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How to Win With Money in 7 Baby Steps

Step one: Never spend money again. Boom. Done.

Okay, I’m totally kidding!

Listen, I love spending money, and thankfully I can do that and still reach my money goals. You can too! You need a budget and the Baby Steps.

We’ll bring the budget part in at the end, but first let’s learn how to get ahead with money in just 7 Baby Steps.

What Are Dave Ramsey’s Baby Steps?

The 7 Baby Steps are the proven plan to paying off debt, saving money, and building wealth. And they work.

If you want to do better, be better, and live better with money, you might not know where to start. You might feel overwhelmed, like you’re staring up at a mountain of hard work. But how do you climb a mountain? One (baby) step at a time. 

7 Baby Steps

Baby Step 1: Save $1,000 for Your Starter Emergency Fund

Only 32% of Americans say they can pay cash for a $400 emergency.1 That means 68% of them are borrowing, selling or going into debt when life happens. And it does. Your car’s catalytic converter gives out. Your kid busts his chin and needs stiches from the ER. Your washing machine won’t live to spin again. That’s life. But you can be ready—with cash!

How: Start saving more money and spending less. You can save $1,000 quicker than you think—really. It just takes a little focus and some hard work. Try selling stuff, clipping coupons, saying no to extra expenses, planning your meals, eating out less, using or selling old gift cards, and downloading money-saving apps. The ways to earn or save $1,000 are nearly endless. Pick a few and start saving up now.

Baby Step 2: Pay Off All Debt (Except the House) Using the Debt Snowball

Debt’s good for one thing and one thing only: holding you back. But you don’t want to be held back. You want to thrive—and the thriving starts here. You’ve got $1,000 saved up so you can use that money instead of going deeper into debt when an emergency hits. Now it’s time to attack debt with a vengeance using the debt snowball method. Pay off one debt at a time from smallest to largest, building your momentum until you’re debt-free.

How: Remember those money-saving tricks from Baby Step 1? Use those, and then put all that extra cash toward paying off your debt. In fact, really challenge yourself and see just how thrifty you can get while you’re on this step. It’s not forever, and when you’re living free from debt, you’ll look back and see the work was totally worth it.

Baby Step 3: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund

The debt is gone. Goodbye, debt. Talk to you never. Now, you’re going to build up that emergency savings fund so it’s strong enough to stand up to bigger problems, like job loss. Figure out how much money you’d need to live for three to six months if your regular income went away. (If you’re a one-income household, aim for six months of expenses. Two-income households can go for three.) Save up that amount and store it in a high-interest savings or money market account with check-writing privileges so you can get to it if you need to.

How: You’re already in a pattern of saving. You clip and tap coupons all the time. You downloaded so many money-saving apps, you have to delete photos of your puppy weekly for storage. You started brewing your own coffee at home—and even like it better. (I know, right?) So, keep those money-saving habits going and build your savings into a fully funded emergency fund. 

Baby Step 4: Invest 15% of Your Household Income in Retirement

For some people, retirement can seem like tomorrow’s problem. But that kind of thinking will leave you working for the rest of your life. I don’t want that for you. And you don’t want that for you either! In Baby Step 4, it’s time to start preparing for your future by investing 15% of your gross household income into retirement accounts.

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How: Here’s the simple breakdown. When you start this step, first look into your employer’s 401(k), if you have one, and invest up to the match. Then open a Roth IRA and max out your contributions. If you hit the max and still haven’t reached 15% of your income, go back to your 401(k) and contribute the rest there!

Note: If your employer offers a Roth 401(k) and you like the investment options, you can invest your whole 15% there.

Pro tip: If you’re ready for Baby Step 4, plug your numbers into our Retirement Calculator to see if you’re on track with your investments.

Baby Step 5: Save for Your Children’s College Fund

No kids? Kids fully grown and out of the house? You can skip this step and move on to the next. Otherwise, it’s time to start researching and stashing away cash for your kids to further their education. One important note here: You’ll be working on Baby Steps 4, 5 and 6 at the same time, but you’ll start them in this order.

Okay, I’ve been teaching people about money for over a decade, and when I mention the order of Baby Steps 4, 5 and 6, I sometimes get this question: “Why should I wait to save for my kids’ education until after I start saving for retirement?” You ask because you’re a caring parent. But trust me, you don’t suddenly become selfish by putting retirement first.

Let me explain why these two Baby Steps go in this order. One reason is that your kids may or may not go to college—but you will definitely retire. Also, there’s no reason to send them to overwhelmingly expensive universities that’ll leave you unable to pay your bills when you quit working. Putting retirement first is not selfish. It’s wise.

How: First, look at opening an Educational Savings Account (ESA) or 529 college savings fund.

Next, remember this: Going to college without going into debt is possible. There are tons of grants and scholarship options out there. And your kids should always consider in-state and community college options and working throughout school to pay for tuition and fees. By using this Baby Step and all those tips, your kids can get a diploma without debt.

Baby Step 6: Pay Off Your Home Early

The average American has a monthly mortgage budget line of almost $1,775.2 What if that disappeared, not because of magic, but because you paid off your house—in full. What would you do with that $1,775 every month instead?

Think about this: If your mortgage is gone, it means your home sweet home is all yours. I know it can feel nearly impossible to imagine. But it’s possible to achieve. Really!

How: Maybe you put a few extra hundred dollars on your principal payment every month. Or maybe you make one whole extra house payment per quarter. (Using this tip, you can pay off your mortgage 15 years earlier and save thousands of dollars, maybe even over a hundred thousand dollars depending on your numbers, in interest alone!)

Play around with our Mortgage Payoff Calculator to see how quickly you can finish Baby Step 6 with a little (or a lot of) extra work.

Baby Step 7: Build Wealth and Give

Now it’s time to grow your wealth beyond your wildest dreams—except, let me tell you, those dreams won’t seem as wild anymore because you’re going to reach them. And when you do, you’ll not only be living like no one else, you’ll be in a position to give like no one else.

Your money won’t be tied up in debt or mortgages or worry. It’ll be free to share with your favorite charities or your church. You can be in a position of easy generosity. I always tell people it’s the most fun you’ll ever have with money—and I can’t wait for you to live it for yourself.

How: Remember your 401(k) and Roth IRA? Max. Them. Out. As your retirement fund grows, use your remaining wealth to have some fun and help others. Oh, and try not to break our EveryDollar app with all those zeros you’re typing into your income line.

Save more. Spend better. Budget confidently.

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Why Should I Follow the Baby Steps in This Order?

1. To focus on one goal at a time.

As you’re looking to all the money goals in your future, it’s overwhelming—so much to do, so little time. But there is time, and there is a proven path to break up those goals into manageable and achievable pieces that’ll set you up for success. Because remember: How do you climb a mountain? One (baby) step at a time.

2. To avoid going into debt again.

Notice the first three Baby Steps are all about avoiding and paying off debt. They launch you to a debt-free lifestyle like a success rocket. Yeah, I’m about to lean into this rocket metaphor. Are you ready? My son would be so proud of me right now.

The first $1,000 emergency fund is starter fuel that keeps you going and helps you still feel secure while you eliminate your debt. And that fully funded emergency fund you saved up on Baby Step 3 means you always have cash ready, so you don't even think about running back to your borrowing ways.

Once you walk those first three steps, your finances are so stable that those excuses to go back into debt are left in the dust. Okay, I don’t know if rockets leave dust behind. I should have fact-checked with my preschooler. But you get the idea!

3. To keep your priorities in check.

The moment you’re living in right now often feels like the most important thing. I’ve struggled with this—and I’m sure you have too. But that thinking can make us pay far too much for our kid’s unicorn-themed birthday party—complete with a four-tiered cake topped with a fondant dancing unicorn and edible glitter rainbows.

But listen: Teaching your kids the value of saving money and dumping debt—of living a life of real contentment—is a better gift than anything you wrap with a giant sparkly bow, no matter how good all those party pics will look on Instagram.

In fact, it’s a better gift for yourself than the latest iPhone, bougie designer sunglasses, or whatever new version of the Ugg slipper that’s all over your targeted ads right now. These Baby Steps help you set up and focus on a true better-life standard, one that goes beyond social media and into what really matters.

4. To watch and celebrate your progress.

When you walk one Baby Step at a time, you’ll clearly see your progress and you’ll always know what’s next.

But to help keep your motivation up as you go, try this: When you reach the finish line of one of those Baby Steps, celebrate. Seriously. Throw yourself a (low-cost) party. Invite friends. Create a special celebratory family dance. Just take a moment to acknowledge your hard work and success! Then, you’re off to the next Baby Step, ready to focus in on it!

What Should I Do to Get Started With the Baby Steps?


Aren’t you glad the answer’s so simple?

Start with a budget. Today. This is Baby Step 0, and it’s the step you never stop. A budget is just a plan for your money. Plain and simple. Budgeting shows you where your money is actually going, so you can start telling it where you want it to go. A budget sets up a natural accountability with yourself, and your spouse if you’re married! A budget creates goals—and is the only way to achieve them.

Knowledge. Empowerment. Accountability. Goals. These are all so important if you’re going to get where you want to be in life and with your money. And they all come when you budget.

Start budgeting today with the same app I use every single month: EveryDollar. It’s just what you need no matter the Baby Step you’re starting on. From beginning to end, you’re going to need a budget. So, download EveryDollar (for free!) and take that first step.

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Rachel Cruze

About the author

Rachel Cruze

Rachel Cruze is a #1 New York Times bestselling author, financial expert, host of The Rachel Cruze Show, and co-host of Smart Money Happy Hour. Rachel writes and speaks on personal finance, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions of weekly listeners with her personal finance advice. She’s appeared on Good Morning America and Fox News and been featured in TIME, REAL SIMPLE and Women’s Health, among others. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.

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