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A Financial Plan That Works

You’re working hard, but you just can’t seem to make any progress with your money. You want to get out of debt, have more in savings, and maybe buy a house. But what about your retirement and the kids’ college funds?  

If you feel like you’re being pulled in a million different directions, you’re not alone. The solution? A financial plan to help you manage your money with confidence. Let’s look at what a financial plan actually is and how to find one that works for you.

What Is a Financial Plan?

Football coaches have game plans. Wedding planners have event plans. And tech start-ups have business plans. If you want to win with anything in life, you need a plan—especially when it comes to your finances. A financial plan is your road map to get from where you are to where you want to be with your money.

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Each person’s financial plan looks different, depending on their short-term and long-term financial goals. But no matter what dreams you have, it’s important to think about what matters to you and your family for the present and the future. Then you can set specific goals and think through the steps it will take to reach them.

But not all financial plans are created equal. In fact, some can actually do more harm than good. So, before we dive into figuring out a plan that works for you, let’s talk about financial plans you need to avoid.

Financial Plans to Avoid and Why

It seems like everyone has an opinion about the best way to win with money—the banks, the credit card companies, even our family members. Deciding what’s the truth can be . . . overwhelming, to say the least.

If you’re confused, you’re not alone. And sadly, there are plenty of people out there who use that to their advantage. But we don’t want you to be blindsided. Here are some red flags to look for when someone pitches you a financial plan.

Get-Rich-Quick Schemes

“This one trick will make you thousands overnight. Do this and you’ll be raking in the dough by next week. Invest in this one thing and you’re sure to be a millionaire.” Blah blah blah.

Everyone wants a quick fix. You only need to spend a couple of minutes online to see plenty of companies promising you instant results. But real, lasting change takes time and hard work. Anything worth doing is going to require you to put some skin in the game (aka some sacrifice).

If someone is promising you financial success with little effort, it’s probably too good to be true. Trust us, if winning with money was as easy as flipping a switch, everyone would be a millionaire. So don’t fall for these scams. Trying to get rich quick will only leave you disappointed and probably less rich than you were before.

Super Complicated Strategies

On the other hand, your financial plan also shouldn’t be so complicated that it feels like performing brain surgery (if you’re a brain surgeon, choose another metaphor). You’ll probably come across financial programs that seem super sophisticated and claim to have the “secret formula” to wealth, but if the content has you scratching your head, don’t jump in blind.

“Never put your money into something you don’t understand.” — Dave Ramsey

Many companies and business gurus rely on your ignorance to make them rich. The less you know, the more they can convince you they have the magical solution to your problems. And even if the payoff from their money games seems to be worth it, what they won’t tell you is just how high the risk typically is—you only get to see the good side.

Here’s the deal: You don’t need a finance degree to manage your money with confidence. If you want a financial plan to work for you, you need to actually understand it—so well that you could explain it to someone else. A financial plan doesn’t have to be super complicated to help you reach your money goals.

Anything That Deals With Credit

We’re going to get some pushback on this one, but credit is not your friend. Banks and credit card companies have fed us the lie that we need to use credit to survive in this world, and we as a culture have bought it—hook, line and sinker. But borrowing money is not the way to build wealth. Just ask the 77% of Americans who have at least some type of debt.1

Any financial plan that involves playing the credit game (yes, that includes credit cards) is only going to end up costing you more in the long run. It might seem crazy, but the best thing you can do for your financial future is to steer clear of credit (as in, Danger! Keep Out!).

A Financial Plan That Works

Okay, so now that we’ve warned you about some of the dangerous financial plans out there, let’s talk about a financial plan you can actually trust. It isn’t a get-rich-quick scheme, it’s not super complicated, and it doesn’t mess with credit—so it passes the test. And the best part? Anyone can follow it. Say hello to the 7 Baby Steps.

The 7 Baby Steps

Made famous by Dave Ramsey’s The Total Money Makeover, the 7 Baby Steps are the game plan for your money. Whether you’re trying to save more money, invest or pay off your debt, the Baby Steps are how you make it happen. They break down big goals into simple steps that anyone can do—no matter your job, income or stage of life.

So, what are the 7 Baby Steps? Glad you asked.

Baby Step 1: Save $1,000 for Your Starter Emergency Fund
Baby Step 2: Pay Off All Debt Using the Debt Snowball
Baby Step 3: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund
Baby Step 3b (optional): Save for a Down Payment on a House
Baby Step 4: Invest 15% of Your Household Income in Retirement
Baby Step 5: Save for Your Children’s College Fund
Baby Step 6: Pay Off Your Home Early
Baby Step 7: Build Wealth and Give

Save for Emergencies

We all know life’s curveballs have a way of showing up unannounced and unwelcome—and usually at an expensive cost. When the A/C unit goes out during the hottest week of the summer or your pipes burst while you’re on vacation, there’s nothing to do but fork over the cash to fix it.

But instead of putting it on your Mastercard (and making payments for the next two years, plus interest), what if you could pay for it with cash on the spot? Sounds nice, right? That’s why you need an emergency fund.  

Baby Step 1 is to save $1,000. This step could be the easiest or the hardest, depending on your specific situation. But it’s all about getting your feet under you. We know $1,000 isn’t going to cover every emergency (that’s why you’ll build up your full emergency fund in Baby Step 3), but it’s enough to keep you from going into more debt while you tackle your current debts in Baby Step 2.

Pay Off Debt

We’ve said it before, and we’ll say it again: Debt sucks and we don’t want you to waste even one more dollar paying for the past when you could be planning for your future. It’s time to get serious about getting rid of your debt.

But what’s the best way to pay off your debt? The debt snowball method! Here’s how it works:

Step 1: List all your debts smallest to largest, regardless of interest rate (more on that in a minute). Pay minimum payments on everything but the smallest one.

Step 2: Attack the smallest debt with a vengeance (we’re talking scorched-earth policy here). Once that debt is gone, take that payment and any extra money you can squeeze out of your budget and apply it to the second-smallest debt, while continuing to make minimum payments on the rest.

Step 3: Once that debt is gone, take its payment and apply it to the next-smallest debt. The more you pay off, the more money you have to throw at your next debt—like a snowball rolling downhill.

Step 4: Repeat until you’re completely debt-free!

We know you’re probably thinking, But what about the interest rates? We hear you. But paying off all your debt is more of a mental game than a math problem. By tackling your smallest debts first, you’ll get quick wins and start to believe that it’s actually possible to pay it all off. The debt snowball method works because it keeps you motivated all the way to the finish line!

Invest for Your Future

Once you’ve gotten rid of your debt and stashed enough cash away for emergencies, that’s when the wealth building can truly begin. Without payments stealing from you each month, your future starts to look a whole lot brighter. You’ll have more money to help you save for your dream home, set your children up for success, and even pay off your mortgage early!  

Plus, when you work the Baby Steps, you’ll be able to invest enough to retire the way you want—whether it’s golfing in Hawaii, driving an RV around the country, or finally building that tiny home to write your novel in. A good financial plan allows you to enjoy the fruits of your labor and give generously to others.

Why the 7 Baby Steps Work

They’re simple, but effective.

Personal finance is 80% behavior and only 20% head knowledge. That’s why the key to winning with money is an easy-to-understand financial plan that you can actually follow. The Baby Steps plan isn’t some super complicated money trend. It’s commonsense advice your grandma would give you—live within your means, don’t borrow money, save for a rainy day, quit trying to keep up with the Joneses.

These tips may seem obvious, but they’ve been proven to stand the test of time. Why? Because they make you really look at how you handle money and force you to build better habits to get where you want to be.

They’re all about momentum.

How do you eat an elephant? One bite at a time. And how do you reach your financial goals? One Baby Step at a time. When you focus on one thing at a time (instead of trying to do everything at once), you’ll make progress faster. The key to making the Baby Steps work is doing them in order. (Seriously, no exceptions.) Each step builds on top of the other, and accomplishing one gives you motivation to tackle the next. It won’t be easy, but if you take it one step at a time, you will get where you want to be.

They’ve actually helped people.

The Baby Steps have helped millions of families get out of debt and take control of their money for good. Here are just a few real-life examples.

David and Tayelor used credit cards as their income and lived paycheck to paycheck until they started following the Baby Steps. After cutting up their credit cards and becoming debt-free, they now live their lives without fear of the future.

Autumn is a single parent. She was living off $400 a month and drowning in $100,000 of credit card debt. After following the plan, she paid off her car loan, continues to pay off her debt, and even owns her own company!

Rob and Robyn paid off all their debt—including their house. They were tired of seeing their hard-earned money going toward debt and decided to knock it out by working the Baby Steps. Now they have no more payments!

Paul and his wife are millionaires! How did they make it happen? By following the Baby Steps and changing the way they handle their money. Now they get to enjoy Baby Step 7 life and be as generous as they want!

We could keep going with countless stories from real, everyday people who stuck to the plan, chipped away at mountains of debt, paid off their homes in record time, and are on the path to becoming everyday millionaires. Because this stuff really works—and it will work for you too!

Commit to a Proven Plan

You deserve a financial plan you can depend on—one that will actually get you where you want to be. If you’re ready to take control of your money for good but aren’t sure where to begin, Financial Peace University will set you up for success. This course has helped nearly 10 million people learn how to follow the 7 Baby Steps and manage their money with confidence. Now it’s your turn!

You can watch Financial Peace University, plus more of our best money courses, with a Ramsey+ membership. You also get the tools you need to put the Baby Steps plan into action. And when you stick to the plan, you will see results! Go ahead and try Ramsey+ today for free to start making progress toward your money goals.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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