Dave Ramsey has been someone people looked to for financial advice for years. In fact, more than 4.5 million people have participated in his Financial Peace University. This program outlines steps to becoming financially free, but how effective are the Dave Ramsey baby steps?
What Are The Dave Ramsey Baby Steps?
Before jumping into how effective they are, you should know there are seven baby steps. Each requires you to take a good look at your finances and helps you map out your way to financial freedom. Here they are …
1. Create a $1,000 Emergency Fund
As with most financial programs, you need to establish an emergency fund before doing anything else. This will keep you from going into more debt when something unexpected happens. Because of this, it is Dave Ramsey’s first baby step.
2. Pay Off All Debt Using the Snowball Method
Depending on how much debt you have, this may seem daunting. Any extra cash you have left over at the end of the month should go towards paying off your debt. Ramsey even goes as far as to say you shouldn’t eat out, don’t do anything entertainment wise that isn’t free, until your debt is paid in full.
3. Get 3 to 6 Months of Expenses in Savings
After you’ve paid off all your debt, you’ll be surprised at how quickly you’re able to save even more cash. Then you can pad your emergency savings with a bit of extra cash. Ramsey generally recommends up to six months of expenses in a savings account. This will help in the event that you or someone in your household find themselves out of work for an extended period of time.
4. Invest 15% of Household Income Into Roth IRAs and Pre-Tax Retirement
Once your savings are up to par, it is time to invest in yourself and your retirement. As a general rule of thumb, Ramsey recommends putting 15% of your household income towards your retirement accounts.
5. Start a College Fund for Your Children
If you have kids, once you’ve started to invest in your retirement, you can begin saving for their future. There is no recommended monthly or annual amount you should put towards this. It is up to your own discretion. However, you do want to keep in mind, if you can prevent your children from holding a ton of student loan debt, you should.
6. Pay Your Home Off Early
Now that your child’s college fund has been padded, you can look to paying off your mortgage early. And, if you don’t have children, this would be the next thing to tackle. You could save yourself thousands of dollars by paying your home off early. Not to mention, it will get rid of the last bit of debt you owe.
7. Build Wealth and Give
So, now you’ve paid off all your debt, accrued savings, paid off your mortgage, and invested in yourself. What do you do now? Ramsey recommends continuing step number four and max out your contributions to retirement accounts each year. You can also look for new things to invest in and build wealth.
Lastly, Ramsey is a huge believer in donating money if you are well off. Find a good organization you’d like to donate to or give to your church. Not only are these donations tax-deductible but they will make you feel great. In fact, Ramsey says it is one of the most rewarding things about being debt free.
How Effective is the Program?
The program has proven to be extremely effective for many people. In fact, there are numerous testimonials on Dave Ramsey’s website about how many families this has helped. One family gave credit to Ramsey’s Baby Steps for helping them paying off $162,000 of debt in just seven years.
Getting Access to the Baby Steps
As previously mentioned, these baby steps are part of Ramsey’s Financial Peace University course. The program is nine weeks long. It walks you through each baby step and how to put them to work in your own life. It generally costs about $129. Occasionally, you can find it on sale. So, if you are interested in starting the program, check Ramsey’s site regularly.
If you’re looking for a cheaper way to get access to Ramsey’s baby steps, you can also look into purchasing his best-selling book The Total Money Makeover. The book shares inspiring stories of others who have become financially free by following the Dave Ramsey Baby Steps.
Lastly, you can also sign up on Dave’s site for a seven-day email series that provides tips on how to work the Baby Steps faster. The email series is 100% free.
All in all, Dave Ramsey has been able to help millions of people climb out of debt and get back on top of their lives financially.
Have you taken the nine-week Financial Peace University course or otherwise followed Ramsey’s Baby Steps? Did you have success with the program?