What Are Dave Ramsey’s 7 Baby Steps of Money Management?


Wouldn’t it be nice to have a universal manual that outlines all the financial rules you need to follow? While no such rulebook exists, Dave Ramsey offers the next best thing. His seven-step program promises to help you sort out your finances, so you can finally save for emergencies and pay off debt. But do his baby steps to financial security truly deliver what they promise?

Who is Dave Ramsey?

Dave Ramsey is a popular financial advisor who has skyrocketed to fame as a New York Times bestseller and radio and podcast program host. You can catch his televised podcast five times a week on YouTube, where he answers questions about common financial problems posed by callers on air.

For those who prefer to read, you can visit his website, a resource chock-full of calculators, budgeting apps, and articles touching on a variety of financial topics, including taxes, savings, and debt.

On debt, Ramsey believes he’s an expert. He dug himself in and out a $1.2 million hole when he over-leveraged himself to build a $4 million portfolio. Now with a net worth of $200 million, Ramsey has shared the seven baby steps that helped him pay off personal loans and recover financially.

What Are the 7 Baby Steps?

Here are Ramsey’s seven steps to financial freedom:

Step #1: Save $1,000 Emergency Fund

The standard emergency fund is big. So big, in fact, that it can scare you off from ever starting. That’s why Ramsey suggests saving just $1,000 at first. This provides a small safety net in case an unexpected expense comes your way.

Step #2: Pay off Debt

Once you have $1,000 under your belt, you should tackle your debts. Before you can follow this step, you need to ensure you can pay the minimum payments on every other account. The financial service providers at MoneyKey encourage all borrowers to do this, even if they don’t follow the seven steps. The minimum is an important target to hit, as it keeps your accounts in good standing.

Next, you’ll have to sit down with your budget to find extra cash to really knuckle down on debt. Ramsey is a proponent of the snowball method, which focuses on paying the account with the least amount of money outstanding first. This account gets all the extra cash you manage to free up in your budget.

Step #3: Max out Your Emergency Fund

Once you’ve paid off your credit cards, personal loans, and lines of credit, it’s time to beef up your emergency fund. Most financial advisors join Ramsey in recommending three to six months of living expenses in this fund. At this size, your fund can help you take on life’s surprises without needing to take out additional loans.

Step #4: Start Investing

Investing is one of the smartest ways to build your wealth. It gives you a chance to make compounding interest work for you, as most portfolios earn a higher interest rate than any basic savings account. Once you’ve ticked step three off your to-do list, Ramsey suggests you invest 15% of your gross household income towards retirement every year.

Step #5: Save for Your Children

If you have children, or you plan on having them soon, the earlier you start saving for their future, the easier it will be to pay for college. After all, education isn’t getting any cheaper. Ramsey suggests 529 college savings plans and ESAs (Education Savings Accounts) to maximize these savings.

Step #6: Pay off Your Home

So far, the debt mentioned in these steps has been exclusively consumer, non-mortgage accounts. That includes your credit cards, lines of credit, personal loans, student loans, and car financing.

But once you’ve wiped this debt clean, Ramsey suggests putting your mortgage in your sights. Paying off your mortgage as early as possible could save you a lot in interest — that’s money you could reinvest in other areas of your financial life. Plus, it’s nice not having to cover mortgage payments in your monthly budget.

Step #7: Build Wealth and Give

Once you reach this final step, you’re living life on easy street. Imagine a day when you don’t have to make debt payments, and you have built enough of a safety net that you aren’t worried about how you’ll make ends meet. With a solid safety net of savings and zero debt, you have the flexibility to build your wealth and help causes you believe in.

Will These 7 Steps Work?

Ramsey’s baby steps are a great starting point for people who are struggling with debt and who don’t have a solid financial background. It’s a responsible way to organize your money and pay back what you owe. However, there are popular critics of his methods, as you can see at

While Dave Ramsey’s steps have gained widespread popularity and have helped many individuals improve their financial situations, there are some criticisms to consider. Critics argue that the steps prioritize debt repayment over other important financial goals, such as saving for retirement or investing. Plenty of financial advisors think you should juggle both at the same time.

Others believe that the steps oversimplify complex financial situations and may not be applicable to everyone’s circumstances. Additionally, the emphasis on paying off the smallest debts first (debt snowball method) may not always be the most cost-effective approach. It’s important to carefully evaluate your personal financial situation and consider a variety of perspectives before solely relying on any specific financial strategy.