The 7 Baby Steps
What Are the Baby Steps?
Dave Ramsey's 7 Baby Steps will show you how to save for emergencies, pay off all your debt for good, and build wealth. It’s not a fairy tale. It works every single time!
Step 1: Save $1,000 for Your Starter Emergency Fund.
In this first step, your goal is to save $1,000 as fast as you can. Your emergency fund will cover those unexpected life events you can't plan for. And there are plenty of them. You don’t want to dig a deeper hole while you’re trying to work your way out of debt!
Step 2: Pay Off All Debt (Except the House) Using the Debt Snowball.
Next, it’s time to pay off the cars, the credit cards, and your student loans. Start by listing all of your debts except for your mortgage. Put them in order by balance from smallest to largest. This is called the debt snowball method, and you’ll use it to knock out your debts one by one. Our class, Financial Peace University, shows you how to pay off your debt using the debt snowball method and start saving for the future.
Step 3: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund.
You’ve paid off your debt! Don’t slow down now. Take that money you were throwing at your debt and build a fully funded emergency fund that covers 3–6 months of your expenses. This will protect you against life’s bigger surprises, like the loss of a job or your car breaking down, without slipping back into debt.
Step 4: Invest 15% of Your Household Income in Retirement.
It's time to get serious about retirement—no matter your age. Take 15% of your gross household income and start investing it into your retirement. Start with your company’s 401(k) plan and receive the full employer match. Invest the rest into Roth IRAs—one for you and one for your spouse (if you’re married).
Step 5: Save for Your Children’s College Fund.
By this step, you've paid off all debts (except the house) and started saving for retirement. Next, it's time to save for your children’s college expenses (that is, if they make it through Algebra II and Chemistry unscathed). We recommend 529 college savings plans or ESAs (Education Savings Accounts).
Step 6: Pay Off Your Home Early.
Now, bring it all home. Baby Step 6 is the big dog! Your mortgage is the only thing between you and complete freedom from debt. Can you imagine your life with no house payment? Any extra money you can put toward your mortgage could save you tens (or even hundreds) of thousands in interest.
Step 7: Build Wealth & Give.
You know what people with no debt can do? Anything they want! The last step is the most fun. You can live and give like no one else! Keep building wealth and become insanely generous. Leave an inheritance for your kids and their kids. Now, that's what we call leaving a legacy!
Why the Baby Steps Work
Forget everything you know about money-management plans. With Dave’s 7 Baby Steps, you don't need a degree in finance to take control of your money. Anyone can do it! With each step, you’ll change how you handle money—little by little.
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Want to Read Dave Ramsey's books?
Don't worry, we've got you covered! Once you become a Family Legacy client, you will have access to ALL of Dave Ramsey's books. All you have to do is ask one of our advisors, and they will get you a copy to read.