How to Conquer Dave Ramsey's Baby Steps

Do you have debt that you wish you could get rid of?

Are you skeptical about Dave Ramsey’s teachings?

I can tell you one thing: his steps are not easy and they are not quick.

But believe me, IT IS WORTH IT!

The minute you decide to work through his steps, please commit to following them with very little deviation. (No one expects perfection!)

Each step in his program, which I will go through in detail below, has been very methodically created and placed in a specific order.

If you think these steps are going to take you a long time, consider how long it would take for you to get there using your current method.

I encourage you work on shifting your perspective.

As soon as you begin to deviate from his plan and work what many people call the “Dave-ish” plan, your time frame for paying off your debt is going to double.

On Dave’s plan, you will suffer a little by being stricter with your budget during the first 2-3 steps. Depending on how much debt you have and how focused you are, you can complete these steps in 6 months or it can take 10 years.

You get to decide. You have the control. But if you decide to take control and work through these steps the right way, you will change your life!

So, let’s get started working through each baby step!

Baby Step 1: Save $1,000

This is your starter emergency fund.

If this seems like a lot to you, start with $500. Over time, slowly work your way up to the $1,000 by adding $50 per month, while at the same time working on paying off your debt.

If $1,000 doesn’t feel like enough, you can keep more in your savings. Along your debt-payoff journey you’ll likely change your mind anyway, and use that extra money to pay down your debts.

I’ll be honest, this works best if you just trust the process and save exactly $1,000. You’ll be glad you did and you will save more in a future step, anyway. To combat any fear you have around this step, remember that it is only temporary!

This step is needed for when that emergency happens, because you know it’s going to. Having this savings is a buffer between you and everything that will try to keep you from paying off your debt.

Your car is probably going to develop a leak eventually.

If you own a house, there are endless “unexpected” repairs or maintenance that could come up.

Some bill from an old doctor’s visit could show up in your mailbox.

It can sometimes feel like the world is working against you. The minute you decide to make a change toward financial peace, some extra cost or need will appear and you’ll feel like you’re never going to get there.

Start here, start small, and stay focused!

You will especially need this savings to keep you from accumulating more debt, so make sure you don’t skip this step.

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

Make a list of all your debts and pay them off smallest to largest, not worrying about the interest rate unless you have two debts with a similar balance.

Most people say this is the hardest step to complete, but it comes with the greatest reward.

It is also the step where you experience the most CHANGE in your financial habits.

You have to take full control of your finances: start budgeting, lower your expenses, and increase your income.

As you start to see improvements and your debt begins to disappear, you will feel the momentum of “The Debt Snowball Method”.

For a shortcut to debt-freedom, to learn how to apply the debt snowball method, and to obtain useful worksheets for your journey, check out my FREE eBook! (There is a supplemental guide to Dave Ramsey’s teachings included.)

It feels very satisfying and can become almost like a game to see how quickly you can pay off all your debt. Cut out a few expenses one week, work a little extra the next week.

WARNING: This step is very much like riding a roller coaster! One week you will feel in control of your finances, the next week you may have a small emergency or set back keeping you from making any headway. Don’t be discouraged; instead, stay focused and remember that this is why you completed Baby Step 1.

Staying motivated using rewards!

Reward yourself for each win (paying off a debt or a large chunk of a debt), but keep it small: a special drink from Starbucks, a celebratory date night, an ice cream outing with the family. Your rewards should not derail your debt-payoff plan. Instead, they should motivate you to keep working your debt snowball.

The larger your debt is, the less often you will experience a win, and your motivation will begin to decline. Once you’ve hit this point, try to create milestones that will feel like a win and reward yourself along the way.

When you pay off a $1,000 debt, reward yourself with a $5-10 treat. When you are working on a $40,000 debt, set milestones every $10,000 or $20,000 to celebrate progress made and reward yourself with something small.

The reward can grow in size as your win increases (paying off a larger amount or all your debt), but you might find that you don’t need big rewards to keep you motivated. Making progress on your goals might be motivation enough to keep you working hard toward debt-freedom!

Do whatever you can to stay on track, keep your motivation alive, and be proud of your accomplishments.

Related Posts:

My Debt Free Journey: How I paid off $60,535 in 20 months

The SECRET to paying off debt FAST (The Debt Snowball Method Explained)

Baby Step 3: Save 3-6 months’ worth of expenses

This is the fun baby step for those of us who felt uneasy with only $1,000 saved. It’s time to save enough money to cover 3-6 months’ worth of expenses.

This is called your “fully funded emergency fund”.

First, calculate how much your expenses are for one month. Then, figure out what you would cut out or stop paying for if you lost your job and were in a crisis.

How much lower is one month of expenses when you consider that?

Then multiply that number by 3 months and 6 months to find a range.

Everyone will have a different comfort level in this step, so think about what will work best for you. If you are married, you may have to compromise, but it never hurts to have more saved!

Consider what types of emergencies you may have in the future. Here are a few examples:

  • Job loss
  • Unexpected car repairs or replacement, not including regular maintenance, such as oil changes.
    • This also does not include expected car replacements; you should plan for eventually replacing your car. They don’t last forever.
  • (For homeowners) appliance repairs, some kind of a leak, etc.
  • Medical emergencies

You may feel a need to save more after considering these potential emergencies.

Baby Step 3b: Save for a 20% down payment on a house

If you don’t already own a home and you’d like to, this is an optional step you can take before moving on to steps 4, 5, and 6.

In this step you’ll save as much as you can, as quickly as you can, before you begin contributing to your retirement and your kids’ college fund (if applicable).

Dave recommends spending no more than 25% of your income on rent or a mortgage payment. You can use this mortgage calculator to help calculate the size of house you’ll be able to afford.

They also offer a Home Buyers Guide on Ramsey Solutions that will help you calculate and save your down payment. It is incredibly useful and free, so check it out!

> Baby Steps 4,5, and 6 are to be completed at the same time.

Baby Step 4: Invest 15% of your income every year

“Retirement is not an age, it’s a number.” – Chris Hogan, former Ramsey Personality

If you save 15% of your income EVERY year, you should have enough money to retire on when you reach retirement age (somewhere between 59½ and 70 years old).

This step is dependent on your age, retirement goals, and the value of your current retirement savings. To evaluate whether you are on track to reach your retirement goals, I recommend taking the R:IQ Assessment. You can use this retirement calculator as well. 

Please always consult with your financial advisor to successfully plan for your specific retirement needs.

Don’t have a trusted financial advisor? Find your Ramsey endorsed advisor here!

Keep in mind that the earlier that you start, the better off you will be!

Baby Step 5: Invest in your children’s college fund (529 plan or another tax-favored plan within your state)

There are tax-favorable funds that you can contribute to each year for your children’s college. Consult with a financial advisor or tax professional to find out what funds are offered in your state and which is the best fit for your family.

Skip this step if your kids are already in college, you don’t have any kids, or you have chosen not to pay for your kids to go to college.

Based on the current culture shift in the US, consider encouraging a career path in a trade (electrician, plumbing, welding, carpentry, auto-mechanic, etc.) or going directly into the workforce. There are only a few career paths (medicine, law, accounting, etc.) where attending college is necessary and worth the ever-increasing cost.

This step is optional and dependent on your personal situation. However, my recommendation is if you can afford to help your children get through college without debt, you probably should. It’s better to have built the savings and later find out college is not the best path for your child, than to have nothing saved.

Again, consult with a professional to learn the exact rules within your state, but most 529 plans come with options in case your child does not attend college. One of the best options is that you are allowed to change the beneficiary on your 529 plan. Essentially, if you use the funds to pay for any education expenses (college, K-12 tuition, grad school, etc.) you will avoid paying taxes and a penalty.

Worst case scenario, you’ll have to pay income taxes and a penalty on the earnings portion of a non-qualified withdrawal.

Baby Step 6: Pay off your house

Time to pay off your last debt.

Just like in Baby Step 2, except more fun!

At this point, you likely have somewhere between $10,000 and $20,000 saved as your emergency fund. You have consistently been contributing to your retirement and watching those funds grow. And most importantly, you don’t have any debt except your mortgage!

Each month, work on paying as much as you can toward your mortgage. Use this calculator to discover the power of making even the smallest extra payment.

Paying an extra $100 per month on a $200,000 15-year mortgage loan will shave off 15 months of payments. Make that an extra $200 per month and you’ll be completely debt-free 27 months sooner!

WARNING: Make sure that you are paying extra PRINCIPAL ONLY and that none of your extra payment goes toward interest. You can call your mortgage company to verify that your extra payment is being applied correctly.

Once you complete this baby step, you’ll feel the true freedom of baby step 7!

Baby Step 7: Build wealth and give generously

This is the ultimate prize. The reason you worked so hard during all the other baby steps.

Now you get to enjoy your wealth and share it with others. You get to be the blessing in someone’s life!

Continue to build wealth to pass on to your children’s children, and as Dave Ramsey would say “give like no one else”.

Dave Ramsey Baby Steps


Work through the 7 Baby Steps, in order with little deviation. It’s going to be tough, but in the end, you will be way better off and glad you did it.

MOTIVATION DURING BABY STEP 2 AND 6: A great way to stay motivated is to watch The Ramsey Show daily. People call in from all over the world asking him questions during their journey, so you may hear an answer to something you’ve been wondering about too. (You can even call in with your own question. His show airs Monday-Friday from 2pm-5pm EST.)

During his show, you get to watch fellow Dave Ramsey followers do their “debt free scream”, where Dave asks them about their journey to debt freedom and then they get to scream “I’M DEBT FREEEEE!!!!”

Most “debt free screams” are equally relatable and encouraging!

MOTIVATION DURING BABY STEP 4 AND 7: In addition to “debt free screams”, Dave will do an occasional “millionaire theme” hour where he interviews “everyday millionaires” about their habits and how they became millionaires. You’ll hear from people who have worked through all 7 Baby Steps. These are REGULAR PEOPLE, who have not done anything special.

Watch out, you might feel super inspired!

To supplement Dave Ramsey’s teachings on becoming debt-free (baby step 2), sign up for my FREE eBook full of the tricks I learned during my journey: