Money Monday: Dave Ramsey’s Seven Baby Steps


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Let me start by saying Happy Memorial Day! Thank you to all troops—past and present—and to those who have sacrificed their lives for our country.

If you’re new to my blog, you can click on the links below to read the previous posts in my Money Monday series.

When Steve and I first started the Dave Ramsey plan we both read his book The Total Money Makeover: A Proven Plan for Financial Fitness. Of course, we picked up the book at the library instead of buying it. We’re getting out of debt after all, so we are careful not to spend our moolah. This book describes The Seven Baby Steps in more detail, but let me provide a brief overview here.

Money Monday: Dave Ramsey's Seven Baby Steps l Love.Bake.Read

  1. $1,000 to start an Emergency Fund
  2. Pay off all debt using the Debt Snowball
  3. 3 to 6 months of expenses in savings
  4. Invest 15% of household income into Roth IRAs and pre-tax retirement
  5. College funding for children
  6. Pay off home early
  7. Build wealth and give!

We started the Baby Steps in May 2011 and were quickly able to knock out Baby Step 1 because we were stupidly saving money even though we were in a heap of debt. We simply kept $1,000 in our savings account and used the rest of our savings to start on Baby Step 2, which we’re currently still working on.

Baby Step 2 requires you to rank your debts from smallest to largest. No need to worry about interest rates unless two debts are roughly the same amount. If this happens, the one with the higher interest rate ranks higher.

The idea is that you pay minimum payments on everything except the debt that currently ranks highest. Any and all extra money needs to be applied to the highest ranking debt. I know you’re thinking who has extra money, but the point is that you have to create extra money by sticking to a strict budget.

Once you knock out the highest ranking debt, all the money that would’ve gone toward that payment can now be put toward the next highest ranking debt. See how the Debt Snowball works now? As you pay off each debt, more and more money can be applied toward the next debt on the list.

I affectionately call Steve my “spreadsheet nerd” because he’s the one who developed the spreadsheet to track our expenses. We track every single penny without fail because that’s how we know exactly how much we can send toward debt at the end of each month. We keep our expenses to an extreme minimum because the quicker we can dig out of this mammoth debt hole the quicker we can be free.

We are currently on our second to last debt, which is HUGE. We have been going, going, going with such extreme intensity and it’s completely paying off. Can I let you in on a little secret? We’ll be COMPLETELY debt free in March 2015—only 10 more months to go. Yessss for us!

Oh, happy day!

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