Back in 2016, I began looking for ways to finally get Novaya Usman’ my finances under control and get out of debt. I started reading everything I could about personal finance and spent most of my days listening to gabapentin to buy uk podcasts about money. One day while I was listening to Jim Cramer from Mad Money, another personal finance guy, I came across a guy named Dave Ramsey by happenstance. Similar to the Jim Cramers, Clark Howards, and Suze Ormans of the world, Dave Ramsey is another fiery personal finance personality that teaches people about money.
Dave Ramsey became a millionaire in his mid-twenties by investing in real estate but by 30 had lost it all. After the devastating blow to his net worth (tax reform act of 1986 put pressure on lenders which then put pressure on Dave causing him to file for bankruptcy), Dave Ramsey started to rebuild his finances and became consumed with learning all he could about money. He attended all the workshops and seminars about money he could find which eventually inspired him to develop what he calls the baby steps. For the record, nothing about the baby steps is new to the realm of money, even Dave Ramsey himself says the steps are essentially how our grandparents dealt with money.
He likes to say he teaches grandma/grandpa’s way of dealing with money because they kept money, similar to the baby steps, super simple. If they couldn’t afford something with cash, they wouldn’t buy it. Since developing these baby steps, millions of people have gotten out of debt and turned their finances around.
If you’re looking to save more, tackle debt, or get your finances under control and have no clue where to start, the baby steps provide a solid starting point. I will caution that even though the baby steps helped me on my journey to becoming debt free, personal finance is personal. I’ve learned what works best for me and have forged my own way after reading numerous other inspiring books, blogs, etc. I also don’t follow Dave Ramsey’s baby steps to the letter. I’ve learned that a one size fits all approach has never been the best way to tackle anything, but again, the baby steps at least give you a great starting point. In his book , The Total Money Makeover, Dave Ramsey does a deep dive into each baby step, but for the purposes of this post, I wanted to provide you with a quick overview.
Here is a quick guide to the baby steps:
Step 1- Save $1000 (mini emergency fund)
Baby step 1 usually the most difficult and toughest part for people trying to get started with paying off debt. If you are struggling with this, you are not alone. 57% of Americans don’t have $1000 saved. Get creative and tackle saving your first $1k as soon as possible. If you hustle hard enough and are creative with your approach, you can knock this step out in as quickly as 30 days.
Consider a side hustle, get on a written budget to see where you can cut down your expenses, and sacrifice eating out/going out for the next month or so! This is a tough step for a lot of people because naturally, I think, people tend to be spenders and not savers. This step is significant regardless if you follow Dave Ramsey or not. Having money for a rainy day or an emergency is extremely critical in the grand scheme of things. Life always happens, and it sucks when you don’t have the money you need to cover it.
If you are already a great saver and have millions already, continue making your way down the list.
Step 2 – Pay down debt (aka the debt snowball, check out the free Make Real Cents budget sheet to get started)
The infamous baby step number 2 that some people can find themselves in for the long haul. I’ve been in baby step 2 for 2.5 years now myself! Remember folks; personal finance is not a sprint; it’s a marathon. I have a mixed approach to paying off debt that I’ve explained on my instagram, but this is a step that you have to figure out what works best for you. Initially, I was super intense about paying down my approximately $57,000 of debt and cleared $38,000 in the first 18 months. I’ve since eased up on my quest to blast through it but I am still on track to get it paid off within three years, and I am ok with that.
This is a step that you have to get totally open and honest with yourself and your money habits. If your mountain of debt seems insurmountable, maybe you make $50,000 a year and are in $110,000, breathe for a sec and know that you’ve got this. There are plenty of people in just that situation that are killing their debt, so if they can do it, you can too. Just understand that it would happen overnight as I mentioned before, I’ve been on baby step number 2 for 2.5 years.
If you have not debt and are loving life, keep on moving down the list until you’ve checked them all off.
Step 3- Build up an actual emergency fund (3-6 months of expenses)
An emergency fund of 3-6 months of expenses is what most financial advisors recommend you strive towards saving. This is to cover a more realistic emergency like losing a job or a family member getting sick. These things happen all the time, and it’s better to be prepared than sorry.
Step 4- Maximize retirement savings or start saving for a home (baby step 4b)
Here is where you want to step up your retirement contributions or start saving money to until you save enough money to put 20% down on a home.
Step 5- College funding for your kids
No kids, skip this step. Maybe you have kids but aren’t sure if you want to save for them to go to college like the writer of YNAB. This step is something you and your partner should have a unified approach on.
Step 6 – Pay off your mortgage.
Step 7 – Continue to build your wealth so you can help others.
I encourage you to create your own path and figure out what works best for you. There are a lot of things I like about Dave’s approach, and there are a lot of things I don’t. I do think he offers a solid starting point no matter where you are at in your financial journey, for holistically improving your finances.
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