What are Dave Ramsey’s 7 Baby Steps to Financial Peace? Money is extremely stressful and taking these steps will greatly reduce that stress.
These steps are tried and tested and have worked for many, many people.
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Make sure all of your past due bills are caught up. Your four walls always come first, meaning your basic necessities such as mortgage or rent, food, electricity, clothes and necessary transportation. Once this is all caught up, move on to step one. Many people are always caught up, but just cannot get ahead. Getting through step one will help.
1. $1000 in a beginner Emergency Fund
The first step is $1000 into a beginner or a baby emergency fund (BEF). Why is a BEF necessary? Make sure to read my post, Why you NEED an Emergency Fund here. You cannot always plan for every day life events, so having a small emergency fund to start with will help you, first in having that money set aside and second, it will help you get your debt paid faster. Stick with me, you will see.
Need more ideas on how to save money? Read about these Money Saving Apps here.
2. Pay Down Debt using the Snowball Method
Using the debt snowball method, you pay all of your debt off except the house. The debt snowball method is listing your debts smallest to largest and then snowballing the minimum payments until you get them paid off. So for example, say you have a balance of $50 and your minimum payment is $10 on your smallest debt. You try to throw anything extra at that $50 debt until it is paid off and then you take that $10 minimum payment and add it to the next debt’s minimum payment, all the while throwing extra at that second debt, and so on and so forth until all debt (except the house) is paid.
3. Save 3-6 Months of Expenses
In this step, you build your full emergency fund. Usually 3-6 months of bare bones necessary expenses is enough. That means not including the cable or manicures in this total. Covering your four walls and transportation to work, enough for 6 months is what most people strive for.
4. 15% of Income into Retirement
With no debt, this will not seem as daunting as it used to. Whether you fund your 401k, an IRA, or invest, there are a lot of options out there.
5. Start Saving for College
College tuition and room and board are extremely expensive and the biggest debt load on people in their 20’s. Get a head start on your child’s future and start saving now.
6. Pay off the House
Alright, now here it is. Pay off that house! At the end, have a bonfire and burn those mortgage papers!
7. Build Wealth and Give Generously
Can you imagine it? I know I can. As Dave Ramsey says, “Live like No One Else”. It’s time.
The budgeting software that I use and HIGHLY recommend is YNAB – You Need a Budget. The DR steps and YNAB go hand in hand. Click on the link for your free 34-day trial! Read about My Budgeting Breakthrough here.