Dave Ramsey's 7 Financial Baby Steps List (2024): Ultimate Guide

What are Dave Ramsey’s Baby Steps?

Finding a great debt management plan is one of the best ways to start taking control of your finances.

This is especially true if you’ve got bad money habits to break, aren’t sure what steps to take, or just need a roadmap for some added accountability.

One of the most popular budgeting plans is one by Dave Ramsey.

Dave Ramsey is a well-known personal finance expert, author, and radio show host from the United States.

He is widely recognized for his practical and straightforward approach to managing personal finances, and his simple plan outlines seven steps to help you get control of your money, tackle your debt, and save for your future.

These seven steps are known as the Dave Ramsey Baby Steps.

These baby steps provide an excellent framework to help plan your spending so you’re working toward an ongoing goal of improving your family’s financial situation.

It’s also the system I highly recommend to all of my fabulous readers here on the Mom Money Map blog because the system works when you put in the effort!

And even though I will be talking about Dave Ramsey’s Baby Steps framework in this blog post, I am going to sprinkle in my own thoughts and tips as a fellow mom to help you apply these things in your family’s life.

So, if you’re ready to learn more about the Dave Ramsey solution and how you can apply it to your life, keep on reading!

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Who is Dave Ramsey?

As I mentioned above, Dave Ramsey is a radio personality and author who turned his story of past financial failure into massive wealth to teach people how to manage their money.

Ramsey coined his method in the 1990s, and since then, he has been teaching countless families how to take control of their budget in seven easy-to-understand steps.

Ramsey started as a real estate mogul who lost everything when he went bankrupt.

This experience motivated him to regain control of his finances, eventually leading to the creation of his popular seven-step method.

He has since turned his financial plan into a multi-million dollar company.

In addition to authoring several books about financial planning, he is also a popular public speaker and educator in the field of finances.

His radio show, “The Dave Ramsey Show,” is nationally syndicated, reaching millions of listeners with practical advice on budgeting, debt reduction, and wealth building.

His straightforward approach and relatable personal story resonate with people looking to improve their financial situation, making him a trusted figure in the world of personal finance.

But more than that, it’s the results his system helps people achieve.

People from all walks of life have shared their journeys of paying off debt, building savings, and achieving financial peace, thanks to Ramsey’s guidance.

This tangible evidence of transformation is what truly sets him apart as a trusted and influential figure in personal finance.

Dave Ramsey Baby Steps List

The foundation of Dave Ramsey’s financial plan centers around seven baby steps.

This baby steps list is a breakdown of each of the steps you’ll follow as you move through the plan:

Save $1,000 for a starter emergency fund.
Pay off all debt (except your mortgage) using the debt snowball method.
Save three to six months of expenses in a fully funded emergency fund.
Invest 15 percent of your income toward your retirement.
Start saving for your children’s college fund.
Pay off your mortgage.
Build wealth and give money to charity.

If you’re looking for a way to track your progress throughout each baby step:

✅ Here’s a Dave Ramsey Baby Steps Tracker. It’s a printable PDF. There are color and black & white options. If you’re interested in purchasing this printable, you can click here to get a 15% off coupon.

Now that you’re familiar with the seven basic steps in Dave Ramsey’s plan, let’s take a look at each baby step in more detail to understand how to navigate the entire process.

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

The first step in Dave Ramsey’s financial plan is to start saving for emergencies.

Isn’t it the worst when you start to make a little progress in paying off your debt, and then something unexpected arises, and you’re forced to use loans or credit cards to deal with it, erasing all the progress you just made?

Talk about a motivation killer to keep paying off your debt.

Having an emergency fund can help combat this since you can use those funds to pay for any emergencies that fall outside your budget.

But before you can build a fully funded emergency fund, you’ll need to start with a smaller goal of $1,000.

This small amount provides you with a bite-size goal to get you started on your financial journey.

It’s specific, attainable, and will help boost your motivation toward your financial journey when you’re able to achieve it.

This emergency fund can be used any time you need emergency cash – from paying for unexpected car repairs to covering emergency medical expenses.

To ensure your family is ready when emergencies happen, it’s a good idea to start setting money aside today.

If you’re looking to track your emergency fund, here’s my emergency fund tracker printable that has a specialized $1000 emergency fund tracker.

There are also other quantities and blank options. It comes in black & white as well as color.

How to save money for your emergency fund.

Building an emergency fund sounds good on paper, but you might be wondering how to find the extra money to save for your emergency fund.

Tip Number One – Take A Critical Look At Your Budget

If you’re finding it hard to find ways to save money for emergencies, you may need to take another look at your budget.

Or start a budget if you haven’t already.

Then, find areas you can decrease your spending slightly, allowing you to reallocate that extra money toward your savings.

Related articles on how to decrease your spending:

The things I stopped spending money on (which didn’t impact my quality of life)
Best money-saving tips and tricks
How to save money on your utility bills
How to save money on groceries

Tip Number Two – Track Your Spending

If you’ve got a good-looking budget, but what you’re spending each month just doesn’t line up, I recommend tracking your family’s spending purchase by purchase for at least 30 days.

It’s easy to just swipe your debit or credit card without thinking about it, but all of these transactions add up quickly over time.

Tracking your spending will help you see where your money’s really going.

If you’re having a hard time getting your significant other to rein in their spending, here are some articles you might find helpful:

Tip Number Three

You could also think about ways you can earn extra money to put toward your $1,000 goal, including selling unwanted items from around your house, working extra hours at your job, or starting a side hustle to earn extra income.

Here are over a dozen ways to earn $100 fast.

Here are the best work-from-home jobs that offer flexible hours and great pay.

Then, continue working toward adding money to your emergency fund until you have reached your $1,000 goal, and then move on to step number two.

Step 2: Pay off all debt. (Except your mortgage)

The sad reality in today’s world is that the majority of families have some debt they need to take care of before they can be financially free.

So if you’ve got debt, don’t feel bad – you’re definitely not alone.

Whether you have to manage a large or small amount of debt, using Dave Ramsey’s snowball method is one of the best ways to chip away at your debt so you can move on to the next baby step in the plan.

Using the snowball method, you’ll pay off all your debt, with the exception of your mortgage. You’ll work toward paying off that larger bill later in the plan.

During this step, you’ll start with the smallest debt and end with the largest until all your debt is fully paid off.

Types of debt to pay off during this step include:

Credit cards
Car loans
Student loans
Medical bills
Payday loans
Home equity loans
Personal loans
Car repairs
Store credit cards
Furniture or appliance financing

To get started on a debt tracker:

Make a list of all your debts, including the amount you owe.
Put the bills in order, with the smallest balance on top and the largest balance on bottom. With this list, you’ll know exactly where you need to start on your debt payoff snowball.
Put all your effort toward paying off your smallest debt first. To start, I recommend using the money you had set aside to contribute toward your emergency fund to add to the minimum monthly payment you’re already making on your debt. Then, if you can, find additional ways to put money toward the bill until it’s fully paid off.
After your smallest debt bill is paid in full, put the money you were paying on the minimum payment for that bill toward the next debt item on your list.
Keep working on paying off that debt until it’s fully paid, then continue down the list in the same manner.

As you work your way down your debt list, you’ll be able to contribute more and more money toward each debt payment, allowing you to quickly tackle your larger debts with ease.

Here’s my debt tracker, which is based on Dave Ramsey’s debt snowball method.

It tracks up to 10 debts over 10 years, highlights paid debts, and includes a debt-free date.

*Bonus tip – whenever you pay off one of the debt bills on your list, take some time to celebrate these milestones with your spouse!

First and foremost, celebrating will help you keep the motivation to continue high and help you build more momentum.

Secondly, this is an excellent opportunity to reflect with your partner on the progress you’re making.

You can celebrate by sending the kids to their grandparents for a kid-free night alone, going on a picnic, or doing an activity together that you enjoy.

Step 3: Save three to six months of expenses in an emergency fund.

Once you have all your debt paid off, you can start working toward creating a fully funded emergency fund for your family.

That typically entails saving three to six months of living expenses to help cushion your family in the event of a big financial issue, like a job loss.

The amount of money you place in your emergency fund will depend on your family’s financial situation.

For example:

If you are a two-income family, having a minimum of three months of expenses in your fund is a good choice.
If you are a one-income family, it’s a good idea to fully fund your emergency fund with at least six months of expenses.

To plan out your fully funded emergency fund:

Start by calculating all your essential monthly expenses to determine how much you’ll need for your necessary bills each month, such as groceries, mortgage payments, and utility bills.
Multiply that by three months or six months, depending on your financial situation, to see the bare minimum you’ll need to accumulate in your emergency fund.

Luckily, at this point, you should have some wiggle room in your budget thanks to the reduction in debt you finished in the previous step.

Use the money you were paying toward your debt payments to start building up your emergency fund.

You may also want to consider keeping the money in a high-interest savings account to help you earn interest on the money you’re saving.

Step 4: Invest 15 percent of your income toward retirement.

Congratulations are definitely in order once you hit step four, so give yourself a pat on the back!

You’ve been working hard toward paying off your debt and saving for emergencies – both tasks are focused on helping you in the present.

But once you have those tasks completed, it’s time to start thinking about your future.

Whether your retirement is decades away or is creeping closer than you’d like to admit, it’s always a good time to invest in your future by putting money in a retirement account.

To determine how much money you’ll need to invest toward your retirement each year:

Start by figuring out how much your total household income is for the year.
Then, multiply that number by 0.15 (or 15%). That number is the amount of money you’ll need to invest to reach the minimum requirement of this baby step.

If you think you’ll want a different lifestyle in retirement because you plan to do more traveling, live somewhere with a higher cost of living, or want to financially help your family, you may want to go even higher than 15 percent, but that’s entirely up to you.

Once you’ve got a figure in mind, you’ll need to start looking at different ways to invest.

There are a few different ways you can tackle this step, depending on your financial situation and options at work.

First, investigate your employer’s 401k option. If you have an option to invest in a 401k, start by investing a portion of your income into this account. A 401k is a great choice because it allows you to invest pre-tax dollars toward your retirement. The maximum amount you can invest into your 401k each year is $18,500. So, if 15 percent of your annual income is more than that amount, it’s a good idea to look into other investing options.
Beyond a 401k, you can also invest your money into an IRA to be used in retirement. A Roth IRA allows investments up to $5,500 per year, making it a great secondary choice for investing your money toward retirement.

Here are some other investment options you might consider:

Stocks
Mutual funds
Index funds
Bonds
Real estate
Health savings account

If you don’t yet have a financial advisor or planner, this might be a good time to consider getting one.

They can help you identify your risk tolerance and what you can afford and then create an investment portfolio that works well for you.

dave ramsey 7 steps to financial freedom

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

If you don’t plan on having kids or your kids are already grown, you can skip this step and move on to baby step number 6.

But if you do have kids at home, planning for their future education is an essential step toward financial freedom.

In addition to allowing you to reduce future debt you may incur to pay for your child’s education when they’re ready to go to college, it also helps reduce your kids’ financial burden as they work their way through school.

It’s important to note that while you will start this step after setting up your retirement fund, saving for your children’s college fund does not replace the amount of money you’ll be contributing to your retirement.

These steps will work in conjunction with each other, allowing you to work toward both baby steps at the same time.

That means you’ll need to be able to allocate a certain amount of money toward a college fund as part of your monthly budget, just like you’ll be allocating money toward your retirement.

Creating an Educational Savings Account or 529 savings funds are both great options for saving for your children’s college.

These plans offer great tax breaks for families, including tax-free withdrawals when the money is used to pay for college.

Step 6: Pay off your mortgage.

Once you’ve got a solid plan in place to chip away at your retirement funds and kids’ college funds, it’s time to look at the next big step in Ramsey’s 7-step financial plan, which is paying off your mortgage.

Your mortgage payment is likely your biggest monthly expense.

What would it look like for you if that monthly payment was eliminated?

Think about what you could do with that extra money!

After completing this step, you’ll have the freedom to build your wealth and contribute that ongoing payment to something you love.

But paying off your mortgage won’t happen overnight.

However, you can tackle this big goal by taking a few extra meaningful steps each month.

Start by looking into the possibility of refinancing your home.

A mortgage refinance can help you reduce your monthly payments, allowing you to put more money toward the principal of the loan each month.

Or you can reduce your loan terms, cutting down the number of payments you need to make until your loan is paid off.

If refinancing isn’t an option, or you want to take a more aggressive approach toward paying off your mortgage, consider making extra payments whenever possible.

Each extra payment you make toward your mortgage will take one month off the total length of the loan. And you’ll be drastically reducing the amount of interest you pay over the life of the loan.

Just as you’ll be working toward contributing to retirement and your child’s college fund at the same time, you’ll need to find a way to incorporate paying off your mortgage into your ongoing budget.

These three steps will work in conjunction until you’re ready to move on to the final baby step in the plan.

Step 7: Build wealth and give back.

When you finally have your mortgage paid off, it’s time to move to the final step of the Dave Ramsey plan – building wealth and giving back.

Start by making sure you’re maxing out the annual contributions to both your 401k and IRA.

After you have reached the threshold for both accounts, find new, fun ways to use your remaining wealth.

You can contribute to your favorite cause or spend your money without guilt because you know your future is taken care of.

Dave Ramsey Baby Steps Tips

Now that you know how to work your way through Dave Ramsey’s baby steps, you’re probably ready to get started!

But taking the first step toward building an emergency fund and eliminating your debt takes a little more effort than just committing to improving your finances.

To be successful, you’ll need to follow a few simple tips and guidelines as you work your way through the plan.

These Dave Ramsey tips and tricks will help you work through each step in the plan.

1) Start with a zero-based budget.

If you detest budgeting, I’m sorry to say – you’ll need to deal with it because budgeting is essential to take control of your money and be able to start working toward these steps!

Following a monthly budget will help you:

Rein in your spending, if needed.
Calculate precisely how much money you have to contribute toward your emergency fund and debt snowball.

Ramsey recommends using a zero-based budget to help you gain ultimate control over your spending each month.

This budgeting method allows you to allocate all your income to each budgeting category every month, ensuring nothing is left over to be spent poorly at the end of the month.

This is my budget spreadsheet.

It’s simple to use and has a bill tracker!

You can also adapt the zero-based budgeting style to this spreadsheet.

If you prefer budget books, here’s a list of the best paper budget planner books.

Related:

Here are budgeting tips to create a simple budget.
Here’s an extensive list of budget categories and subcategories so you don’t forget about any expenses.

2) Avoid credit cards.

Since the point of the baby steps in this plan is to eliminate debt, avoiding credit cards is a good idea.

Instead of paying for something with a credit card, save up for the item and pay in cash to reduce the likelihood of incurring debt as you work through the plan.

Also, resist the urge to sign up for store credit cards while you’re out shopping for your household essentials.

3) Pay with cash.

In fact, Ramsey recommends paying with cash whenever possible.

Every time you pay using a method other than cash, you run the risk of going over budget or overdrawing your checking account and incurring fees.

Using cash allows you to easily track exactly how much money you have to spend at any given time, so you essentially never go over budget.

Plus, I think we can all agree that it’s a lot harder to spend money when you can physically see how much you’re handing over versus when you’re just swiping your cards all the time.

To make it easier to track your cash, you can use a cash envelope planner.

LXWHYP Money Saving Binder, Savings Challenges Book with for Cash Envelopes, 12pcs Zipper Envelopes A6 Budget Binder, Budget Planner for Managing Budgets and Saving Money -(Green-7.4IN)

This system features 12 cash budget envelopes and 12 expense budget sheets to help you track your family’s cash spending each month.

You can store everything in a budget binder so your finances are accessible.

dave ramsey's seven financial baby steps

4) Trim your expenses.

As you work your way through each step of the plan, you’ll see that you’re going to constantly need to find money in your budget to use toward your financial goals.

That means you’ll need to take a critical look at your spending on a regular basis to find ways to reduce the amount of money you spend each month.

Taking the time to evaluate your expenses on a regular basis is one of the best ways to work your way through each baby step quickly and easily.

5) Increase your income.

In addition to taking a look at your expenses each month, another great way to help achieve your financial goals is to find ways to increase your income.

Adding to your monthly income will allow you to dedicate more money toward each baby step, helping you complete the financial plan more quickly.

You can do this by looking for different positions in your industry that pay more, moving into a new field, starting a side hustle, etc.

Don’t be afraid to look past your own home, too.

You can earn extra money by selling things you no longer need, renting out tools and equipment that you already own, renting out an extra room in your house, etc.

6) Have regular money meetings with your spouse.

Lastly, schedule regular money meetings with your spouse to sit down and go over your spending.

The responsibility of building your wealth does not need to fall squarely on your shoulders alone.

So, make time to check in with your partner, discuss how you can reduce spending, plan for upcoming expenditures, go over your money goals, and anything else that is important for you and your partner.

If you need ideas of what to talk about at this meeting, there are over 120 great financial questions you can start with here.

Dave Ramsey Baby Steps List: How To Manage These 7 Financial Steps