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Baby Steps

Dave Ramsey

Cut up your credit cards. Pledge never to go into debt again! Don’t rely on your credit cards as an pseudo “emergency fund.” Not having them will motivate you to get on the ball.

“When he reached the New World, Cortez burned his ships. As a result his men were well motivated.”

- Captain Marko Ramius;  Captain of the Red October

1. Make minimum payments on all your bills (get current first). Save $1,000 cash. This is your beginner Baby Emergency Fund. The baby emergency fund should help you avoid incurring more credit card or other debt when the transmission falls out or an other emergency strikes. Some use and reestablish the baby emergency fund multiple times.

2. Pay off all of your debts in order of smallest balance to largest. “Snowball” the payments as you go. “The Debt Snowball” is analogous to a snowball rolling downhill. Each time you payoff a debt, you pick up more snow. This is where Dave’s plan may deviate from math. Dave has learned that personal finance is 80% personal behavior. Dave calls these payoffs, “attaboys.” Get a few attaboys and your confidence grows. This is by far the most difficult baby step for most people. This is the stage that requires the most Gazelle intensity.

Dave Ramsey Freedom!


3. Create a full-fledged Emergency Fund containing 3 to 6 months’ worth of living expenses.

4. Direct 15% of your annual pre-tax income into your retirement plans. Utilize tax-advantaged accounts such as 401ks and Roth IRAs, if eligible. Get to your 15% with employee matched first (up to the match), Roth IRAs next if eligible, then go back to 401k, etc. until you get up to 15%.

5. Take care of college funding. Fully fund Educational Savings Accounts and/or utilize 529 plans for your children(s) college fund. No kids yet? Skip this step.

6. Become 100% debt-free: Pay off your home early. This is the holy grail to Dave Ramsey’s flock. Once baby step 6 is achieved, the home owner is encouraged to take shoes and socks off and walk around in the yard with bare feet. The grass feels different. At this point, you don’t owe one red cent to anyone. Everything that is yours is actually yours (and God’s). Enslavement ends upon completion of Baby Step 6. The borrower is slave to the lender no more.

7. Build wealth with paid for real estate and/or mutual funds. Live like no one else, so later, you can GIVE like no one else.

Dave Ramsey Soundboard – Play Dave. Great Prank! Try it on your Dave Ramsey fan friends or use it on the next credit card collector that calls you. Just put your phone by the speaker, pull up the soundboard, and let the fun begin.

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