Dave Ramsey Baby Steps Explained | Simple Break Down


Thinking about getting into Dave
Ramsey’s baby steps he was a simple breakdown of all seven steps hey guys
welcome back to my channel as always I’m talking about my journey through the
baby steps and my path to financial freedom today I want to talk about Dave
Ramsey’s baby steps now if somebody that’s been following the baby steps for
a year I take for granted the fact that a lot
of people don’t know who Dave is and I just found this out when I finally broke
to my friends and family that I was following this mysterious get out of
debt plan and over and over again people said to me who the hell is Dave Ramsey
so I figured I would take us very simple approach and give you all of Dave seven
steps broken down in the simplest form baby step one create a $1,000 emergency
fund now what this is designed to do is to help you in times that you would have
spent money on a credit card this could be anything this is your rainy day fund
this is the money that you will need to help you progress through the process
and help you get out of debt for some people this could be the scariest step
this is where dave says you need to get intense you need to find a way to save
this money as fast as possible because once you have that $1,000 emergency fund
now you could really start to get to the crux of the matter now you could really
start to break down your debt and really start to make progress towards your goal
for some people this is an easy step for others it’s really different difficult
that depends on you this thousand dollars doesn’t go in the bank it’s not
for savings it’s not for spending it is strictly there for emergencies now for
some people emergencies mean different things so that’s something you’re gonna
have to think about but this is strictly for emergencies this is if the car
breaks down this is if you have to fly somewhere for a funeral this is if I
don’t know whatever emergencies you might have this is to cover that to
avoid you having to use credit cards baby step to get out of your debt using
the debt snowball now with the debt snowball is you are
going to list every single one of your debts that does not include your
this is credit cards medical bills student loans car payments whatever you
have you are going to list them from the amount of pay off from the least to the
smallest and what you were going to start to do is you were gonna attack
that smallest one first regardless of the interest we’re just going to attack
that smallest debt first while paying just the minimums on everything else I
have a video that shows the difference between the debt snowball and the debt
avalanche which is paying off the highest interest first you can check
that in the card above but for right now Dave just wants us to focus on the debt
snowball once you have that first debt knocked off what you’re gonna do is
you’re gonna take the minimum payment from that and you are going to apply
that minimum payment to the next debt and now that debt is going to have two
payments that are going to be attacking it while still continuing the minimums
on all the ones under it by the time you get to the last debt you will have taken
all of the minimum payments through all of your consumer debts to attack that
last debt with the vengeance this could be a really frustrating step for a lot
of people I know for me I was looking at four years to pay off baby step two this
could be a grind okay but when you start knocking off those debts and they start
going out of your life and you start cutting credit cards up it really really
helps you build momentum if you get caught in a rut check out my video about
the five tips to stay you know focus during the grind that is baby step two
now baby steps 3 through 7 or uncharted territory for me so I can only tell you
what I know and what I’ve read step 3 is to accumulate 3 to 6 months of living
expenses now why 3 to 6 months for me my interpretation is it depends on how
secure your income is if you have a pretty secure income and you know that
money’s gonna be coming in and you’re having no problem paying off your bills
then you could probably go down closer to that 3 months of expenses if you have
an unsecured job or your wages fluctuate throughout the seasons then maybe you
want to go further towards that six months of expenses for me I have a
pretty secure job I’m pretty sure when I get there I’m probably just gonna cut
the middle and do four four and a half to five months of living
expenses just to be safe baby step number four take 15% of your income and
start to invest that money to let that money start to work for you this could
be an IRAs in Roth IRAs in pre-tax accounts this is for retirement this is
where you are going to earn money on your money this is where you take hold
of compound interest and this is where you really start to look forward into
your future baby Step five is for those of us that have children baby step five
is to start to save for college now you can use different types of funds
there’s 529s and ESA which is education savings account you could do any of
those things if you don’t have any children you can skip right past this
step baby step six take all the money outside that 15% that you’re investing
and attack your mortgage payoff that house no more house payments if you have
an old house payment this might be the time that you’re thinking about
refinancing and getting yourself a 15-year fixed mortgage to really knock
down your interest and really help you attack that debt if you look at the
whole program steps four five and six are all going to be done together you’re
gonna be investing fifteen percent of your income you’re gonna be saving a
little bit more for your college for your kids college and then any extra
money on top of that is gonna go right to your mortgage payment kind of like
how you used extra money to apply it to the debts and debt snowball and the last
step baby step seven the step that we all dream in the debt free community
this is the time where we get to really build wealth and give and be generous
this is where you hear Dave Ramsey say this is where we get to live and give
like nobody else at this point we have no debt we have no house payment and our
money’s been working for us in investments for however long now we
could take that money that we’ve been putting towards all of our debts for all
those years for me right now it’s thirty five hundred dollars that I pay for
consumer debt you can now take your mortgage payment my mortgage payment is
another sixteen hundred dollars and we can take that money and every single
month that money goes in our pocket for us to live
and for us to move forward if you’re thinking about joining Dave Ramsey’s
baby steps and you like this video please give it a thumbs up
consider subscribing to see more videos like this and to follow my journey
through the debt snowball and through all the other steps in Dave Ramsey’s
baby steps have a great day and Happy New Year for my Jewish community

64 thoughts on “Dave Ramsey Baby Steps Explained | Simple Break Down

  • Hi Brad! I've come from Our Life on a Budget. I LOVE your enthusiasm! You're really advocating getting out of debt and you are a brilliant speaker. This is the first video of yours I have watched (going into your back catalogue now), so I don't know what you do (if you disclose) but you should absolutely do some motivational speaking.

  • Hey Brad I just came across your channel my friend! Love what your channel is all about! I am a big fan of Dave Ramsey "Total Money Makeover" Is one of my favorites! Great Job keep up the good work! Just subscribed and looking forward to seeing more of your videos!

  • So here's a non-typical question anyone wanting to chime in can help me with.

    So first I wanna start off saying I'm currently 21 years old, I was fortunate enough to be setup with a Trust Fund by my Great Grand Parents, with the only stipulation that I graduated with some sort of degree by a school or training program (Kind of like step 5 that my Great Grand Parents did for me) So after going to school I had roughly $100,000 USD left because I just did a 2 year Carpentry program. I'm not actually in the real work force right now, just helping a family friend remodel his house but I'm getting paid from it. But anyway, so I had 100k left, then I bought a truck using 36k of my 100k by putting the 36k into a CD that pays me 2% interest and then borrowing against that for a loan to pay for the truck that I have to pay 4.5% on, the reason I did this was because I couldn't qualify for any reasonable loan with no real credit history because of my age so I figured I'd bite the bullet and pay the 2.5% interest after cancelling out what I earn from the CD just so next time I can get a traditional house or car loan and save thousands and thousands especially on a house loan. So that's about 4 1/2 years left until it's paid off. So now I have this 75k dollars still being invested by my Trust Bank and I have no credit card debt or anything like that, I don't even have a credit card actually. So I can pretty much skip Step 1 through 3 because I don't want to pay off my truck right away so I can use it to continue building credit at a low interest rate. So then step 4 is to invest 15% of my income into investments. Once I get a real job I should be able to do that so we can skip that step. I don't have kids right now so step 5 doesn't really apply to me, but because of my situation on how I was given a trust, I'd like to do that for my kids (and or grand kids) so I might actually start on that before even having kids just so I have more time to save up for that personal goal. So that brings us to step 6, which is the big question.

    So what should I do first, use some of my money for retirement funds (When I get a real job I can calculate how much 15% of it is, and then just put all of that money into an IRA or whatever to cover the whole year) and then start the hunt for a house and use the rest of my money to put a down payment on it, and then start trying to pay as much of my truck off as I can to free up the money in the CD then help pay down the house.

    Or, when I get a job, just use my income to pay that 15% into retirement, and then use my 75k as a large down payment for a house, and then in 4 1/2 years when I'm done paying for my truck (Which could be less than 4 1/2 years by the time I'm ready to purchase a house) and once that 36k plus my 2% interest (Roughly 38k) is untied from the CD use that as a large payment to further pay down the house (Or maybe even all of the house, depending on how things work out) and then I'd be completely debt free, with a house and with a 5 year old vehicle that should last another 10 years after that and then start shoving that car payment and house payment into retirement.

    Or, do all 3 sort of, Put (As a carpenter starting wage will be from 15-20 an hour before taxes) so put like 5k of the 75k into retirement leaving me the other 70k to put down on the house, and then pay off the house as fast as I can while still making the minimal truck payment, once the truck is paid off and that 38k is freed put it towards the house again.

    Or use some of the money I have right now and pay off the CD car loan, essentially cancelling it out so I'd have 75k in the bank with no bills at all, and then use all of that as a down payment on a house and since my truck payment (which is 675 a month) would be eliminated, use that money every month to help pay-down the mortgage plus whatever the mortgage is and whatever I can spare on top of that from my income and skip step 4 of saving for retirement until the house is paid off (Because at my age it's not a huge deal, but it does help to start early).

    Or the final option is blow all my money on hookers and cocaine and have the wildest week long party you've ever seen in your life, and then live in my moms basement.

    I don't know if there's any 1 best way to do it, I'm in kind of an interesting position, I don't quiet have enough money to straight up pay for a house in cash, but I have plenty for a 20% down payment with a 3-6 months security fund (Probably like maybe 10k?), and to put a year or 2 worth of my 15% income into retirement and then probably still put away money for my future kids college fund(s). So I don't know what to do. Any ideas are great, what would you do?

  • Great video. We are babystep 2 and it is going to take us 5 years! 😱 we are committed, but it will be a long haul. We are 6 months in.

  • Either way, you gotta learn to live on a very strict written budget. That's the key. Regardless of income. Otherwise you'll always struggle with money.

  • Change the mindset. Instead of spending so much time and energy on paying off debt. Work on investing in the Long Haul! When you have cash in hand dept does not matter…

  • Having a secure job doesn't mean save less for emergency. You need an employable skill in order to not worry having a much (3-6 month) while you find that next job.

  • Ordinary people should follow what Dave Ramsey teaches. There is nothing wrong about getting out of debt, saving for emergencies, and saving for retirement using good mutual funds. There is one exception and that is his asset allocation for retirement. He says to put 25% each into the 4 types of equity mutual funds, with no exposure to fixed income or cash. The problem with this is if you are in retirement and have no other income source outside of your 401k or IRA and the market crashes you would be forced to sell your equities at a loss, because you need the money. Dave Ramsey is independently wealthy without his 401k and IRA. He looks at it as an extra arm for wealth building. He doesn't need the money if the market crashes. But ordinary people who don't have wealth or income outside of their retirement accounts need to live off the income it provides. So ordinary people need exposure to either fixed income, cash, or both in retirement. Look at it as an emergency fund for your IRA and/or 401k. One option is to follow Warren Buffett’s advice: put 2-3 years worth of income into cash reserves and the rest into your equity mutual funds. If there is a terrible period of the market you live off your cash reserves. In up years or even slightly down years you withdraw from your equities at ~4% per year.

  • Hi Brad, just watched you and Lydia doing your regrets collaboration so came over to check you out and subscribe to your channel. I enjoyed your input and I like your humour so I shall be looking forward to getting to know you. Bye for now. Pegs.

  • This is exactly how I got of debt years ago. I didn't know of a Dave Ramsey then. I'm glad to see so many people are following his teachings.

  • I'm on step 6, should be mortgage free in 3 years. For step 7, can I count the money the government steals from me via taxes as "giving"?

  • Money Mom reminded me several times to check out your channel. I just subscribed. Very interesting info indeed!- Jan

  • I am college student on my 3rd year with no debt, with no steady job. But I do want to have Financial freedom. Can this help me?

  • You only pay the minimum on all of the debts other than the one you are paying off first. Then apply the full amount that you were paying on the first debt plus the minimum on the second debt and apply it against the second debt while applying the minimum on the other debts.

  • We started this Janauary 1, 2019 and have finished baby step one. I am going to continue to watch as you progress through it. This will inspire my wife and myself to stick with it. We are in the process of selling a rental unti that we own out right. It was a money pit. We are going to take a loss on the sale of the rental but we are going to start using the money from the sale to pay down our debts. I look forward to seeing both us out of debt.

  • Well explained, Before this video, I hadnt clearly grasped that 4,5 and 6 go hand in hand. Been focusing on 2, one month to go, really looking forward to Baby 3

  • You need the 3-6 month emergency fund because some of the bigger issues that you can run into (sudden hospital bill, central AC died) might be too high for a 1k emergency fund. I've even had car issues exceed that. Also, as you said, if you end up not having a job for a while, you don't want to end up right back in debt again. Since the other baby steps involve putting money into non-liquid assets, you want to make sure you have enough of an emergency fund that you don't end up backtracking. I think the reason for the range is because it depends on your income. For someone with a 200k income, 3 months of salary is a lot of money that should cover most emergencies easily. For someone with a 30k income, however, 3 months is way less money and 6 months is more reasonable.

  • GREAT Info! Hi there! Im coming from Kelly's channel "Freedom on a Budget" and Im new to this budgeting biz…lets just say i have had a budget LOL which got me in the debt pool, im wanting to get out now and Kelly shared that you are one of her Favorite Channels and so here i am! thanks for the advice and Im lookin forward to watching move videos and learning to kill this awful debt.

  • I just found about Dave Ramsey and was just checking out his expert advise.
    My quick story. Grew up in basic poverty and learned not to ask for anything. Couldn't afford college. Managed to find a great job with great pay.
    Early on I had a motto: "If you can't afford it you can't have it and probably don't need it."
    Time moved on. Sent all 3 children to college, payed for everything they needed. Own 5 houses, 4 are paid for and a condo in Boston Proper that will be paid off within 3 yrs. I have 2 cars, husband has 2. Yes, paid for. Retiring with a few million dollars.
    Could go on and on but you get the point. Saving and not over spending is not in anyway about doing without and suffering or being cheap.
    I have more than I ever dreamed of and more than I ever wanted.
    This is not me bragging but letting you know it can be done and without any pain. Freedom and being worry free is the end game for a great life.
    Blessings to all. You CAN do this!

  • step two would be frustrating because people have woken up and realised they need to do something about their horrifying/crippling/scary debt and they want or need to do it as fast as possible, which leads to anxiety an impatience. Apparently most people can pay their debts off in two years, most of the rest within five. The frustration might be eased if people remind themselves that paying off debt in two or four years while they've got a little rainy day fund they may never have had, and while they're allocating themselves money for everything they need including spending, is so great, compared to winging it without a budget and making minimum payments on debt for the rest of their lives. Two or four years is nothing compared to a life of financial chaos and minimum payments.

  • After 12 years of marriage my husband and I build a house paid off we're mortgage-free for 30 years now no credit cards all we buy is Cash & Carry no worries

  • Good to know I'm on the right track. Watch a lot of Dave Ramsey but he never mentions what the baby steps actually are. Have 6 months of living expenses now (looking to have 12), put 16% straight into pension and shares each month. Only thing is I still have around 9000 in student loans and currently rent but don't think it will take long to get a place and pay off the last of the loans. Honestly, the only reason I haven't done this yet is that it's cheaper for me to pay the loans off later and buying a house seems a little reckless at the moment. Even when I do buy a place though, I'll be maxing out my Stocks and Shares ISA before I make additional mortgage payments. It's just a plan I came up with myself but it's nice to know I'm not far of an existing plan with a good track record.

  • 1. Create a $1,000 emergency fund.
    2. Pay off debt using the Snowball Method.
    3. Accumulate 3-6 months of expenses for emergencies.
    4. Invest 15% of your income into Roth IRAS and or Pre-Tax Retirement funds.
    5. Save for your children's college fund.
    6. Pay off your home early.
    7. Build wealth and give.

  • iyou kept saying minimum, but i'm sure this is wrong. t is my understanding that in step 2 you dont take the minimum payment of the one(s) you've paid off to apply to the next one, but the total of what you were paying towards it per month. if it was $2000 and the minimum was 20 and you were paying $250 towards it monthly until you pay it off, you pay $250 per month towards the next one. not $20 more per month. that would take forever.

  • I think you have step 2 wrong. It’s not about sending the minimum to to first credit card. It’s about paying as much as you can, while paying the minimum on the others. Pay it off then apply that amount to the next card.

    Don’t limit the amount to the minimum on the one you’re trying to pay off. Attack it with gazelle like swiftness! Good luck!

  • I'm $7,000 in debt. 🙁 I'm gonna try working overtime this summer so I can pay it off faster. I should be done by early next year.

  • 1. Create $1000 emergency fund
    2. Get out of debt using debt snowball
    3. Accumulate 3 to 6 months of expenses emergency fund
    4. Take 15% of your income and invest into IRAs
    5. Save for childrens college
    6. Pay off your house early
    7. Build wealth and GIVE

  • Should I not be investing into my Roth IRA until my student loan debt is paid off? Or can you do both steps at the same time? Thanks in advance!

  • I'm on step 2 and already i see an error in judgement. Save $1000 while paying off credit card debt? No, pay off your debt first then save. How can you save money up when your debt is accumulating interest that you have to pay every month.

  • Then why buy a house in the first place sounds like a headache, so buy a house just to tackle a debt one that could be 100,000 or 200,000 that could just be in savings a mortgage and rent sounds more flexible doubt if ever buy a house sounds like a scam unless I have the money to buy it outright but I know people don’t have that type of money so they finance but I doubt I’d do that you are just taking on some debt to be stressed about later 🤷🏽‍♀️

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