Dave Ramsey’s 7 Baby Steps To Financial Freedom: Will They Work For Your Family?

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A couple years ago, we started Dave Ramsey’s 7 Baby Steps to achieve financial freedom. We saved our starter emergency fund and paid off a good chunk of debt, but we never learned to budget. So, we fell back into old spending habits.

Fast forward to last year, we were still deep in debt and struggling. We had to make a choice…to live broke with no plan or change our lifestyle and financial future. This time, we had no choice but to get serious.

So, we invested in Financial Peace University and started the 7 Baby Steps. With the knowledge and guidance, we got from the program and following the Baby Steps, we got rid of $227,000 of debt in the last year.

We are now working our way through the 7 Baby Steps to build wealth and financial freedom.

Below is an explanation of each of the baby steps and how to get started. Hopefully, this will help you decide if Dave Ramsey’s Baby Steps to financial freedom are right for your family.

Disclaimer:  This post may contain affiliate links. This means I receive a small commission, at no extra cost, if you purchase using the links below. Please see my earnings disclaimer for more details.

What are the Baby Steps?

Dave Ramsey created the 7 Baby Steps to help people learn how to manage their money. These baby steps guide you through paying off debt, saving, and building wealth.

Baby Step 1: Save $1000 in a starter emergency fund

A starter emergency fund is the first step and really the key to not taking on more debt.  

The first thing you do is save $1000. Don’t try to make extra payments on debt until you have your starter emergency fund. This money will help you cover any emergencies that happen while you are paying off your debt.

Now $1000 is a good chunk of money, especially when you have very little to squeeze from your already tight budget. So, here are some ways to get your emergency fund started.

Budget

You have to start making a plan for your family’s money. Most of us find that we have more money than we thought when we actually sit down and look at the whole picture.

Cut cost

Look at where you can cut costs within your budget. Freeing up that extra money can go toward your emergency fund.

Negotiate bills

Call your providers and negotiate a lower rate. Most times you can get a better deal.

  • Phone company
  • Internet provider
  • Insurance company
  • Credit card company

You can also use the app Trim and let it do all the negotiating for you.   

baby steps to financial freedom

Cashback apps

If you have to spend money, why not make some cash back while you’re at it? Cashback apps like Ibotta and Rakuten are awesome to use.

Baby Step 2: Pay off all debt except for your mortgage

The second step is to pay off all of your debt except for your mortgage. Yep…this includes those dreaded student loans.

The strategy for paying off debt is known as the debt snowball. This is where you will list all of your debt, starting from smallest to largest…it doesn’t matter what the interest rate is.

This is the order in which you pay down your debt. You make all the minimum payments, and then any extra money you put toward that smallest debt.  

After you pay off the smallest debt, continue down the list. With each debt paid off, you will have more to pay towards the next debt…like a snowball rolling down a hill.

By paying off your smallest debts first, you get the motivation you need to keep going. 

Eventually, you start seeing the light at the end of the tunnel. So, here are a couple ideas to get started paying down your debt.

Minimize and sell your stuff

Dave says, “sell so much, your kids think their next”…HA! We found that embracing a more minimalistic mindset not only helped our mental health, but it helped us make some extra cash to put toward our debt.

Pick up a second job or a side hustle

You have to increase your income to pay more toward your debt. So, turn a hobby into a side hustle or take on a second job.

I know…no one wants to work a second job, but those credit cards aren’t going to repay themselves.

Sell a car

This may sound crazy, but if your car payment is that of a small mortgage, you may want to consider selling it. Get rid of that ridiculous car payment and get something more affordable.

Sell a house

Another somewhat extreme way to get rid of debt is to sell your house. If you’re struggling to make your mortgage payment because you’re house-poor, this may be an idea to think on.

We owned a rental property that we had been underwater for the past 12 years. Finally, we had enough equity in the house to break even when we sold it.

After we sold it, we were $190,000 lighter in debt. We would never have thought to sell it if we didn’t make the decision to become debt-free.

Baby Step 3: Save 3-6 months of expenses in your emergency fund

Step 3 is to finish saving your emergency fund. You should save 3-6 months’ worth of expenses in a savings account designated for emergencies.

Personally, I would suggest saving closer to six months if you can. That way, in the event of job loss (or just plain old shitty luck), you’re prepared.

Baby Step 4: Save 15% of your household income for retirement

The fourth step is to save 15% of your household income toward retirement. This 15% can be contributed toward your 401k, put into a Roth IRA, or another type of investment.  

baby steps to financial freedom

Baby Step 5: Save for your kid’s education

Baby Step 5 is saving for your children’s education. There are a couple different options on how to save.

Education Savings Account or ESA

An Education Savings Account (ESA) allows you to contribute up to $2,000 a year per child and grow tax-free.

529 Plan

A 529 is an education savings account that allows you to contribute more than an ESA and grow tax-free.

Uniform transfer to minors act or UTMA

A UTMA is a savings account managed by a parent until the child is of a certain age. When the child reaches the age of transfer, they are then in control of how the money is spent (education or other).

Baby Step 6: Pay off your home early!

Step six is to pay off your home early.

Baby Steps 4-6 can all be done simultaneously. You just have to make sure to prioritize them in the same order.

Baby Step 7: Build Wealth and Give

After you are 100% debt-free, you can invest in building your wealth, being generous, and spend however you want…just make sure it’s in the budget!  

Conclusion

We tried many times before to pay off debt. It wasn’t until we made the decision to get serious and put the baby steps in action that we were able to finally succeed.

These baby steps are a guide of exactly how to become debt-free and build wealth. If you are ready for a change and dedicated to getting there, I think you will find the baby steps invaluable for your family.

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