7 Dave Ramsey Baby Steps For Financial Freedom [Make it Work]

Want to get a hold of your financial life? Why not try and follow the Dave Ramsey baby steps that promise to help you get the most out of life and work your way towards a better, more financially stable future

Let’s be honest, getting out of debt and being independently wealthy sounds like two life achievements reserved for special people only. However, it is precisely what most of us need to follow and actually do at some point in our lives. 

What do we need to do to actually do this? This is the challenge almost all of us must take. 

Becoming debt-free gives you peace of mind since you don’t owe anything to anyone. You have all the freedom to make financial decisions on your own. You are literally in control of your finances. Sounds good, right?

Moreover, the feeling of security, where you don’t stress yourself about how you can pay off your debt and at the same time be able to cope with your daily expenses. This is something that can make your life so much better.

In this article, learn about Dave Ramsey’s baby steps and how you will apply them in your finances. Just don’t follow them blindly. Understand these suggestions and think about what actually works for your situation.

Who Is Dave Ramsey?

David Lawrence Ramsey, more commonly known by his internet name Dave Ramsey, is one of the most widely acclaimed personal financial advisors in the US. 

He is mainly known for his step-by-step guide on how to get out of the financial crisis and work towards financial integrity, known as the Dave Ramsey Baby Steps. He has also made a career for himself as a businessman, radio host, and author.

During his earlier years, Dave quickly got into business due to his parents, who were real estate developers. At the age of 18, he had already become a part of his family business and had started selling real estate. By the age of 26, Dave had already accumulated a net worth of $4 million, which is a massive sum. However, in the very next year, due to the Competitive Equality Banking Act, Dave went into debt he couldn’t get out of and filed for bankruptcy.

So it is safe to say that what Dave has said comes from an experience that he went through himself. After going through the ordeal, Ramsey decided that he would help others protect themselves from such consequences and stop them from paying the “Stupid Tax” (mistakes that might cost you money). 

In his pursuit to help people protect themselves from debts and achieve financial peace, he ended up erecting an empire of economic gains. His empire includes:

The Dave Ramsey Show

A popular radio show hosted and founded by Dave Ramsey, where you can tune in, call up Dave, and seek direct financial advice relating to your money problems and financial questions.

The Total Money Makeover 

The title of Dave’s best-selling book – The Total Money Makeover. It has helped countless people find direction in their financial lives and has helped numerous more become debt-free.


Ramsey+ is a complete package including some of the best financial aid services provided by the man himself, such as Financial Peace University, EveryDollar, and much more.


Dave Ramsey created a budgeting app that helps you find a perfectly balanced budget during your everyday life.


The entirety of Ramsey’s work was brought to a single place on his website called RamseySolutions, which has been providing individuals with financial aid for a long time now. It contains all of the assets, as mentioned earlier, and much more.

What Are The Dave Ramsey Baby Steps?

However, Ramsey wouldn’t have gotten the recognition he has if it wasn’t for the Dave Ramsey Baby Steps, a guide that helps people get out of debt, and it consisted of the following steps:

Baby Step 1: Save $1,000 in an emergency fund

Baby Step 2: Pay off all debt (except your mortgage) using the debt snowball method

Baby Step 3: Save 3-6 months of expenses in the form of an emergency fund

Baby Step 4: Invest 15% of your household income towards retirement

Baby Step 5: Save for your children’s education fund

Baby Step 6: Pay off your mortgage early

Baby Step 7: Build wealth and give back

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If you are looking to get on track with your finances, these steps are a perfect and trusted way of doing so. If you think this could help you out, stick around as we explore these steps in detail and try to drive out the meaning Dave intended.

Breaking Down The Dave Ramsey Baby Steps!

Let’s dive right into it and find out how Dave Ramsey tells us to pay off debts and live a financially free life!

Baby Step 1: Save $1,000 In An Emergency Fund

Do you know what an emergency fund is? It is your go-to stash of money that you have saved if an emergency arises and you would have to make some payments. This is why it is always a good idea to have a fall-back plan in the form of an emergency fund. 

A recent survey has shown that 78% of American workers live paycheck to paycheck. If an emergency does arise in their life, they end up paying for it by borrowing money from someone or taking up a loan, which adds up to their debt and may cause problems in the long run.

This is why Dave suggests having an emergency fund of at least $1000 because that’s the amount that would help you get out of most small emergencies. 

You can do this by setting up a budget for yourself from your next paycheck; start small till you reach $1,000, and keep on adding to it to have an emergency fund.

My Point Of View – Baby Step 1

I agree with Dave Ramsey that you need to start off building your emergency fund. $1,000 may be enough for some individuals who have low expenses. 

For me, it’s not enough to cover a lot of emergencies. If your washing machine breaks, or if there is a leak in your roof, or if your car needs a part replacement, you’ll need more than $1,000. And what if something happens to the economy and you lose your job? It’s not something that happens a lot, but it’s something that $1,000 nowadays is not that big enough to cover a lot of emergencies.

I think creating a budget that works for you should be first and foremost. You can track your expenses, and by that, you will know how much to set aside without going into debt.

Baby Step 2: Pay Off All Debt Using The Debt Snowball Method

The second step is to prioritize paying off your debts, including your credit card debts, student loans, personal loan debt, and car loans. Dave Ramsey’s baby steps use the debt snowball method, which means that you start from the smallest debt and work your way toward the largest one. But how do you do this?

Paying off your debts in baby step 2 does not include paying off your mortgage. It includes student loan debt and consumer debt like credit card debt.

Similar to step one, you use your budget to pay off your debts. After taking out the money for your emergency fund, it is time to set aside an amount that would go towards your debt repayment. 

Paying the smaller debts first can have a big psychological effect, making you more motivated in your debt payoff journey. However, it’s important to know that it’s not the only way you can pay off your debt.

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My Point Of View – Baby Step 2

While some people find it helps them start paying off their lowest debt, it doesn’t make any sense mathematically. You need to consider the interest rate of your debts.

If your interest rate is high, you want to pay off your debt quicker as the interest rate will keep piling up. 

For example, you have $15,000 in student loan debt, and you have a $20,000 loan on your car. Let’s say your student loan has a 4% interest rate, and your car loan has an 8% interest rate. 

According to the snowball method, you’d pay off your student loan debt first. And then your car loan. But you pay more interest for your car loan, so why not start there?

Still, it’s up to you which preference you will follow. If you are very detailed on numbers, of course, you will go for paying high-interest rates first. But, if you are stressed about paying off debts, then the debt snowball method can be perfect for you since it will give you quicker results.

Baby Step 3: Save 3-6 Months Of Expenses

The third step involves revisiting the first step, as now that all your debts are paid off except for your mortgage, it is time to make a proper emergency fund. 

This time, we are looking to cover more considerable expenses that may pop off out of nowhere. There are bigger emergencies, like losing a job or a relative that needs long-term care. We want you to be prepared for something like that, and so does Dave Ramsey.

However, you might face uncertainties that these steps do not account for, such as you not owning your own house yet but have planned for it further down the line. The entire purpose of setting up this baby step is to ensure that you do not proceed to take on more bad debts and are prepared for whatever life has in store for you.

My Point Of View – Baby Step 3

I agree with saving 3-6 months of expenses. I have 6 months of expenses in cash for emergencies. It’s better to be prepared than to be sorry, right?

This may not be applicable to everyone since we all have different needs and wants. It may be different depending on if you own a home, have kids, or own a car. In short, it all comes down to your budget. So first your situation so you can better assess what is the right amount for you.

[Related Read: How To Build Your Own Money Making Machine Now]

Baby Step 4: Invest 15% Towards Retirement

Now that you have taken care of most of your liabilities, it’s time to work towards your future. And that involves investing and saving up. The best way to go about this is to start investing in a Roth IRA, or 401k. or a mutual fund. 

The Dave Ramsey baby steps suggest taking out at least 15% of your household income, and he has the math to back it up. 

As a general rule, if you have 25x of your annual income saved towards retirement, you would be able to live comfortably. If you take out 15% of your annual salary, then within 40 years, you will have saved up enough to depend upon for the entirety of your remaining lifespan.

My Point of View – Baby Step 4

I’m a firm believer in FIRE – Financial Independence and Retire Early. Taking out 15% of your annual salary will mean that you need 40 years to save completely for your retirement. However, if you start saving for retirement later or want to retire early, it would be better to save more.

If you want to be safe, follow the 50/30/20 budget, where you put a minimum amount of 20% into savings. 

Happy Young Woman Using A Calculator And Holding Money
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There are a lot of ways to build up your money for retirement. You may invest in stocks, bonds, or ETFs to grow your money. You may try low-cost funds, M1 Finance or DEGIRO to start your investment needs. Check my full M1 Finance review and DEGIRO review for more information.

[Related Read: The Rule Of 25 To Know How Much You Need For (Early) Retirement]

Baby Step 5: Save For Your Children’s College

Now that you have a plan for the future, it is time to take care of your more immediate responsibilities, and that would be to look out for your children, especially toward their education.

Many funds help you save up specifically for a child’s education, and they work similarly to the Roth IRA as they require a regular investment till you can save up a college fund. One of the best ways to do this would be to open up an Education Savings Account (ESA), a tax advantage account, so you would be getting tax relief as you work towards providing your kids with a better future.

My Point Of View – Baby Step 5

This is a good step for me. Saving for your kid’s education is a very special thing that you can give to your kids. Having to see them graduate from a college or university can be one of your greatest achievements.

However, I want to remind you that you don’t have to do everything on your own; our kids can work throughout college. You don’t have to bend over backward to get your kid’s college education if it’s not possible for you. 

We have our dreams for our kids but remember that they also have their own goals in life once they do get older. 

Baby Step 6: Pay Off Your Home Early

Baby step 6 suggests that you pay off your mortgage as early as possible, despite the interest rates. Dave says that missing out on a couple of hundred bucks to be completely free of debt would be very helpful in the long run.

Of course, you have to ensure that you can earn additional payments for your principal mortgage amount without the threat of facing penalties. 

My Point Of View – Baby Step 6

Paying your mortgage early not only lessens the impact of interest rates but will also help your finances and budget in the long run. 

Instead of worrying about what expenses you need to cut so that you can pay off the additional charges from your mortgage, paying it early provides you some wiggle room in your budget. 

Add to this the probability of using your money for your other goals once you pay off all of your mortgages. This will certainly help you reach your financial freedom earlier than expected.

Baby Step 7: Build Wealth And Give

Now that we’ve gotten all the responsibilities and liabilities out of the way, it is time to make money beyond your wildest dreams. 

With no emergencies threatening you, your mortgage out of the way, all debts paid off, and a future secured for your kids, now you can do whatever you want with the money you earn. 

Some suggested things you can do are invest in stocks and try to make money off your existing cash, buy some real estate as it is the only thing that rarely diminishes in value, and max out your Roth IRA funds. There is no such thing as too much money.

My Point Of View – Baby Step 7

I definitely agree with this one that you have to build your wealth and invest. Being financially independent is a great feeling. Not having to worry about money is a state of life everyone should strive for. This is definitely what most of us want to achieve in the long run. All it takes is to find the best investment strategy for you so that you can see your wealth grow.

Now, let’s address the elephant in the room. Dave Ramsey says that to grow your liquid net worth, you should invest. With those investments, you’ll get an annual return of 12%.

I’m not sure where he’s investing his money, but I want to be part of that as well. Historically, the average stock market return is 7% (corrected for inflation).

Getting a 12% return is doubtful, especially since he doesn’t address where he invests. He just recommends his program if we want to know more. 

It’s a big point that many have challenged him on, and he never addressed it before. To be safe, calculate with a 7% return, and you’re good!

[Related Read: Appreciating Assets – 23 Ways To Grow Your Wealth Successfully]

Pros And Cons Of Dave Ramsey Baby Steps

Let us look at some advantages and disadvantages of the Dave Ramsey Baby Steps.

Pros – Dave Ramsey Baby Steps

  • The first step is the most understandable one, as saving $1,000 is a good start but not so much money that it would implicate your daily life. And it’s always nice to have some extra money stashed away.
  • It’s great to focus on paying off debt.
  • It’s vital to focus on investing for retirement. Also, it’s something that many don’t think about early in their life, so it’s good to address.
  • Having a significant amount saved so you can send your kids to college will definitely decrease your financial stress.
  • It will give you great peace of mind to own your home.
  • Lastly, giving money and acts of kindness to others will most likely improve your happiness.

Cons – Dave Ramsey Baby Steps

  • A $1,000 emergency fund is not high enough to cover significant expenses.
  • While you’re paying off your debt, you’re still spending your money. If something significant happened in your life, like losing your job, you would need to go back into debt.
  • The debt snowball method may not work for everyone, and it may take longer to pay off your debt since you’re paying more interest.
  • The 15% savings for retirement is a good number, but not everyone has the same income inflow, so it is essential for you to find your numbers. 
  • If you’re paying down your home, you have a lot of money that’s illiquid and can’t be used when emergencies arise.

All In All – Dave Ramsey Baby Steps

Being financially stable is what we are always aiming for. The benefits of not having to worry about money give you a sense of security. You are basically living stress-free as you control where your money can go. You can have all the freedom since you have extra legroom to cover enough for your expenses and even unexpected costs. This is the type of budget everyone should strive for in their lives.

Always remember that this is your personal finances that we are talking about. It’s your own journey towards financial independence and early retirement, so make it a point to understand where you are right now and what your goals are, and then you can choose which path to take. It will always be up to you.

Now that you know Dave Ramsey’s baby steps, this will serve as an excellent guide on your financial journey to become debt-free and eventually financially independent. Now there is no more reason not to sit down and take the challenge head-on. Know what you want in your life and use this as a guide to reach and fulfill your dreams.