Dave Ramsey, a personal finance expert, has outlined a plan for achieving financial stability and independence known as the "Seven Baby Steps." Here's a summary of those steps:
Baby Step 1 - Save $1,000 for Your Starter Emergency Fund: The first step involves saving a small emergency fund to cover unexpected life events.
Baby Step 2 - Pay Off All Debt (Except the House) Using the Debt Snowball: This step involves listing all of your debts, excluding your mortgage, from smallest to largest, and focusing on paying off the smallest debt first while making minimum payments on the rest. Once the smallest debt is paid off, you move to the next smallest, and so on, creating a "snowball" effect.
Baby Step 3 - Save 3–6 Months of Expenses in a Fully Funded Emergency Fund: Here, you expand your emergency fund to cover 3-6 months of living expenses, offering more security in case of a major life event like job loss or significant health issues.
Baby Step 4 - Invest 15% of Your Household Income in Retirement: In this step, Ramsey recommends investing 15% of your pre-tax household income into retirement accounts like a 401(k) and/or Roth IRA.
Baby Step 5 - Save for Your Children’s College Fund: If you have children, this step involves setting aside money for their college education, often using tax-advantaged accounts like a 529 plan or an ESA (Education Savings Account).
Baby Step 6 - Pay Off Your Home Early: In this step, Ramsey suggests directing extra money toward your mortgage to pay it off early and eliminate that debt.
Baby Step 7 - Build Wealth and Give: The final step involves continuing to build wealth through investments and using your financial stability to give generously to others.
Remember, everyone's financial situation is unique, and this plan might not be the best fit for everyone. It's always wise to consider your own circumstances or speak with a financial advisor such as our team when planning your financial future.