What are the Dave Ramsey Baby Steps? [Principles to Debt Free]

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People believe that debt is a necessary evil. Everyone has it. It is normal to pay with credit as very few people use cash –according to The Motley Fool, 61% of American consumers have at least one credit card, and the average person has four.

So, in the U.S. there is extraordinary exploitation of credit.

At age 18, young people begin to receive offers to open credit cards and finance their first vehicle. It is normal to see that people pay for everything –including gum– with a credit card event “to accumulate supposed points.”

And when you pull out a $20 bill to pay for anything, they almost check it to make sure it’s legit.

So, buying only what you can afford in cash is not a very popular idea. But when you are drowned in your own debts, any option to get rid of them becomes a light at the end of the tunnel.

Who is Dave Ramsey?

Dave Ramsey is an American entrepreneur, personal finance expert, author, and radio host. But his fame is largely due to his radio talk show, The Dave Ramsey Show, on-air since 1992.

Dave Ramsey began his career working as a real estate developer in the 1980s and quickly built up a substantial portfolio of clients. But around 1988, he filed for bankruptcy due to a write-off of his lines of credit.

He is the epitome of the comeback story: he became a millionaire a couple of times, lost everything, and got it all back.

Despite having studied business administration, he could prosper only when realizing that the key was knowing how to manage personal finances.

And once he succeeded, he began to advise people in his church, give conferences, and currently, he has a radio program and a company dedicated to financial education.

In short, he is one of the leading financial gurus in the U.S., and the Dave Ramsey baby steps have become a paradigm of personal finances by implementing the debt snowball method to lead a better life.

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Dave Ramsey Baby Steps List

Baby Step 1: Save $1,000 in an Emergency Fund

Your first objective, before you start paying your debts, is to build a mini emergency fund of $1,000. When your annual salary is less than $30,000, save a mini fund of $500.

For those who live outside the U.S., you should save at least a mini fund equivalent to a month of rent or a month of expenses.

Add up how much it costs you to live for a month that includes rent or mortgage, household services, food, transportation, entertainment, etc.

It is difficult to determine a specific amount because there are people in countries around the world with different economies.

The idea is to have a little money saved in case you have to make an unexpected expense. The last thing you want is to have to go into debt to pay for a water leak repair or a doctor’s visit.

Baby Step 2: Pay Off All Debt (Except Your Mortgage)

In the second of all Dave Ramsey’s baby steps, you should arrange all your debts from the smallest to the largest. Keep making the minimum payments on all of them and pay the smallest one extra until you get rid of it.

When you delete the first one, use the surplus money to continue paying the next one on the list and so on.

Depending on how much you owe, you can spend a couple of months or a couple of years in this process. You can squeeze your budget, and eliminate expenses and extra work to generate more money.

This is the only way to speed up the payment of your debts into what is called the “debt snowball method.”

Now, if you have more than $1,000 in your emergency fund or more than a month’s rent, Ramsey recommends that you use the difference to pay off debt and speed up the snowball. That is, if you have $3,000 saved, keep $1,000 in your fund and pay the remaining $2,000 to your debts.

Baby Step 3: Save 3-6 Months of Expenses in an Emergency Fund

The Dave Ramsey baby steps should be followed in sequence. So, after paying your debts, you will focus on completing your savings fund for emergencies. The goal is to accumulate the equivalent of between 3 and 6 months of expenses.

In step one, you calculated how much it costs you to live each month. In this step multiply that amount by three and by six. Accumulate an amount that is in that range.

You should focus on saving six months of expenses if you have a variable household income or work in an unstable industry. The more money you have saved for an emergency –such as a layoff– the better prepared you are to deal with it.

Baby Step 4: Invest 15% of Your Household Income for Retirement

Many people resist the idea of ​​waiting to pay their debts because they want to start investing so that time is in their favor. Although this idea works in theory, in practice what you need is money to be able to invest.

When you have all your salary committed to paying your debts, it is very difficult to separate a part to save, let alone to invest. That is why Dave Ramsey’s steps teach you that, in the beginning, you shall focus on eliminating all your debts as soon as possible.

By advancing to step four, you will be ready to invest 15% of your salary in a retirement savings fund.

It is advisable to look for several experts who are accredited as “financial planners.” Interview at least three people and work only with the one who is willing to teach about personal finance.

That is, someone who is willing to take the time to explain what their role consists of and how they will invest your money. This should be an expert with investment expertise and credentials.

Remember that one of the main rules in personal finance is never to mix your investments with your insurance. In other words, don’t invest with an insurance salesperson who offers you a savings fund.

These products are very expensive and do not generate the best returns, although they do generate very good commissions for the seller.

Therefore, you should always obtain your insurance with an insurance company and invest with an investment company.

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geralt / Pixabay

Baby Step 5: Save for Your Children’s College Fund

Consider Trade School

According to Ramsey Solutions, attending an expensive, four-year university is just one way to build a career after college. “There are plenty of great alternatives that will save you money and set you up for a successful future.”

Expensive student loans can certainly impact your personal finances very strongly and will make it hard for your children to achieve financial independence.

One of these options is trade college. On an episode of the Borrow Future podcast, author of the book “Debt-Free Degree” Anthony ONeal, told how his barber went to a trade school and became a professional in less than a year, paying only $16,000.

Once he joined the workforce, “It took him a year and a half to build up his clientele, and today, he’s making six figures and working on opening his own barbershop!”

The top-selling writer advises that anyone choosing to enroll in a trade school must be sure of their decision career-wise. This is so because, if they feel like switching to a different program there is a great possibility of not being able to transfer skills for another option.

“So, identify what you would love to do and the best educational route to help you get there.”

“And if trade school makes that list, give it more weight than a four-year university—it’s quicker, cheaper and you’ll get to skip all those classes four-year colleges require that you’ll never use.”

Take Classes At Community College

Community colleges are a cheaper option than universities for people interested in studying for a university degree in the U.S. or completing intermediate professional studies.

Statistics highlight the importance of community colleges within the U.S. university system. According to the Community College Research Center, 45% of university students in the country study at one of these centers.

That is, more than eight million students, of which more than half study part-time.

The name of community colleges refers to university institutions that award an Associates Degree to the student who completes their program and or 60 credits in semester courses.

In comparison, colleges and universities award a university degree in the form of a Bachelor’s Degree and it is necessary to have completed 120 credits.

Community colleges are also known as technical colleges or junior colleges, including county colleges. In the different geographical areas of the U.S., there is a custom of calling it differently. In any case, it is the same.

They are also known as two-year institutions, since if you study full-time and satisfactorily, the courses are completed in that time.

The savings can be very large and serve to pay expenses such as food, textbooks, travel, etc. Most of the Community Colleges are public, although there are also private ones. The latter is more expensive, but are still notable savings compared to Universities and Colleges.


Obtaining a scholarship is a great challenge because aspiring students have to go through various obstacles and show that they are the best in their area. In addition, they must maintain an average grade, dedicating themselves a lot to their studies, being very committed, and even having a good luck streak.

But what happens after they have achieved this goal?

In addition to having a great experience, the reward is not only about the scholarship itself, since the advantages are diverse throughout their lives as students, and even in their professional aspirations.

An academic scholarship helps you a lot in your working life since you generate interest in extracurricular activities, and of course, your curriculum will be considered when applying for a job.

Still, you don’t always need to look for a job –this may sound a bit strange, because what you always want is to be considered by a large company.

On many occasions, excellent students who have had a scholarship do not always seek to position themselves in a job, since they make a good impression on companies who see a potential investment and a solid hire.

Depending on the intended goals, those who have had a scholarship have the necessary elements and the security to undertake in some field, so they can become great entrepreneurs or negotiators –depending on their field of study.

Also, people who have been awarded a scholarship have the opportunity to develop personal skills that give you confidence, help you grow and be more persistent, and have high aspirations.

If you want to study in Europe, a scholarship is an opportunity to further your career in another culture. It opens many doors since being a good element in your area and thanks to the globalized world, you will surely find a place anywhere.

Besides, a scholarship puts students in the right way of securing solid income. Having been awarded a scholarship –especially in a relevant academic area– you will have the great possibility of requesting a good payment for the performance of your work.

As you can see, being an excellent student who had a scholarship has benefits that will bring you great things in the future.

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Baby Step 6: Pay Off Your Home Early

Ideally, if you are following Dave Ramsey’s plan, you should never get a mortgage debt for more than 15 years.

If you no longer have debts, you have an emergency fund, you are saving for your retirement and for your children’s university, then you have to use your extra money to pay off your mortgage sooner. Advancing payments allows you to save a lot of money in interest.

Imagine, what would you do now if you didn’t have to pay your mortgage? How much extra money would you have each month to invest, spend, have fun, or help other people?

That brings us to the last of Dave Ramsey’s seven baby steps for getting out of debt and building wealth.

Baby Step 7: Build Wealth and Give

When you get to step 7, you have left-over money. Being free from financial worries and dramas allows you not only to enjoy life to the fullest but also to bless other people with your generosity.

At this point in the game, having a flashy life may not even appeal to you. You will live with many comforts, with the ease of traveling and buying the car you want with cash. But then, what’s next?

Everything at this point depends on your taste and your imagination. There are people who start trusts to provide scholarships to students.

Others make large donations to good causes like building schools in developing countries. And there are also those who invite the whole family to go on a Caribbean cruise.

When you live in step seven you already have a solid heritage that grows day by day. Also, you can afford to contribute to the betterment of your society.

Pros and Cons of Dave Ramsey’s Baby Steps Plan

Dave Ramsey Baby Steps Pros:

As you can see, it is a pretty straightforward plan. Seven easy-to-understand steps to follow, which have already worked for millions of people. So, it is a proven process.

There are probably hours and hours of studying, organizing, and analyzing basic personal financial priorities behind the little steps. So, don’t reinvent the wheel.

Many people don’t want to deal with the hassle of meeting with a financial planner, calculating their expected growth in savings, how quickly they will pay off their debts, etc. just to improve their financial situation.

They want something tested and easy to follow. That’s where Dave Ramsey baby steps can be very advantageous because it’s proven, it’s easy, and it works.

Another advantage is that little to no financial education is needed. Anyone with a high school diploma –or even less– can follow in the baby’s footsteps.

It doesn’t require complicated math; you don’t need personal finance experience, you don’t even need to figure out where you are paying the highest interest on your loans.

On top of this, Dave Ramsey offers a wide array of resources, ever since he started Ramsey Solutions in 1992. It is nearly 30 years of single-source financial experience, and it was all based on the seven little steps concept he teaches.

To say that he has many resources available when he follows his plan is an understatement.

Dave Ramsey Baby Steps Cons:

Dave Ramsey’s baby steps take time, like most things related to money before they flourish. However, some other methods can be faster for wealth building.

For example, for an average person who makes $50,000 per year and wants to start the first step saving $1,000, it could take 3-6 months if they only have $200 to $300 per month.

The same is true when paying off debts and building an emergency fund for living expenses for 3-6 months.

Someone could argue that consolidating your debt into a low-interest loan saves you time and money when paying off your debt. Others might say you have a credit card with $1,000 to use as an emergency fund so you can focus on putting that money where it will have the most significant impact. To each his own!

It is recommended within the baby steps to always have zero debt. That means there should be no mortgages, no small business loans, and no car loans. By following Dave Ramsey, all debt is bad debt.

But someone can argue that they would instead put their $15,000 into an investment that has a 7% 10% annual return instead of buying a $15,000 car in cash.

If you already have a house when you start the first steps, it is recommended that you sell it, pay for it as soon as possible or refinance it to a mortgage term of 15 years.

If you do not own a home when you start the first steps, it is recommended that you pay in cash or get a house with a 15-year mortgage that costs no more than 25% of your total house salary –that means your income after taxes has been withheld.

In other words, if you make $50,000 per year, your take-home pay will be approximately $3,200 per month. Following Dave Ramseys’ 25% rule, with a monthly payment of $3,200, you can afford a mortgage payment of approximately $800 per month.

Depending on the interest rate on his home loan, this means that you can only afford a house in the price range of $160,000 to $180,000 maximum. If you can’t fit these parameters, Dave Ramsey advises you to rent.

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Should you follow the Dave Ramsey 7 Baby Steps?

It’s easy to follow

In his book “The Total Money Makeover” Dave Ramsey throws a phrase that will make you wonder: financial knowledge represents only 20% of the equation. 80% has to do with changes in our behavior and discipline.

That is why he designed his methodology in this way.

So, following Ramsey’s steps is down to sheer control and regulation of our warped financial habits. The steps are very much like a recipe you should follow –in that particular order– to put your finances in the right way to prosperity.

It’s free or almost free to follow

Following the steps is free, but Dave Ramsey offers several resources on his website, which can be unlocked by paying a fee. People interested can initiate a free trial, after which they pay $59,99 for three months, or a 6-month and 12-month plan worth $99,99 and $129.99 respectively.

All of Ramsey’s books are also available on sale, plus special memberships and further products, should you feel like entering into his financial philosophy in full.


How much does Dave Ramsey say to have in savings?

Ramsey is not far from the traditional recommendation: between 3 and 6 months of our spending. But this is not out of what people earn, but out of what they spend daily on living: ent or mortgage, food, clothing, tenure, insurance, and everything else you need to maintain your standard of living.

As already mentioned, the emergency fund is necessary to protect your wealth, finances, and your path to financial freedom from unpleasant surprises waiting around the corner.

This amount of money will help you deal with the unexpected, from the loss of a job or a business to severe damage to your home.

Unfortunately, Ramsey says, most people don’t continue after “baby step 2.” Momentum is lost, they are happy to be debt-free, and begin to slip back into a riotous pattern of consumption.

Sooner rather than later, they buy them back. It is essential to continue the virtuous circle: to create this fund for emergencies, this great cushion that will allow us, in the following steps, to create wealth starting with building a comfortable retreat.

How much does Dave Ramsey say to put in 401k?

Ramsey recommends people invest 15% of their wage in a retirement fund. Be very careful if you have money saved in the retirement fund and you are thinking of paying it off or taking out a loan.

The money you withdraw from a savings fund like the 401k is subject to tax and a 10% penalty if you are not 59.5 years old. Don’t do this.

Also, remember that you cannot pay a debt with a loan. You would only be moving the debt from one place to another. The only thing that pays a debt is extra money that you generate through your work or the sale of some good.

Why does Dave Ramsey recommend Roth IRA?

According to Ramsey, a Roth IRA (Individual Retirement Arrangement) is a retirement savings account “that allows you to pay taxes on the money you put into it upfront.”

“The growth in your Roth IRA and any withdrawals you make after age 59 1/2 are tax-free, as long as you’ve had the account more than five years.”

Ramsey recommends a Roth IRA since it allows people to pay taxes on the front end, which means that they do not have to pay them once they retire. It is also advisable to maintain the agreement “outside of your employer-sponsored retirement savings plan.”

Besides, a Roth IRA has further benefits. You do not have to take distributions at a specific age, unlike the traditional IRA, whose withdrawals are allowed only after you turn.

Also, people can continue contributing to their Roth IRA if they feel like working beyond their retirement age, “as long as your income still falls within the income limits.”

What’s more, you can designate beneficiaries to inherit the account, who will be able to withdraw funds tax-free as well.

What are Dave Ramsey’s baby steps?

Step 1: Save $1,000 for your starter emergency fund.

Step 2: Pay off all debt (except mortgage) using the debt snowball method.

Step 3: Save 3-6 months of expenses in a fully-funded emergency fund.

Step 4: Invest 15% of your household income in retirement.

Step 5: Save for your children’s college fund.

Step 6: Pay off your home early.

Step 7: Build wealth and give.

How many steps are in Dave Ramsey’s baby steps?

There are seven steps in total. According to Ramsey, they should be followed in that particular order, as they will create the right mindset and allow people to level off financially.


“The Total Money Makeover” is a book written for everyone, and although it is of course focused on the average American citizen, the principles taught in this book could be applicable to the context of any other country.

It is important to note that unlike Kiyosaki –who preaches the construction of especially real estate assets by leveraging debt to generate passive income that leads to financial freedom– the Dave Ramsey baby steps have a much more conservative approach, radically implementing the debt snowball method, ruling out debt as an instrument to generate wealth.

In turn, Ramsey presents income, constant savings, investment in investment portfolios, and the acquisition of real estate –without debt– as the main source of said financial freedom. This is an approach that is highly recommended and with which successful people feel fully identified.

Ramsey has become very famous for the focus and purpose he brings to managing money, building wealth, and achieving financial stability. A purpose not only material but also deeply social and spiritual.

Finally, anyone looking to improving their financial situation, generating wealth, and achieving success, can follow Dave Ramsey’s baby steps, thoroughly explained in the famous book.