stress level kicks into overdrive with the prospect of doing them all. You clench your jaw and do what you are capable of doing while feeling anxious about the goals you place on the back burner.
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Dave Ramsey’s FPU Week 10: All About Tuition

Friend and freelance writer Les O’Dell shares this diary entry from the 1oth session of Financial Peace University, a 13-week course from national talk-show host Dave Ramsey.

A Sore Subject

Tonight’s Financial Peace lesson, “From Fruition to Tuition,” was somewhat painful for me. Designed to go with some of the later Baby Steps (after debt is eliminated), this lesson deals with funding your own retirement and college for your children. Baby Step 4 is investing 15 percent of your household income into Roth IRAs and other pre-tax retirement plans. If needed, Baby Step 5 is to be done at the same time. It is save for your children’s college using tax-favored plans.
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Dave Ramsey Financial Peace University Week 2: Relating With Money

Friend and freelance writer Les O’Dell shares this diary entry from the second session of Financial Peace University, a 13-week course from national talk-show host Dave Ramsey.

Welcome to reality

Our second session of Financial Peace University was humbling. The course coordinator asked each family to write on a nameless index card the best guess of our total level of indebtedness. He would add all of the figures together for a class total and then we could use that as a benchmark for measuring success when a total is calculated at the end of the course in May. Writing down that number was a sort of reality check. I wondered how our number (which I felt was way too large) would compare to everyone else’s figure.
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