Dave Ramsey’s Baby Steps: How To Get Out Of Debt

Let’s switch gears a sec, shall we?  This isn’t really baby related at all-so don’t go too far if babies aren’t your thang.

A few years ago, Josh turned me on to this financial guru named Dave RamseyDavid L. Ramsey III is an American financial author, radio host, television personality, and motivational speaker. His show and writings strongly focus on encouraging people to get out of debt. (Wikipedia)

If you haven’t heard of him, listen up.  This guy has been through all kinds of financial woes including being bankrupt, twice.  He’s been there, done that and now has a slew of successful books, financial classes, and inspiring talk show on AM radio.

His motto is what’s a motta with you IF YOU WILL LIVE LIKE NO ELSE NOW, LATER YOU CAN LIVE LIKE NO ONE ELSE!  The means live within your means now (budget) so you can party it up later with retirement.  Dave has these seven easy to follow baby steps that he lives by and teaches others about.  They look like this:

Baby Step #1: $1,000 to start an Emergency Fund

An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen.

Baby Step #2: Pay off all debt using the Debt Snowball

List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first.

Baby Step #3: 3 to 6 months of expenses in savings

Once you complete the first two baby steps, you will have built serious momentum. But don’t start throwing all your “extra” money into investments quite yet. It’s time to build your full emergency fund.

Baby Step #4: Invest 15% of household income into Roth IRAs and pre-tax retirement

When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth.

Baby Step #5: College Funding for children

By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now.

Baby Step #6: Pay off home early

Now it’s time to begin chucking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments.

Baby Step #7: Build wealth and give!

It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It’s really the only way to live!

I’m not gonna lie, I was a Suze Orman fan before being introduced to Dave, and have to say I’m a convert.  I remember when Josh and I were engaged we went to his famous Total Money Makeover event and were blown away!  Another couple went with us, since they were bitten by the Dave bug, and we had a blast.  I got chills hearing him talk about living debt free and not being a slave to the lender.  I’ve heard of people calling in on his show at ages 28 & 29 having paid off their home and are now debt free!  Holy monkey that’s huge!  What crazy people do that?

The Borrower is Slave to the Lender (Proverbs 22:7)

If you think about it, it’s true.  Constantly having credit card debt is like a rat in a wheel-you feel like it never ends.  Once we heard him preach teach about GETTING RID OF YOUR CREDIT CARDS, we were all in.  We paid off our debt, which luckily wasn’t much, and never looked back.  I think it’s been about three years since we used a MASTERcard and I don’t regret leaving it in the dust.  A lot of it is living like our grandparents did.  If you save the money and have cash to buy it, then buy it.  If you don’t have the cash for it, keep on saving.

It’s hard these days seeing what our government has done in setting an OVERSPENDING example.  How can you teach people to spend money ONLY if they have it when the deficit keeps getting ridiculous?  C’mon, how will we ever pay off $17,000,000,000,000,000,000,000,000,000,000,000,000,000,000 in debt?  Sorry.  It’s just funny.

So here comes a guy (Dave) who teaches you about living within your means and paying cash.  Think about it: how cool would it be to have your house paid off before your 15 or 30 year note is up!  What would you do with all that dough??  I love his concept and some may not like his harshness but I think that’s what hooks people-no sugarcoating it.  These issues are real!

Just before we tied the knot, our friends gave us a wedding gift to attend his Financial Peace University (FPU).

“We all need a plan for our money. Financial Peace University (FPU) is that plan! It teaches God’s ways of handling money. This plan will show you how to get rid of debt, manage your money, spend and save wisely, and much more!

FPU classes meet for an hour and a half each week for nine weeks.”

It was great because it was a 13 week course (at that time) where you met once a week to go through Dave’s teachings.  You watched a quick video then broke up into groups to do a few pages out of his workbook.  This allowed people to own up to their debt as well as get tips and inspiration to stay focused.

I would highly recommend it if you need some help.  The class is $119 and once you sign up you can go as often as you need.  He also has a Financial Peace Junior if you want to get your kids, ages 3-12, started on the right track early.  I’m thinking Josh and I need a refresher in FPU since we can’t seem to stick to a budget.  I do one every month but darnit if I don’t stick to it.  I definitely want to try out  these eMeals he always talks about to see if that can help me cut the food budget down.  We also use Mint.com which is online tool you can use to track your expenses, and set up a budget to go along with your hand written one-I highly recommend it!

Update: Emma got Financial Peace Junior for her 3rd birthday and she is working hard for the money.  We listen to the CD 10 times a day and she rushes to help with the 4 chores we picked out for her (age appropriate) so she can save for her toys.  I decided to pay her 50 cents for each chore and pay her immediately since she is still pretty young to understand delayed payment.  Check it out even if you have older kids. 

That’s what inspired me to write this post.  If I’m being honest, we’re stuck on baby step #4 and can’t seem to nail that one down.  I hope since I’m putting this information out there,  it will help me get my butt in gear and back to naming every dollar that comes and goes in our home.  And I definitely want to get it together so I can show baby girl the proper way to spend, save, and give money.  Wouldn’t that be awesome if we taught our kids how not to acquire debt and have college paid off before they graduated?  What a crazy world this would be if everyone was debt free!  Watch out now.

Your homework: go check him out-if you’re not obsessed a fan already.  As Dave says: let’s change our family tree.  I know I’d like to see mine that has branches going up (not down) and are big, plump, and full of money!

Note: photos from herehere, here and here.

Note: I wasn’t paid or perked for this.

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