Dave Ramsey's Baby Steps: A Summary of the Popular & Simple Personal Finance Book

By Sara


Last Updated: January 4, 2023


Dave Ramsey’s Baby Steps is one of the most popular personal finance guides around.

The baby steps are built to help you get and stay out of debt while also achieving long-term wealth. Understanding each baby step is crucial to seeing how each step helps you achieve the big picture. 

Today, we are going to do a brief overview of Dave Ramsey's concepts and see how they can help you get a better plan and handle on managing your money. 



What are the Baby Steps? 

There are seven baby steps that Dave Ramsey has developed. They were first outlined in his book “Total Money Makeover” and have since become a staple in many households to help families pay off hundreds of thousands of debt, stay out of debt, and build wealth.

You start with Baby Step 1 and then move to Steps 2 and Step 3. Steps 4-6 are usually done at the same time. Baby Step 7 is the final step that you stay on for the rest of your life. 


What is Gazelle Intense? 

One of the first things someone learns about the Baby Steps is that they need to get “gazelle intense” about paying off debt.

"Gazelle intensity is the term Dave Ramsey came up with to describe the speed and intensity you should have when paying off debt. It’s all about running away from debt—like your life depends on it." - Ramsey Solutions

As Dave Ramsey says, you have to be “sick and tired of being sick and tired,” to want to throw all of your money towards debt and the baby steps.

The idea of being gazelle intense is that your family and friends may think your actions are slightly crazy, from selling extra cars, cutting back on every extra expense, and working a side hustle on top of your full-time job. 



A Brief Summary of Dave Ramsey's Baby Steps

Baby Step 1 - Save $1,000.

The first Baby Step is to save $1,000 as a small emergency fund.

The goal is not to save an entire emergency fund but enough that if you are on Baby Step 2 or 3, you won’t fall back into debt if something happens. Most people can finish this first step in a month or two.


Baby Step 2 - Pay off all debt.

Baby Step 2 is usually the longest baby step people stay in.

Depending on your debt, you could be in Baby Step 2 for years.

Baby Step 2 guides people to pay off debt through the Debt Snowball Method.

  • You want to list all of your debts from smallest to largest and continue making monthly payments.
  • On top of your regular payments, all of your extra money goes towards your smallest debt.
  • Once that debt is paid off, the monthly payments can be added to your savings and help you pay off your second-lowest debt even faster. 

If you ever have a cost come up that you were not planning for, you need to use the $1,000 you saved up in Baby Step one and then go back to this first step to replenish that amount. 


Baby Step 3 - Save 3-6 months of an emergency fund.

After all of your debt is paid off, the next step is to save up for your emergency fund.

Since you already have $1,000 saved and no longer have any debt to pay off, saving for a three to a six-month emergency should be a walk in the park. At this point, you should know how much you spend each month to easily know how much you need to save up. 


Baby Step 4 - Invest 15% of your income toward retirement.

Once all of your debt has been paid off and you have a true emergency fund, the next steps are 4, 5, and 6.

These steps can all be done at the same time. For example, step 4 is to start saving 15% of your income toward retirement. You only start this at step 4 because you shouldn’t be contributing toward retirement while on steps 1, 2, or 3. You need all of the income to go towards your debt and emergency fund. 


Baby Step 5 - Save for your children’s college.

If you have children, the next step is to save up for their college.

This should be done only if you are debt free and are able to save up for your own retirement. It’s a wonderful thing to be able to pay for your child’s college, but it is not something you have to do if you are in debt.

While saving up for retirement, you can also save up for this college fund. Obviously, if you don’t have children you can skip this step or come back to it if you do finally have children. 


Baby Step 6 - Pay off your home early.

The last major baby step is to pay off your home’s mortgage.

This is usually a much larger debt than consumer debt, and that is why it is its own step. Only after you have paid off debt and have an emergency fund can you start to pay off your home. Then, you’ll have more money to put toward your home and the discipline to pay off such a large amount of debt. 


Baby Step 7- Build wealth and give.

Once you’ve completed steps 1-6, you are officially on the last baby step, which is where you will stay forever.

Step 4 is the only other step you may still “be” on, but it should be something passive as you’ve most likely automated all of your savings. This step is the ultimate wealth-building step, where you have the luxury of being able to give your money and time to help others. 



Final Thoughts 

Dave Ramsey’s Baby Steps is a well-built and commonly used tool to help people get out of the habit of using debt to pay for their lifestyle.

It helps you re-evaluate your spending, work harder to pay off debt, and finally enjoy your wealth and help others.

Photo by Nataliya Vaitkevich


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