If you’ve ever done some research into the world of personal finance, you’re most likely familiar with Dave Ramsey. Or, you’re at least familiar with some of his work, like the 7 baby steps to taking control of your money. In these steps, Ramsey proposes the steps he swears by to let people build an emergency fund, eliminate death, and build wealth from that point on. The process goes beyond financial security or financial independence—it guides you to a place of financial abundance.
But one thing about these steps is that they’re very specific. Because Ramsey is so confident in his method’s success, each step is particular, with minimal flexibility. For people living a very conventional life (Ramsey himself is an evangelical Christian, and his beliefs coincide tightly with his methods and viewpoints), I have no doubt they work well as-is. But, for those of us with more nontraditional lifestyles, a set of modified Dave Ramsey baby steps, with space for customization, are in order.
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The Original Dave Ramsey Baby Steps
Ramsey’s original baby steps are specific and for good reason. His confidence in the method stems from his success rate: per his site, “It works every single time!”
Baby Step 1
Save $1,000 for your starter emergency fund.
Step one gives you a safety net in case of the (inevitable) crises that will pop up as you make your way through Ramsey’s plan. Without this step, the first emergency to arise can quickly send you deeper into debt.
Baby Step 2
Pay off all debt (except the house) using the debt snowball.
For step two, you set out to pay off your credit cards, student, loans, cars, and any other debts, save for a mortgage. The debt snowball method entails paying off your smallest balance, then putting what you would have paid towards that debt to the next-smallest. Ultimately, you’ll end up paying more in interest than with other debt pay-off strategies, but it will keep your motivation the highest along the way, encouraging you to continue your debt payoff plan.
Baby Step 3
Save 3-6 months of expenses in a fully-funded emergency fund.
Once you’ve paid off your non-house debts, you can afford to give yourself further peace of mind. With three to six months’ expenses saved, you’ll be ready for a larger emergency than your initial starter fund can handle.
Baby Step 4
Invest 15% of your household income in retirement.
You shouldn’t have to work forever if you don’t want to. By saving 15% of your gross income toward your retirement savings will help you be secure as you age.
Baby Step 5
Save for your children’s college fund.
If you have children or plan to, saving for their college fund as early as possible will make your life and theirs easier when that time comes. Help you both avoid student loans (and the predatory interest rates that come with them), as well as the added stress of finances on top of the college search by saving in a 529 or other education-focused savings account.
Baby Step 6
Pay off your home early.
You didn’t pay off your mortgage in baby step 2, but you knew we’d get to it eventually. By paying extra toward your home now, you can save remarkable amounts of interest, and clear up more money each month to use for other needs and wants.
Baby step 7
Build wealth and give.
At this stage, you should have ample security and minimal expenses. What does that mean? You have plenty of money to spare! Continue building wealth and be generous with causes you believe in (for Ramsey, it’s most often tithing).
My Modified Baby Steps
I won’t contest the fact that Ramsey’s baby steps seem to be successful. But it’s clear that they’re targeted to a certain type of person. Of course, you could work through the process, skipping steps that don’t apply to you, like skipping step 6 if you don’t have a mortgage.
For me, modified Dave Ramsey baby steps make the process more clear. By creating a version of the baby step process that’s tailored to me, it (hopefully) means I’ll have greater success along the way!
Baby Step 1
Save $1,000 emergency fund.
Like Ramsey’s baby steps, my modified version begins with a $1,000 starter emergency fund. If it’s not broke, don’t fix it, right? This is a pretty lofty goal for me, about a full month’s earnings on my current income. But it definitely feels like a good starting point.
Baby Step 2
Pay off “minor” debt.
To some degree, my step 2 and step 1 overlap. In the original baby steps, Ramsey suggests paying off all debts, with the exception of a mortgage. In my modified Dave Ramsey baby steps, I’m sticking to credit cards and payment plans upfront. My student loans are pretty massive, especially compared to my rather meager current income. So, it’s a lot more reasonable for me to target the smaller amounts, making the minimum student loan payment along the way.
Baby step 3A
Save 3 months’ expenses.
My modified step 3 mimics Ramsey’s, but I’ve broken mine down into two steps. First up? Save 3 months’ expenses, or about $3,000 based on my current budget—though I do hope to increase my income and move to an apartment, increasing my expenses in the process, so that number might change by the time I approach this step.
Baby step 3B
Save 6 months’ expenses.
Once I’ve managed that initial 3-month emergency fund, I’ll be setting myself up to double it with 6-months of savings. With medical concerns and the instability of freelance work, having an ample emergency fund will give me the security to continue through this process and, more generally, life.
Baby step 4
Invest 10% for retirement.
I’ve never had a full-time, salaried job like a more conventional person my age. As a result, I don’t have an employer-backed retirement plan or similar long-term funding. Of course, it would be better if I could start on this step sooner but, at present, the short-term security that less debt and emergency savings can provide is a higher priority. I’m also investing less than Ramsey’s original baby step suggests. But, in a long-term sense, I’ll be more ready to increase that percentage in the future!
Baby step 5
Pay off student loans.
At this point in the process, my day will get a little scarier. I’ll be prepped to face that minimum-payment monster in the closet, student loans. I have both private and federal loans that, suffice it to say, are the bane of my financial existence. At this point, I’ll be knocking them off one by one until I can say I’m finally free from their grasp!
Baby Step 6
Save for family.
I don’t have a concrete timeline for making my way through these steps, largely because I’m still working on getting my income to a more livable rate. I think I can say pretty confidently, though, that, by the time I reach this step, I’ll be at the point where not only do I want to start a family, I’m financially in a place where I can do so. I want to foster or adopt and both will require savings and financial security.
Baby Step 7
Build wealth & give.
By this final stage of the process, I’ll presumably have not just financial security, but financial freedom. In this case, that means I’ll be back to Ramsey’s original baby steps, working towards financial abundance. I have a long list of courses I’d love to support financially—this level of financial ability would help make that happen!
These aren’t my only financial goals, of course. I’ll be working to increase my income along the way (making these steps easier, too!). I’m already investing small amounts with Stash and saving with Ally, both of which I plan to continue, barring any disasters in the process. While I’m building my emergency fund, I also plan to make small extra payments to the first credit card on my list. But, at the end of the day, each step will be a top focus. And, by the time I finish all of the above, I think I may very well have the financial life of my dreams!