Dave Ramsey, a well-known financial expert, recently shared his ‘baby steps’ for helping people take control of their money. His advice centers on a structured plan to achieve financial freedom. Ramsey’s method starts with saving a $1,000 starter emergency fund to handle minor financial hiccups.
This initial step is crucial to prevent small, unforeseen expenses from becoming financial setbacks. The next step involves eliminating all debt (except for the mortgage) through what Ramsey calls the “debt snowball” method. Debts are listed from smallest to largest and paid off in that order with intense focus and effort.
Ramsey advises individuals to avoid discretionary spending, such as dining out or taking vacations, to expedite debt repayment. Once debt-free except for the mortgage, the focus shifts to building a more substantial emergency fund—enough to cover 3 to 6 months of expenses. This ensures financial security in the face of larger, unexpected costs.
Dave Ramsey’s step-by-step plan
Following the establishment of the extended emergency fund, Ramsey recommends investing 15% of one’s income into retirement accounts, such as Roth 401(k)s and Roth IRAs. This step is crucial for long-term financial health and retirement planning.
After securing retirement savings, the next priority is saving for children’s college education, which will vary based on individual circumstances and the child’s age. The sixth baby step involves paying off the mortgage early. Ramsey notes that many millionaires he encounters accomplish this within seven to eight years by following a solid financial plan.
Achieving a mortgage-free status significantly contributes to wealth accumulation. Finally, Ramsey suggests increasing retirement contributions and investments once the mortgage is paid off, ensuring continuous financial growth and stability. A written game plan and the EveryDollar budgeting app—a popular tool among Ramsey’s followers—are recommended to track and manage progress effectively.
Ramsey’s structured approach to financial management has helped many people achieve financial independence and security. By following these actionable steps, individuals can work towards becoming debt-free, saving for the future, and ultimately reaching financial freedom.