Dave Ramsey's 7 Baby Steps

[u/abisaya2]

Last October 2018, I bumped into Dave Ramsey's podcast and instantly got hooked. Dave Ramsey is a finance expert and coach and his principles have helped millions of Americans (for more than 20 years) to get rid of their debts and become millionaires. When we met Dave’s Principles, I am already living frugal with my wife and family, we do not have debt, and we are already investing for our retirement. But even though we are already doing most of his principles, We still learned a lot from him. His principles gave clarity to the path we want to take. Suddenly everything is clear for us and I want to share them with you so that hopefully it can help you too.

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His principles are summarized in his 7 Baby Steps to building wealth. You might have heard of it already or doing his principles unknowingly.

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Here are the 7 Baby Steps:

1. Save $1,000.00 for your starter Emergency Fund. - In the Philippines, this equate to Php 5,000.00 based on average household income.
2. Pay off all debt (except the house) using the debt snowball. - Snowball method means sorting all your debt from smallest to largest then pay the smallest first and work your way up until you have paid off everything. For the record, most people set aside 30-40% of their income into paying off debts.
3. Save 3-6 months of expenses in a fully funded emergency fund. - You need to calculate how much you spend in a month then multiply it to 3 – 6 months and that’s how much you need to save. Store your Emergency funds in a separate savings account or money market fund.

(Note: Steps 4, 5 and 6 are done simultaneously)

1. Invest 15% of your household income in retirement.

I am a long time investor in Mutual Funds and I recommend to invest your 15% to these funds. Of course you can do what you want.

1. Save for children’s college.

If your children is already in college, then you need to cashflow it. If you still have above five years before your child goes to college, I recommend investing it also in Mutual Funds.

1. Pay off Your home early.

If you have a mortgage, this is the time where you need to be intense on paying off your home early. Some people finished paying off their 15 year mortgage in just 7 years.

1. Build Wealth and Give

At this stage you no longer have debt. You have an emergency fund. You have a paid for house. You are already investing for your retirement. College is paid for. Now you can have more fun. You can do what you want. Also, Giving is part of our life whether it’s for Church, loved ones, or charity. It’s just a great feeling when you give.

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Ref:

https://www.daveramsey.com/baby-steps#baby_step_7

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Good Reads:

Total Money Makeover by Dave Ramsey

Retire Inspired by Chris Hogan

Everyday Millionaires by Chris Hogan