The Dave Ramsey Baby Steps – Do They Actually Work?

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Dave Ramsey is a world-renown personal finance expert who created 7 baby steps to help people have a roadmap to get their finances in order.

These same steps actually helped me pay off of $52,000 of consumer debt in just 18 months.

In this article, I am going to go over Dave Ramsey’s baby steps in detail. I’ll explain how they work, what you should look out for and how they will help you achieve financial freedom.

Dave Ramsey's 7 Baby Steps

Who is Dave Ramsey?

Dave Ramsey is a personal finance expert who is most known for his popular radio show called The Ramsey Show.

It is currently syndicated nationally in the United States on over 600 radio stations and has over 16 million listeners per week.

He is also behind Financial Peace University and the popular budgeting app, EveryDollar which helps people stay on track when they are following his baby steps.

Lastly, Dave Ramsey is a New York Times best selling author of multiple books

What Are the Dave Ramsey Baby Steps?

Baby StepAction
1$1,000 in an Emergency Fund
2Pay off debt using the Debt Snowball Method
3Put 3 to 6 months of expenses in savings
4Invest 15% of household income into retirement accounts
5Fund College for children
6Pay off your home early
7Build wealth and give a bunch away

My Video Review of Dave Ramsey’s Baby Steps

The Breakdown of Dave Ramsey’s 7 Baby Steps

Ready to learn more details of each of Dave Ramsey’s Baby Steps? Let’s go!

I want to help you figure out where you are in the process. This is important. Let’s start with a breakdown of what each of the Dave Ramsey Baby Steps entails. See where you’re at and jump in on the step from there.

1. Save $1,000

Baby Step 1 - put $1000 in an emergency fund

Dave calls this step the “baby emergency fund.” It might seem silly to start by saving $1,000.

After all, you could be putting that money toward reducing debt. But Dave has some good logic behind the emergency fund baby step:

“Unexpected expenses happen to everyone. And for some reason, they tend to happen more when you’ve just committed to getting out of debt.

In order to avoid being tempted to use your credit cards to handle these unexpected costs, save a quick $1,000 and put it aside as a buffer from those emergencies.”

So what happens if you’re paying off debt and you have an emergency? Use some of the money in your starter emergency fund.

Stop paying extra on your debt for now. Pay cash for your emergency from the fund. Then, put any extra money into a high-yield savings account until it reaches $1,000 again.

After it’s at $1,000 again, you can resume the debt snowball. Handling emergencies this way will help ensure that your credit card balances continue to go down. They won’t go up due to emergencies.

2. Pay Off Debt

Baby Step 2 - pay off debt using debt snowball

Paying off debt is the second part of Dave Ramsey’s Baby Steps. The debt avalanche (paying off debts according to the highest interest rate) will save money in the long run.

Examples of debt to include:

  • Credit card debt
  • Student loan debt
  • Personal loans
  • Medical debt
  • Loans from family or friends

However, the debt snowball method is often a better choice for debt payoff. Why? Because it keeps people motivated.

Whether you are getting out of credit card debt or paying off student loans, getting debt free is a long journey for many. The debt snowball gives you quick wins from the start. The quick wins can motivate you to stay the course.

What is the debt snowball method?

Here is how it works:

  • List your debts from smallest to largest
  • Make the minimum payment on all debts, except the smallest one
  • Put any extra funds toward the smallest debt until it’s paid in full
  • Tackle the next smallest debt on your list with all your extra cash
  • Repeat this until all debts are paid off

Check out our free debt snowball calculator here.

Bonus: Being able to mark those smaller debts as “Paid in Full” faster will motivate you. It’ll give you faith that you can indeed win the battle against debt.

Download the Debt Snowball form here.

3. Save 3 To 6 Month of Expenses For Emergencies

Baby step 3 - 3 to 6 months of expenses in savings

Ramsey’s next suggested baby step is to increase your emergency fund. You’ll save until it contains 3 to 6 months’ worth of household expenses.  It might seem daunting to save that much money.

However, Ramsey has a method for doing it quickly. If you’ve finished Baby Step 2, you are free of consumer debt. The only debt you have left should be mortgage debt.

Next, you’ll take the money you were using to pay down debt. Don’t coast on your new, smaller payments.

Instead, take the money and make a “payment” to yourself. Use the money that you were putting toward your debt snowball.

Make regular savings account deposits with it. Doing so should help you finish your emergency fund faster.

A 3 to 6 month emergency fund will keep you and your family protected. You’ll have a nice buffer against major financial emergencies. Troubles such as job layoffs and major home repairs won’t require credit cards. Instead, you’ll pay for them with cash.

4. Maximize Retirement Investing

Baby step 4 - invest 15% into tax favored accounts

Look at you now! Your consumer debt is gone. You have an emergency fund that’s fully funded. It contains 3 to 6 months’ worth of expenses.

The next baby step is to put 15% of your income into tax-favored retirement accounts.

For 2023 this means contributing up to the legal maximum allowed by the IRS. That maximum is $22,500 a year for 401(k)’s and $6,500 a year for IRAs.

Ramsey suggests saving 15% of your income.

For instance, if your household income is $100,000, then you would invest $15,000 per year.

Note that those 50 and over can add more cash to retirement accounts.

  • $7,500 to their 401(k)
  • $1,000 to their IRA

These are called “catch-up” contributions. If you can make them, do it. Maxing out your retirement investing helps ensure your golden years will be secure. The more you save, the more comfortable you’ll be.

5. Fund Kids’ College

Baby Step 5 - fund college for your children

There’s one thing I like about the college section of Dave Ramsey’s Baby Steps. Ramsey is clear that college doesn’t guarantee career success for your kids.

He goes into great detail about how important it is to calculate the cost vs. the benefit of college. Do this before you send your kid out to spend $25,000 a year on schooling.

It’s important during this step to talk with your spouse. Decide how much money you can afford to set aside for your kids’ education.

The dollar amount you contribute to your children’s college fund is up to you. Be sure you research the different college-saving options as well. Make sure what you plan to contribute to your kids’ college educations is affordable for your family.

It’s also wise to have a specific education savings account for this purpose.

In addition, make your plan clear to your kids. They should know what to expect from you where college financing help is concerned.

As a final tip, consider college alternatives to contributing to your children’s college fund. You may end up saving big money in the process.

6. Pay Off Home Mortgage

Baby step 6 - pay off home early

So you’ve paid off all of your consumer debt. You’ve got a fully funded emergency fund. You’re contributing at least 15 percent of your household income toward your retirement accounts.

In addition, you have a plan for contributing to your kids’ college educations. What’s next? It’s time to pay off the mortgage faster.

Can you imagine being mortgage free? Not owing anybody anything? They say the grass feels different under your feet when you own your home. Now it’s time to find out.

You’ve created a solid budget so that you know where your money goes. Now take all of your extra funds. This includes funds that were going toward your debt snowball. And the amount you were putting in your emergency fund.

Put it all toward that mortgage loan. Get it paid off in full as soon as possible. Put any extra money toward the mortgage loan as well so you aren’t just making the minimum payments.

The extra money could include:

  • Gifts
  • Tax refunds
  • Work bonuses
  • Overtime pay

And any other money you don’t usually get. Since it’s unexpected money, you won’t miss it. Don’t spend it on other stuff. Instead, use it to get that mortgage gone.

The less interest you pay to the bank, the more money you have. You can give it to worthy causes and use it to fulfill your dreams.

It’s your job to find out what those dreams are. Which leads to Baby Step #7.

7. Build Wealth and Give

Baby step 7 - build wealth and give a bunch away

Here’s the best step! At least in my humble opinion. You don’t owe money to anyone. And you’ve got a nice stockpile of savings.

What does that mean? It’s time to build wealth.

That wealth-building can come in a variety of forms. You can invest in mutual funds. Or, you can invest in real estate. If you want, you can sock the money away in a high-interest account.

The goal is to put as much money as possible toward whatever your financial goals are. That might mean traveling the world. Or it might mean building your dream home. Maybe you want to live life as a philanthropist.

You’re completely debt free. Now you’re working at having amassed a serious amount of wealth. The world is your oyster, and your dreams are unlimited. How does that sound? Good?

Do the Dave Ramsey Baby Steps Work?

From my first-hand experience, I can say YES, the baby steps do actually work. Not only did it help us become debt-free, but I have been able to see other friends and family become debt-free as well.

It does take work on your part to get the results, but if you work the steps, the results will follow.


If you want to achieve financial freedom, start working the baby steps in your life today. We used these steps personally to pay off our debt and start building wealth. If we can do it, you can too.

Start taking the necessary steps to improve your finances today with the Dave Ramsey Baby Steps.