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What Are Dave Ramsey’s Baby Steps: A Comprehensive Guide

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  • Post last modified:July 2, 2024

When I first stumbled upon Dave Ramsey’s Baby Steps, I was drowning in debt and had no idea how to take control of my finances. Little did I know that this simple, step-by-step approach would completely transform my financial life. In this post, I’ll share my journey through Dave Ramsey’s Baby Steps and how they can help you achieve financial freedom.

Skale Money Key Takeaways:

  • Dave Ramsey’s Baby Steps is a series of 7 financial milestones
  • The steps are designed to be followed in order
  • They cover everything from building an emergency fund to investing and giving
  • The process helped me go from broke to financially secure

Photo by Alexander Dummer on Unsplash

Understanding Dave Ramsey’s Financial Philosophy

Before diving into the Baby Steps, it’s crucial to understand Ramsey’s overall approach to money. His philosophy centers on living below your means, avoiding debt, and building wealth slowly.

  • Key principles:
  • Use only cash or debit cards
  • Avoid all forms of debt
  • Live on less than you make
  • Save and invest consistently

Here’s how Ramsey’s method compares to some traditional financial advice:

AspectDave Ramsey’s ApproachTraditional Advice
Credit CardsAvoid completelyUse responsibly for rewards
Emergency FundStart small, then build 3-6 months3-6 months from the start
Debt PayoffSmallest balance first (snowball)Highest interest first (avalanche)
InvestingAfter becoming debt-freeStart as early as possible

Tip: Commit fully to the Ramsey method for at least 90 days to see its impact.

Baby Step 1: Save $1,000 for Your Starter Emergency Fund

I remember feeling overwhelmed initially, but starting with a small, achievable goal of $1,000 gave me the confidence boost I needed.

  • Why start small:
  • Quick win to build momentum
  • Provides a buffer against small emergencies
  • Prevents adding to existing debt
Potential EmergencyEstimated Cost
Car Repair$500 – $1,000
Minor medical expense$250 – $500
Home repair$300 – $800

Advice: Cut unnecessary expenses and sell items you don’t need to reach this goal quickly.

Baby Step 2: Pay Off All Debt Using the Debt Snowball Method

This step was a game-changer for me. The debt snowball method kept me motivated as I saw each debt disappear.

  • Debt snowball steps:
  1. List debts from smallest to largest
  2. Make minimum payments on all debts
  3. Pay extra on the smallest debt
  4. Once paid off, roll that payment to the next debt
DebtStarting BalanceMinimum PaymentExtra Payment
Credit Card 1$500$25$175
Personal Loan$2,000$100$0
Car Loan$5,000$150$0

Tip: Celebrate each debt payoff to stay motivated during this challenging step.

Baby Step 3: Save 3-6 Months of Expenses in a Fully Funded Emergency Fund

After becoming debt-free, I felt a sense of security I’d never experienced before. Building a full emergency fund amplified that feeling.

  • Factors to consider for fund size:
  • Job stability
  • Number of income earners
  • Health considerations
  • Dependents
Expense CategoryMonthly Cost3 Months6 Months

Advice: Keep your emergency fund in a high-yield savings account for easy access and some growth.

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

This step marked my transition from defense to offense in my financial journey with the following retirement planning tips

  • Recommended accounts:
  • 401(k) up to employer match
  • Roth IRA
  • Traditional IRA
  • Back to 401(k)
Income15% Investment401(k)Roth IRA

Tip: Increase your contributions gradually if 15% feels overwhelming at first.

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

Photo by Alexander Dummer on Unsplash

As a parent, this step gave me peace of mind about my kids’ future.

  • College savings options:
  • 529 plans
  • Coverdell Education Savings Accounts (ESAs)
  • UTMA/UGMA accounts
Account TypeTax AdvantagesContribution LimitsUse Restrictions
529 PlanTax-free growthHighEducation Expenses
ESATax-free growth$2,000/yearEducation Expenses

Advice: Balance college savings with your retirement goals; your kids can get loans for school, but you can’t for retirement.

Baby Step 6: Pay Off Your Home Early

Attacking my mortgage with intensity was liberating.

  • Strategies for faster payoff:
  • Make bi-weekly payments
  • Round up your payments
  • Apply any windfalls to the principal
Original MortgageExtra PaymentYears SavedInterest Saved
$200,000 (30yr, 4%)$100/month5 years$34,513
$200,000 (30yr, 4%)$500/month11 years$65,582

Tip: Check if your mortgage has prepayment penalties before making extra payments.

Baby Step 7: Build Wealth and Give

Reaching this step was surreal. I never thought I’d be able to build significant wealth and give generously.

  • Ways to build wealth:
  • Increase retirement contributions
  • Invest in real estate
  • Start a business
Giving StrategyImpactTax Implications
Cash DonationsImmediateDeductible
VolunteeringPersonal satisfactionNon-deductible
Donor-Advised FundLong-term givingDeductible

Advice: Start giving in small amounts early to develop the habit.

Implementing the Baby Steps in Your Life

Following Dave Ramsey’s Baby Steps isn’t always easy, but it’s worth it.

  • Common challenges:
  • Lifestyle adjustments
  • Staying motivated
  • Dealing with financial setbacks
Baby StepTypical Timeline
11-2 months
218-24 months
33-6 months

Tip: Find an accountability partner or join a financial support group to stay on track.


Dave Ramsey’s Baby Steps transformed my financial life, taking me from constant money stress to confidence and security. While the journey wasn’t always easy, the peace of mind I’ve gained is priceless. If you’re overwhelmed by your financial situation, I encourage you to try the Baby Steps. Take it one step at a time, and before you know it, you’ll be well on your way to financial freedom.


How long does it typically take to complete all Baby Steps? 

It varies widely, but many people complete Steps 1-3 in 2-3 years. Steps 4-7 are ongoing.

Can I modify the order of the Baby Steps? 

While possible, following the prescribed order tends to be most effective for most people.

What if I can’t save $1,000 for the starter emergency fund? 

Start with what you can, even if it’s just $500. The important thing is to begin building the savings habit.

Is the debt snowball more effective than paying the highest interest first? 

For many people, yes. The psychological wins from paying off smaller debts can provide motivation to stick with the plan.

Should I pause retirement savings while paying off debt? 

Dave Ramsey recommends pausing all investing except for any employer match while working through Baby Step 2.

What if I don’t have children? 

Can I skip Baby Step 5? If you don’t plan to have children or fund someone else’s education, you can skip this step.

Ramsey’s plan is more conservative, emphasizing debt avoidance and slower, steady wealth building compared to other approaches.

Can I implement the Baby Steps if I have a low income? 

Yes, the Baby Steps can be adapted to any income level. The key is to live below your means and follow the steps in order.