Dave Ramsey’s “Baby Steps” is a financial plan that aims to help individuals get out of debt and build wealth. The plan consists of seven steps, each of which focuses on a different aspect of personal finance.
Step 1: Save $1,000 for an emergency fund The first step in the Baby Steps plan is to save $1,000 in a dedicated emergency fund. This fund is meant to be used for unexpected expenses such as car repairs or medical bills, and it is important to have it in place before tackling any other financial goals. This step is designed to help individuals avoid going into debt when unexpected expenses arise.
Step 2: Pay off all non-mortgage debt using the “debt snowball” The second step is to pay off all non-mortgage debt using the “debt snowball” method. This means paying off the smallest debt first, regardless of the interest rate, and then moving on to the next smallest debt. As each debt is paid off, the individual’s available funds increase, making it easier to tackle larger debts. This step is meant to provide a psychological boost and help individuals see progress in their debt repayment efforts.
Step 3: Save 3-6 months of expenses in an emergency fund Step 3 is to save 3-6 months of expenses in an emergency fund. The emergency fund will provide a safety net and help you avoid going into debt in case of a job loss or other financial emergency.
Step 4: Invest 15% of household income in Roth IRA or 401(k) Step 4 is to invest 15% of household income in a Roth IRA or 401(k) for retirement. This step is designed to help individuals build wealth for the long-term and ensure a comfortable retirement.
Step 5: Save for children’s college education Step 5 is to save for children’s college education. This step is designed to help parents provide for their children’s future education expenses.
Step 6: Pay off your home early Step 6 is to pay off your home early. This step is designed to help individuals become mortgage-free and increase their net worth.
Step 7: Build wealth and give Step 7 is to build wealth and give. This step is designed to help individuals build wealth and share it with others.
In conclusion, Dave Ramsey’s Baby Steps is a comprehensive and easy-to-follow financial plan that can help individuals get out of debt, build wealth and secure their financial future. By following these seven steps, individuals can take control of their finances and achieve their financial goals.