If you plan to pay off all your debts and live debt-free, you must follow Dave Ramsey’s seven baby steps.
You will reach your financial freedom in a few years, and you will be able to help people achieve their goals by donating and building wealth.
Furthermore, you will have a reassured future, a golden-era retirement, and you will finally be able to live the prosperous and peaceful life you dream of every day.
Who is Dave Ramsey
Dave Ramsey is the founder and CEO of the company Ramsey Solutions and the host of The Dave Ramsey Show, where he offers people financial advice to help them take control of their money.
He wrote The Finance Peace Planner, The Total Money Makeover, and many other books.
Before becoming a financial expert, Ramsey saw both early success and failure.
According to some researchers, as of 2021, Ramsey’s net worth is estimated to be around $200 million.
The Dave Ramsey Show
The Dave Ramsey Show is a self-syndicated radio program and podcast where, in each episode, people from all over the country call to ask Ramsey a wide range of personal finance questions.
It believes you can build wealth and take control of your life, regardless of the mistakes you have made with your money.
Dave Ramsey’s 7 baby steps: how to reach your financial freedom
In this post, we will go through Dave Ramsey’s 7 baby steps and how you can achieve your most-awaited financial freedom sooner.
Read Budgeting for beginners: easy steps to a budget that works
Budgeting tips for beginners: easy steps to a budget that works
Baby step 1: Save $1,000 for a starter emergency fund
Having $1,000 set aside is one of the great favors you could do for yourself, and in the future, you will thank yourself for this decision.
Being prepared for any inconveniences and emergencies will reduce the possibility for you to borrow.
Create a realistic budget, save the money, and put it aside, perhaps in a different bank account or envelope.
This is the first step to covering emergencies or unexpected expenses without having debt or dipping into your savings.
Baby step 2: Pay off all debt except your mortgage using the debt snowball method
The second step is to start paying your debts, except the mortgage.
Create a list of your loans, such as school debt, loans, car debt, credit cards, etc.
Use the debt-reduction snowball method.
This technique involves ordering your debts from smallest to largest regardless of interest rate and paying them off in that order.
Once you have your loans list, start making minimum payments on all debts, but invest every extra penny or dollar in the smallest debt until you pay it off.
Once the smallest loan is paid off, move on to the next one.
This way, you will knock out your debts one by one. You will be successful and motivated enough to continue and pay off all your other loans.
Baby step 3: 3-6 months of savings for your fully funded emergency fund
“We never know what the future will entail. So it’s always a good idea to be prepared for bad luck,” Dave said.
At this point, you will have already paid all your debts.
You still have some money you could spend somewhere, like buying a car, paying off your child’s school debt, or your mortgage.
However, Ramsey recommends not jumping to that step but instead pooling and investing the rest of your money for three to six months in your emergency fund.
Set aside a cash reserve for unplanned expenses or financial emergencies.
Doing so will decrease the likelihood of falling into debt again on unprepared occasions.
You will save both yourself and your family.
Baby step 4: Invest 15% of your household income for retirement
The fourth step that will benefit your future self is to invest 15% of your household income in a retirement account such as a 401(k), 403(b), Roth IRA, or other.
Before we continue, let’s clarify what a 401(k), 403(b), and a Roth IRA are.
A 401(k) is a retirement savings and investing plan offered only by employers.
A 403(b) plan isa retirement account available to individuals who work in public education.
A Roth IRA is a private retirement account that lets you contribute after-tax dollars and then enjoy tax-free growth and withdrawals.
Dave said: “Start investing enough in your company 401(k) plan to receive the full employer match. Then invest the rest into Roth IRAs, one for you and one for your spouse if you are married”.
Invest precisely 15%, not more or less.
Baby step 5: Saving and paying for your kid’s college funding
Saving and paying for your kid’s college is the dream of almost all parents.
Once you set aside a small percentage for your retirement, use 529 plans and Coverdell Education Saving Accounts.
Coverdell Education Saving Accounts offer tax-free investment growth and tax-free withdrawals when the budgets are used on qualified education.
A 529 plan is a tax-advantaged college savings plan used to pay for a beneficiary’s qualified education expenses, such as books or tuition.
Do not invest too much money in your kid’s college fund, as you have to take care of yourself first.
Moreover, your kid can still get loans for their college education and expenses.
Baby step 6: Pay off your mortgage early
Once you’ve completed the first five steps, it’s time to think about paying your mortgage.
For many people, paying off the mortgage is a financial freedom they aim to achieve faster.
The sooner you pay off your mortgage, the sooner you can enjoy life and live peacefully in your home.
Put the extra monthly income into paying your mortgage. It doesn’t matter how much you are setting aside. It can be 25% or 50% of your extra income.
The more money you invest in paying your mortgage, the sooner you will pay off your house and live completely debt-free.
Baby step 7: Build wealth and give
Once you reach this final step, you are debt-free, you’ve built wealth, and all your money is yours.
This means you can start donating.
Donating a small amount of your earnings to someone in need is a generous idea.
However, your family’s priority comes first.
Make sure you keep a separate amount of money for yourself, your family, your children, and perhaps your grandchildren.
As Dave said: “Truly live and give like no one else by building wealth, becoming insanely generous, and leaving an inheritance for future generations. And it’s all because you had disciplines for a few years”.
Conclusion
Now that you know the steps to financial freedom and success, are you ready to try and achieve your goal?
I hope this post has been helpful.
I wish you to achieve your financial freedom.
