Dave Ramsey’s Baby Steps: Part One

Dave Ramsey, one of the most well-known money experts has been providing insightful and informative money information to consumers struggling with debt. After losing everything himself, he founded a company that helps other prevent following the same path towards debt.

One of Dave’s key strategies for helping people manage their finances is his “Baby Steps” regimen. There are 7 Baby Steps that are geared to help you begin your journey towards financial peace.

For this article, we will cover the first half of the Baby Steps and how you can use them to turn your financial life around. See our next article for Part Two.

1. Save $1000 to start an emergency fund.
Emergency funds are meant to be kept for emergency purposes only. Emergencies may include home repairs, unexpected medical expenses, and other things that pop up in an emergency. By establishing and contributing to this fund regularly, you will always have a source of quick cash without having to disrupt your regular budget.

2. Pay off all debts using the snowball method.
The snowball method is a simple concept that allows you to focus on one debt at a time in the beginning and end with the payment in full of all debts. You start by selecting one of your debts. Some people recommend choosing the bill with the highest interest payment, while others recommend paying off the smallest bills first. Whichever method you choose, you simply focus on paying as much money towards one balance while continuing to pay only minimums on all other bills. Once you pay off that bill, you take the payment your were making and roll it into paying the next debt. For instance, with bill #1 you make a monthly payment of $50. You pay $50 plus any additional funds you can manage until the balance is paid in full. Next, choose bill #2 pay the minimum on the bill plus the $50 from the first bill and dedicate all other “extra” funds to that balance is paid off. As time goes by, your payments will get larger, enabling you to pay off more debt in a faster time period.

3. Sock away 3-6 months of your expenses in a savings account.
Saving money is often thought impossible for those who are struggling with debt. However, to keep your finances afloat you should aim to sock away 3-6 months worth of expenses. This will help your survive through a job loss, serious medical situation, or any other unexpected situation that would otherwise rock your finances.

4. Invest 15% of household income into Roth IRA’s and pre-tax retirement funds.
Investing your money wisely will help you stay on track for easier retirement. Those who find it hard to save also are likely not preparing for the future by investing their money into safe places that make the most sense financially. Others don’t invest because they have no idea how to invest or how much money should be invested each month. The early you start investing your cash, the less time you have to drag out your retirement plans.