How to Start the Baby Steps When You Are Already Behind on Bills

Dear Dave,
I’ve been listening to your radio show, and as a result I’ve decided I’m tired of living paycheck-to-paycheck and being broke all the time. I know Baby Step 1 is saving a beginner emergency find of $1,000. But do you recommend getting current on past due bills before starting the Baby Steps?
Edward 

Dear Edward, 
I love it! When people decide to change their lives, and they talk about it the way you have, I know they’re serious about making something good happen. You’re sick and tired of being sick and tired, and you’re going to get control of your money and your life. Let’s get started!

First things first. Make sure you’re up to date with all the necessities. I’m talking about food, clothing, shelter, transportation and utilities. Next, either get current—or make payment arrangements—for any consumer debt you have, including credit cards. This doesn’t include your home, but we’ll get to that part in a minute.

You’re spot-on with Baby Step 1. After that comes the debt snowball and Baby Step 2. Start paying off all debts, except your home, from smallest to largest. Once you’ve paid off this debt, you’ll be able to save more and increase your beginner emergency fund to a fully-funded emergency fund of three to six months of expenses pretty quickly. This is Baby Step 3.

At this point, you can really start planning for the future. In Baby Step 4, you’ll start investing 15 percent of your income for retirement. If you have kids, setting aside something to help them with college comes next in Baby Step 5. Baby Step 6 is a milestone. This is when you start throwing tons of cash at your mortgage, and pay off your home early. I told you we’d get back to this, didn’t I?

But Edward, the real deal is Baby Step 7. Why? Because this is when all your hard work, discipline and wise financial decisions have put you in a place where you can build wealth like crazy. Not only that, you can give and help others by being outrageously generous. At this point, you’re securing your future and helping others in a big way.

Go make it happen, dude. Take control of your finances, your life and be a blessing to others!
— Dave

* Dave Ramsey is a nine-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions. 

Dave Ramsey

Dave Ramsey is an eight-time national bestselling author, personal finance expert, and host of “The Ramsey Show.” He has appeared on “Good Morning America,” “CBS This Morning,” “Today,” Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth, and enhance their lives. He also serves as CEO of Ramsey Solutions and is the author of numerous books including Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth–and How You Can Too.