For about 6 months now, I’ve been obsessively listening to the Dave Ramsey Podcast. Tuning in for the latest podcast episode is one of my favorite things to do on my commute to and from work each day. So, I think I qualify as a quasi-expert at this point .
. . AND, I’d like to sum up his 7-step “baby steps” plan and why it’s become my chosen plan for building wealth and winning with money.
Here’s an overview of Dave Ramsey’s 7 “baby steps”
- Set up a starter emergency fund of $1,000
- Pay off all your debt, except for your house, using what Dave calls the “debt snowball”
- Build up an emergency fund that covers 3-6 months of your living expenses
- Invest 15% of your income into retirement plan
- Begin saving for your children’s college
- Pay off your mortgage
- “Live and give like no one else”
I’m currently in “Baby Step 2” and it will take me an estimated 14-16 months to move on to step 3 from this step. So, for this blog post, I want to focus on the first two steps.
Baby Step One – Set up your Starter Emergency Fund of $1,000
As Dave’s lovely daughter Rachel Cruz says, this first step isn’t a complicated one, but it is the most difficult one. Saving money, for someone that has never done so before, requires making some lifestyle changes and committing to a financial plan. “Baby step 1” is the first big step in setting up new boundaries for yourself and how you handle money. Dave and Rachel frequently quote the statistic that 78% of Americans are living paycheck to paycheck. Living this way – as most Americans do – leaves people feeling stressed, anxious and out of control. That is why the first step is to set up a financial buffer in your bank account to give you peace of mind and a newfound sense of stability. It’s an awesome feeling and a great place to start.
Baby Step Two – Snow Ball all of Your Debt Except Your House
They say that the first step in getting over your problem is to admit that you have one. Baby Step Two requires you to confront all of your debt head-on. This was a difficult part of the process for me because I’d lived my life for the past few years choosing to be “carefree” with money so that I lived life to the fullest and enjoyed life’s pleasures. I was blissfully ignorant of the total sum I owed because I imagined that one-day thing would change so that I could quickly pay it off. I was paying my monthly minimums on my debt, so why need to make any changes in the way that I handled money.
After listing to Dave for a few weeks, I realized just how selfish and childish this type of behavior was. Dave’s podcast was changing the way I thought about money management. For the first time, I truly reevaluated my values. I’m newly married and I have an even greater sense of obligation to others – my small family – and our financial future.
So, as per Dave’s recommendations, I bit the bullet and put his baby step 2 into practice. I listed out all of my debts – except for the mortgage – in order of smallest to largest regardless of interest rate. I’m making minimum payments on all debts except the smallest debt, which I’m attacking with “gazelle intensity.” Once I’ve paid off my smallest debt, which is a consumer credit card, I move on to the next debt, which is a medical credit card I used to pay for unexpected, and expensive, dental surgery. The smallest debt in my snowball is attacked with everything I’ve got, that is, anything left over after I’ve budgeted out all my other income to expenses. Once one debt is paid off, I move on to the next.
Megan Case 