Dave Ramsey’s 7 Baby Steps Review: Get Out Of Debt, Build Wealth And Give.

Here is an in depth look at Dave Ramsey’s Baby Steps plan for getting out of debt, building wealth and giving.   The plan really is a pretty simple one, some might say it’s common sense,  but it brings home a lot of concepts that a lot of us don’t normally think about.

I thought it might be helpful to go over the baby steps and see how they can help you.

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Baby Step 0: Getting Started, Making A Decision To Change

Before getting started on the Baby Steps plan you may not have ever thought about working on your finances before. You just kind of let your money happen to you.  To get started on this plan you have to make a conscious decision to care about where your money is going, and to live responsibly and within a budget.  For many of us, this will be a quite the shift.

For some people they won’t want to make a change until they’ve hit rock bottom, facing a foreclosure or bankruptcy.  Hopefully you’re getting started before reaching that point.  Whatever point you’re at, just remember that you’re not alone, and you’re making this change to make your family’s lives better.  It won’t be easy, but nothing worth having ever is!

Commit yourself to living within a budget, and to creating no more consumer debt!  As long as you’re creating new debt, none of this plan will work!  Once you’ve made the decision to make a change, cut up the credit cards, get on the same page with your significant other (if you have one), and move on to step 1!

Baby Step 1: Save A $1,000 Baby Emergency Fund

Baby step one is where you start building up an emergency fund for your family to cover any incidental and emergency expenses that might come up while you’re paying off all the debt you’ve created.

Some people don’t feel secure with only $1,000, and depending upon your circumstances, you may need slightly more.    But $1,000 is a good starting point, and for most families will be more than adequate to cover the little expenses that come up for every family.

Get “gazelle intense” about saving that first $1,000.  Most people will get it saved in the first 1-2 months of the plan.

Baby Step 2: Pay Off All Debt Using The Debt Snowball

In baby step 2 the family starts their debt reduction portion of the plan.   This is often the hardest part of the plan for most families, especially if a large amount of debt has been created.

To get rid of the debts Ramsey has put together what he calls the “Debt Snowball”.  In this plan you setup a debt repayment plan where you pay your necessities first (food, clothing, shelter, transportation), and then you pay the minimums on all of your debts.  Once the minimums are paid, you pay as much extra as you can on the smallest debt.  You continue doing that every month until the smallest debt is paid off.  Once that debt is paid you “snowball” all the extra money created by paying that debt off into the next smallest debt.   You continue doing that until all of your debts are paid off.

Some people can get the debt paid off within a few months, where others can take a few years.  In either case it will sometimes be helpful to get part time jobs, sell stuff and do other things to temporarily create extra income to help pay off the debts.     Once the debts are paid off you can quit those part time jobs because you’re debt free except the house!

Baby Step 3: 3-6 Months of Expenses In Savings

In baby step 3 you continue building that emergency fund that you started in baby step 1.  Starting from the baby emergency fund of $1,000 you build your reserves until you have 3-6 months of expenses saved in an easily accessible savings account.    Depending upon your family’s expenses, the amount you’re saving up will be different, and some people will prefer to build up more than 6 months of expenses depending on their desired level of risk, and what they feel comfortable with.

Remember, you’re saving up this money to help eliminate much of the risk that comes from the “little murphies” or life’s unexpected events that just seem to pop up.  Things like car troubles, medical expenses and job losses.  When you have the emergency fund buffer, it makes these life events seem more like bumps in the road instead of horrible car wrecks.

Baby Step 4: Invest 15% Of Income in Roth IRAs And Other Pre-Tax Investments

After you’ve saved up your 3-6 months of expenses it’s time to get cracking on investing and saving for your retirement.    Dave Ramsey suggests saving at least 15% towards retirement, and saving it in a Roth IRA or other pre-tax investment.  The order he suggests saving for retirement is this:

  • Company 401k or other plan up to the match
  • Roth IRA for you and your spouse
  • Back to the 401k or other plan

Some people debate on whether 15% is enough to invest, or what types of investments are the best.  For me I believe the key is just to get started investing, and do it now!

Baby Step 5: College Funding For Children

After saving 15% of your income for your retirement, it’s time to save for your child’s education!  Some people think that this step should come before step 4, but Ramsey stresses the point that your child will have other options to help fund their education if they need to including scholarships, grants, working part time and other things.  If you don’t fund your retirement, however, you’ll never be able to get that money back!  Fund retirement first, and then your children’s college.

Some good places to save for your kid’s education include:

  • Education Savings Account (ESA):
  • 529 Plan

Other options exist as well, but the above options are the best.

Baby Step 6: Pay Off Your Home Early

Once the children’s college is paid for, it’s time to start making extra payments on your house! There are a lot of good reasons to pay off the house, including:

  • Less Risk:  With no house payment and a fully funded emergency fund, there aren’t many things that can happen (like a job loss) that can threaten your well being.
  • Peace Of Mind:  With no house payment you’ll be free to do a lot of things with your time and money that you might not have been able to otherwise.
  • Interest Savings:  By paying off the house early you’ll save thousands in interest.  The earlier in the life that you pay the mortgage off, the better you’ll do!
  • Less Stress:  With no worries about losing a house, paying off debt, or small expenses coming up, you can live  a more stress free life!

Paying off your house will free you up to do so many things with your time and money!  It’s like getting a raise since you’ll have all that extra money every month.  With that extra money you can save, give and live like no one else!

Baby Step 7: Build Wealth And Give

The last step of the baby steps is the one that gets me the most excited – building wealth and giving!

When you are debt free and you have no large payments like a mortgage, it frees you up to begin building wealth, and it allows you the freedom to help others with the blessings that you’ve received.

As a Christian I feel called to give to others, and getting to baby step 7 is something I look forward to because it will allow my wife and I the ability to help others out even more than we are now!  We are stewards of everything that God has given us, and God wants us to give because giving to others makes us less selfish people, and better in every aspect of our lives.  Less selfish people are more successful in relationships, business and in life in general.  Plus, we are happiest when we are serving and giving!


Thanks for taking the time to look at Dave Ramsey’s 7 baby steps with me, it has truly been a lot of fun for me.

I really do believe that his plan is a good one, and can help others as it has helped my wife and I.   If you’re looking at your checkbook and accounts and you have a mountain of debt – don’t delay! Get started on getting out of debt today!  Step one is only a decision away!

Live like no one else today so that tomorrow you can live like no one else!

Last Edited: 10th February 2014

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  1. says

    I was just talking to someone today about the TMM and how much I loved the last chapter. It is when Ramsey wraps the whole thing up together with the purpose of giving. That is why we are here on this earth, it isn’t to stockpile as much cash as possible! It is to give everything, ourselves, time, energy, and even money!

  2. bazny says

    “I really do believe that his plan is a good one, and can help others as it has helped my wife and I.” That should be, “my wife and me.” The advice is good, but the grammar is not.

    • says

      You are correct, bad grammar there. I always mix that one up. For others out there, to make sure you’re using it correctly:

      The commonest mistake in grammar concerns sentences which contain the words “my wife and I” or “my friend and I”. It is often incorrect to use “I” in such phrases. One way of checking is to leave out the other person in the phrase. So if the sentence is “they gave my wife and I a present”, leave out “my wife” and you are left with “they gave I a present”, and you wouldn’t say that, so in that context “I” is wrong, and the sentence should read “they gave my wife and me a present”. On the other hand, if you leave out “my wife” in a sentence such as “my wife and I went to the meeting” you are left with “I went to the meeting”, which sounds all right and is correct.

  3. says

    My wife and I just started tmm right after a substantial bonus and raise. I am blown away just how exciting and easy it is to pay down almost 10 g’s right off the bat and then almost triple my monthly payments on our next debt in line. At the rate we’re going we should be free of all debt in 5 years!!! Amazing how easy this is and I just can’t wait until I can use this $$ to build up God’s kingdom instead of my own.

    The TMM has really surprised me in how simple it is to find all that extra $ once you have a good budget.

    We use zero budgeting concept which is tough without dicipline but very nice as every time you come out ahead on a budget item, the snowball is that much bigger for the month.

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