Dave Ramsey’s Baby Steps (Plus the Critical Missing Step)

By Jackie Beck   Updated 07/20/2022 at 10:31 am

Tell people you’re getting out of debt, and chances are someone will ask if you’ve heard of Dave Ramsey’s 7 Baby Steps.

If you haven’t heard of Dave Ramsey, he’s a best-selling author and talk radio host who is very good at marketing. He’s made the debt snowball method hugely popular. And his plan is made up of baby steps, which is what we’ll talk about here.

And boy does taking baby steps toward a goal work! (As long as you get up and keep going again when you stumble.)

So What Are Dave Ramsey’s Baby Steps?

Let’s get right to the steps themselves, and then review some of the pros and cons to them in a bit.

Dave Ramsey’s 7 Baby Steps are:

  • Baby Step 1: Save a $1,000 emergency fund.
  • Baby Step 2: Use the debt snowball to pay off all debt except your house.
  • Baby Step 3: Fully fund your emergency fund by saving 3-6 months of expenses.
  • Baby Step 4: Invest 15% of household income for retirement.
  • Baby Step 5: Save for your kids’ college.
  • Baby Step 6: Pay off your house.
  • Baby Step 7: Build wealth and give.

They’re meant to be done in order, although Dave does also allow for Baby Step 3b: saving for a down payment on a house.

Here they are in infographic form too, in case you want to save them:
Dave Ramsey's Baby Steps Quick Reference infographic listing the 7 baby steps described in this article

Why Do The Baby Steps Work?

They work for several reasons. First off, clear cut directions are great. No one wants to hear “Well, it depends. You could do this, or you could do that. It’s up to you.” They want to hear, “Do this and you’ll be in good shape.” So these give people step-by-step goals to focus on.

The order is clearly laid out. Talking about which baby step you’re in acts as shortcut to identify other community members following the same program, so you may feel supported as well.

(Dave Ramsey fans can sometimes be called fanatics. And that’s not a bad thing, because zealously working toward getting out of debt and changing your financial life makes a HUGE difference. It’s a plus to be so enthusiastic about paying off debt!)

The program the baby steps are a part of — Financial Peace University — is heavily marketed in churches and mega churches. If you do it as part of a church group, that increases the sense of community. It likely builds in a little positive peer pressure too.

The steps use common sense, and they help you see progress along the way. As you work your way through the 7 baby steps, you’ll feel great about your progress. And that makes you want to keep going.

Finally, they deliver on the implied promise. If you save up a small emergency fund, pay off all debt but the house, finish funding your emergency fund, invest, save for college, pay off your house early, build wealth and give, chances are good that you will be in great financial shape. Which makes everything else a whole lot easier too.

A Closer Look at the 7 Baby Steps (Plus What’s Missing)

Most people do them because they want to get out of debt. They’re sick and tired of struggling with debt. They’re DONE. So they search around for something that can help that isn’t debt consolidation and find this.

Which is why it’s surprising that Dave Ramsey’s baby steps are missing something critical. Baby Step 0, if you will.

Because the very first things you have to do are make the decision to change and stop borrowing. You’ve got to quit digging that hole. Baby step 1 helps with that, but you’ve got to make the commitment first. You’ve got to only spend money you already have.

Now, let’s take a closer look at each of Dave Ramsey’s baby steps, along with some pros and cons.

Baby Step 1: Save a $1,000 emergency fund.

Everyone is going to have at least one emergency in their life. And most people have more than one. It helps to have money for those, so that’s why you want to save a $1,000 emergency fund. (Here’s how to build a $1000 emergency fund in 90 days.)

At least one earlier version of Dave’s baby steps adds to save $500 if you make less than $20,000 per year. Either way, the idea is sound.

So do save SOMETHING for emergencies first. That way you can use money instead of debt when something goes wrong. That’s a huge pro.

The con of course is that can be hard to save, especially if you’re out of work or struggling with medical problems. If you have stuff to sell and/or can work extra, that’s usually the easiest way to get it done. Do everything you can to save up your starter emergency fund.

Find a way to do this step before the others.

Baby Step 2: Use the debt snowball to pay off all debt except your house.

This is the part where the baby steps shine. That’s because using a debt snowball is a GREAT way to get out of debt for the vast majority of people. It works so well mainly because people see progress and stick with it.

Nothing succeeds like success, as they say.

Maybe another method would save you a little money in the long run, but most people can’t stick with them. So they end up spending even more and staying in debt. Do yourself a favor and do this step exactly: use a debt snowball to pay off all debt. Just note that if you’re not current on your bills, you should catch up on those before starting the debt snowball.

The only real downside I see to this step is that it’s branded as just one step. Sure, “use the debt snowball to pay off all debt” (but the house) is a single step. It’s just not fast, for most people. So if you think you’ll go through the 7 baby steps bam bam bam, don’t feel badly if this one takes a while. It took you time to get into debt. It’ll take time to get out. But it’s worth it!

Baby Step 3: Fully fund your emergency fund by saving 3-6 months of expenses.

You will have more than $1k’s worth of emergencies in your life. That’s why one of the pros to Dave Ramsey’s baby steps is that he recommends going back and fully funding your emergency fund in step 3.

Personally I prefer to have a year’s worth of expenses saved, because I’ve had long term job loss in the past. Note that no matter what you do, this refers to expenses, not income. And once you’re out of debt, your expenses will be a lot lower.

That’s likely why it’s listed as step 3. It’s a lot easier to save 3-6 months (or more!) of expenses when you don’t have that many expenses. There are no cons to fully funding your emergency fund.

Baby Step 3b: Saving for a down payment on a house.

This isn’t an “official” baby step — so some people call it the secret baby step — but Dave’s site does mention it. I’m really not sure why it’s listed as step 3b and not step 4b. I suspect it’s because a lot of people get out of debt because they want to buy a house.

It’s pretty common to want to buy a house, discover you need to improve your credit, and then hit upon paying down debt as a way to do that. (Paying off debt can help you improve your credit score.)

Logically though, it would make more sense to start investing before or at the same time as saving up for a down payment. (Basically, before going right back into debt again for a house.) Especially if you are looking to save a very large down payment (or even better, to pay cash for a house.)

Baby Steps 4 Through 6

These are meant to all be done at the same time, but we’ll go over each of them one by one anyway.

Baby Step 4: Invest 15% of household income for retirement.

This is where a lot of folks (including me) have an issue with the 7 baby steps. Waiting until you’ve paid off all your non-mortgage debt does have some cons:

  1. Sometimes people give up along the way, or end up in even more debt. In that case, waiting means they’re back where they started (or worse) and they don’t have anything set aside for retirement.
  2. If you have a huge amount of debt and a low salary (and you aren’t able to earn more), you could miss out on years of possible investment gains by waiting.
  3. If you have a retirement plan at work that gives you a match for contributing, you could miss out on literal free money. (While not losing much from your paycheck to put toward debt.) This last situation is where I’d contribute to retirement starting with baby step 2 instead of waiting.

Also, depending on how old you are you may want to think about putting more than 15% to retirement.

The pro of waiting until baby step 4 to start investing for retirement is focus. You are truly JUST focused on savings & becoming debt free (except for your house, if you own one). Single-minded focus is a great way to make fast progress.

The argument goes that it won’t take you that much time to get out of debt if you go all out on it, and so you won’t miss out on retirement. And if you stick with the plan and don’t have a ton of debt, that could be perfectly true. It can also motivate you.

For me though, it wasn’t about speed. It was about a permanent change for the better in our lives.

Baby Step 5: Save for your kids’ college.

If you don’t have kids, you skip this. If you do have kids, the step could use a little more detail. Save how much? Until when? It’s up to you to figure out.

Dave says, “We leave kids’ college open and vague because it means so many different things all the way from people with grown kids to people with little kids or one kid or two kids or six kids or different incomes. It’s all over the place on college.”

Baby Step 6: Pay off your house.

This step is self-explanatory, and I have no argument with it. Having a paid-for house is great, to put it mildly.

It’s such a relief too during stressful times. When my husband lost his job early on in the pandemic and my business income was down about 70%, we didn’t worry about losing the house.

The con to this step is that you may have to listen to people saying you should never pay off your house. The thinking is you can earn more money in the market. As someone who remembers huge market crashes and the days of double-digit mortgage rates, I say that’s not always true.

Right now when interest rates are at historic lows and the market is high, it might be true, but it also still may not be. No one knows what the future will hold, when your investments might not go well, or when the market as a whole may crash.

The pro is that by paying off your house, you’ll KNOW you have that taken care of. It’s a peace of mind thing, but depending how the markets go you may also end up ahead this way. For us it was worth the peace of mind, so I’m a big fan of this step as well.

Also please note that you are paying off your house AND investing. It’s not either or! If things go well you’ll have a paid for house and a good return from your investments.

Baby Step 7: Build wealth and give.

Building wealth makes total sense as baby step 7. It’s a lot easier to build wealth when you’ve done all the other steps first. Having more money helps!

But I’m a little confused at the “and give” part being last. Maybe it’s meant to be “and give even more”. Because Dave Ramsey is big on tithing 10% of your income while getting out of debt.

The Biggest Downside to Dave Ramsey’s Baby Steps

Again, these steps do work. For sure! (Especially if you remember the critical missing step: stop borrowing and only spend money you already have.)

But for me the biggest downside to Dave Ramsey’s baby steps is the biggest upside for him personally. He’s REALLY good at knowing his his target customer and selling to them. What happens if you’re not that person though?

If you’re not a conservative evangelical Christian, you’re not going to feel great about hanging out with people who may be actively hostile to you.

For example, if you happen to be LGBTQ+. Or liberal. Or middle of the road. Or of a different faith, or no faith at all. Or maybe a non-Bible Belt Christian.

Getting out of debt is NOT only for people who enjoy conservative talk radio rants.

It’s for everyone who wants to live a life without the burden of debt. I don’t want anyone to feel like debt freedom is not for them. You can do it, and you don’t have to drink the Dave Ramsey Kool-Aid to make it happen.

(Side note: did you know the saying drink the Kool-Aid came about because of the Jonestown massacre? It means blindly obeying a cult leader.)

You should feel welcome on the debt free journey no matter who you are or what you believe.

Here are the steps I recommend, if you’re curious. There are a few key differences.

But since this review is about Dave Ramsey’s Baby Steps, let’s talk a little about him next.

What’s Dave Ramsey’s Story?

It’s pretty much a riches to rags to riches story.

In the mid-1980s, he was a 26 year old millionaire making $250K a year with real estate investing. When the banks called his loans and he couldn’t repay them, he filed Chapter 7 bankruptcy in September of 1988.

That experience and the aftermath set him on a different path. Years later when he was doing well, he chose to go back and repay all his bankrupted debt.

In 1991 (according to his website) he founded The Lampo Group and began doing one-on-one financial counseling. In 1992, he self-published his first book, Financial Peace, and joined a radio show called The Money Game with Roy Matlock Jr and Hal Wilson.

Later, that radio show morphed into The Dave Ramsey Show. He’s helped a LOT of people on their journey out of debt, and the debt-free screams on the show are super inspiring. But he’s not for everyone.

Who is Dave Ramsey?

He’s folksy, motivating, and smart. He’s also a conservative evangelical Christian who calls people names like doofus, idiot, and “$8 an hour twerp”. He goes on rants. He threw a huge indoor Christmas party during the pandemic. He’s the CEO of Ramsey Solutions.

So take from that what you will.

He is very clear on who his audience is: people who are struggling with debt that want biblically based teachings. And he sells hope to people who are struggling, along with common-sense ideas.

His programs are based on things he learned from Larry Burkett, Ron Blue, Art Williams, the Bible, life experience, etc.

Dave Ramsey explains, “I’ve often said most everything we teach we didn’t dream up. Simply stole it all and just packaged it very well.”

Did I mention he’s really good at marketing and sales?

According to his website, more than 5 million people have participated in his Financial Peace University (FPU), which he started teaching along with the baby steps in 1994.

Currently FPU is included in a 1-year Ramsey+ membership, which costs $129.99. He also has “more than 11 million books sold combined” and has had over 1 million live event attendees.

While it’s unclear what Dave Ramsey’s net worth really is, The Richest puts it at $55 million and Wealthy Gorilla puts it at $200 million.

So knowing all that…

Should You Follow Dave Ramsey’s 7 Baby Steps?

And if you do, should you follow them in order? Maybe.

If you add step 0, aren’t behind on your bills, have an income, don’t have debt that will take you many years to pay off, sure. At least steps 1-3!

(You can check how long it will be before you could be out of debt using my app or a calculator.)

If you’re the kind of person who wants to put ALL your extra money toward debt until you’ve got everything but the house paid off, sure. Nose to the grindstone for a short period works for many people.

But if those things don’t describe you, you should probably:

  1. Stop borrowing and only spend money you already have.
  2. Add fun money to your budget to make it easier to stick with.
  3. Follow baby steps 1-3 in order while also doing step 4
  4. Finish rest of the steps.

But Do Get Started, With or Without the Baby Steps

Getting out of debt is a process. It’s a process that involves changing both your mindset AND your actions. And you can make it happen, one step at a time. That’s the bottom line that I’d like you to take away from this.

If you’d like help with the mindset part and getting out of debt part — no matter who you are — sign up here.

Dave Ramsey's Baby Steps -- Plus what's missing

5 thoughts on “Dave Ramsey’s Baby Steps (Plus the Critical Missing Step)

  1. Good morning,

    I’ve listened to Dave Ramsey for a couple of years now. Mostly as background while driving (and I don’t like to drive much anymore lol). I’ve always wondered what the baby steps were so thanks for sharing. I think he’s provides good standards for anyone but specifically may not be for everyone. I’m 57 and have lost more than I’ve earned but keep going and have apparently completed all steps except for 6. I’ve apparently skipped that but am big on 7. I can pay off our home but don’t stay long enough to do so in my mind. We’re going to start building our new home across the street in about a month and I’ll finally do so planning to just pay as I go. That’s one of a few ways I earn income (building/fixing-up & selling homes). I’m getting burned out on much of all of them and want to learn how much I need to step away. Anyway, I guess I just needed to write something :) Thanks

  2. Jackie, I enjoyed your summary of Dave’s 7 Baby Steps. I was an everyday listener to Dave while my wife and I were working our way out of more than $50K of (mostly) credit card and children’s college debt. I noticed two issues you claim Dave should have said, when in reality he has said them many times on the air. 1. (No investing until Step 4?) He says to immediately put only enough money into a 401K to get your company matching funds. He says, “Don’t leave fee money on the table.” When you get to step four, he says to fully fund your ROTH IRA’s first, before putting anymore money into your 401K, to total 15% savings. 2. (Low Income?) If you are not making enough money, he says you need to change jobs, or take on one or more extra jobs (ie. delivering pizza is one of his favorite examples that anyone can do.) Not having enough money to do the 7 Baby Steps is not a legitimate excuse in his book.

  3. I’m a young teacher trying to get better at saving and planning for retirement. This is a great breakdown of the steps, but I’m curious HOW this is all done? Do I just go without eating or paying bills for a month to save? For those of us living paycheck to paycheck this all seems daunting and impossible. What can we do to get to this point of even being able to save $100 per month?

    1. Definitely don’t do that, feed yourself first! And being current on your bills is the first step. I would start by tracking everything you spend in real time. Meaning if you spend money on ANYTHING, write it down somewhere. What you used the money for, how much it was, and how you feel about it. If you don’t discover any wiggle room at all by doing that, your best shot is to try some side hustles or selling things to get started.

  4. I completed Ramsey’s financial steps over several years (I wasn’t ready to just pay bills and barely eat until I had no debt). And therein lies the oft spoken key to Ramsey’s theory of achieving financial well-being: sacrifice, sacrifice, sacrifice…until you no longer need to sacrifice. Ramsey’s plan is not suitable for people who haven’t reached rock bottom, and are willing to do whatever is required in order to change their behavior, change their circumstances. Comfort comes at the last stage of the Ramsey plan; not at the beginning.

    If a person is living hand-to-mouth, but keeps a low-paying job while seeing to it they are entertained during non-working hours, that person is not ready to do what is necessary to achieve financial independence. If a person needs one or two extra jobs in order to get on the road to freedom, that person must commit to finding and working those extra jobs as the tool to reach independence. This is not a forever plan, but only a plan to get free of the oppression of debt. Life is not a two or three year experience. Invest two or three years in yourself and family, then live in freedom in the following years.

    In the 10+yrs I listened to Ramsey, or read about his plan, never has there been a verifiable claim that someone followed the plan without deviation, and failed to become debt free.

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