Most employees and workers often struggle with their finances and complain about the stress regarding their situation with 10-hour shifts. Given the rising inflation and economic turmoil, one job may not be enough to cover expenses.
One must create a long-term financial plan and manage their finances well so they can thrive and earn more money over time. This is where the Dave Ramsey baby steps come into play. If you are a young entrepreneur looking for success, you can follow these steps or guide to multiplying your income.
What Is Dave Ramsey Known for?
The financial expert and author is quite well-known in the business world. Based in the USA, he is one of the most recognizable personal finance advisers in the world. He first became a millionaire in his 20s, and then went bankrupt in a short span of time.
Ramsey identified his mistakes and struggled to gain his position back again. It was only a matter of a few years before he regained his status of a millionaire and managed to retain that too. Since then, his journey has inspired many people and continues to encourage them to work with dedication and passion. Ramsey is an experienced entrepreneur and with bestseller to his name as well.
He wrote Total Money Makeover in 2013, in which he penned down his life experiences and highlighted the famous Dave Ramsey baby steps to a better life.
The Dave Ramsey Baby Steps
The following are seven Dave Ramsey baby steps that you can follow to achieve success and gain financial freedom:
- Save $1,000
- Pay off the debt
- Three to six months fund
- Save for college
- Pay off your home
- Build wealth and give
Let’s discuss each of these seven baby steps briefly.
The first baby step to a larger fortune is to save $1,000 for emergencies. Since life is full of ups and downs, there is no certainty of what can happen within the next few hours or days into the future. It’s why people should be prepared beforehand for any emergencies and challenging situations.
In the early days of your career, there could be sudden expenses such as those related to your vehicle or illness. With an emergency fund of $1,000, you can have peace of mind that the emergencies are covered and you will not have to look for other solutions. If you have $1,000 in your pocket, deposit it into your bank account before it is spent.
Pay Off the Debt
Dave Ramsey has emphasized the importance of paying off the debt in the next baby step. It includes credit card bills, borrowed money from your friends and family members or a loan payment. To manage your finances, you need to focus on paying off the debts. Take all the money that you have left after the $1,000 emergency funds and use it for such added expenses. He suggests listing all your debts in order from smallest to largest.
Three Months Fund
This fund refers to the emergency fund for three to six months. According to Ramsey, you should set an emergency fund that covers your living expenses for a given time. So if the total amount a person spends on necessities is $4,000, they need to save up to $12,000 to $15,000. This way, you can make sure that your expenses are covered in case you fall on hard times.
If you want to multiply your income successfully, it is a good idea to invest money where you can get high returns. Dave Ramsey suggests investing 15% of your household income in the right opportunities. While some people would want to put in more money, you should consider the options carefully. By investing more of your income, you could also end up losing your savings or emergency fund if there are fluctuations or a dip in the market.
Save for College
This step often gets overlooked, and as a result, people often find themselves in trouble when it comes to paying college tuition for their children. This is why you should begin saving for it early on in life and look into educational plans that might be beneficial.
Pay Off Your Home
Surveys suggest that on average, most people pay off their homes in about seven or eight years. This indicates that the whole payment plan can take around 10 years more until the mortgage is paid. By making your payments early and in a short span of time, you can own your property and focus on growing your business or skills.
Build Wealth and Give
This is the last baby step and quite an important one. Build your wealth and become as generous as you can over a period of time. Dave Ramsey wants you to be a better member of society and contribute to good causes as well. This is where you not only enjoy your money but give back to your community too. You can bear someone’s educational expenses, run a charity, fund a hospital, or venture into philanthropy completely.
Why Do Dave Ramsey’s Baby Steps Work?
The financial expert’s seven baby steps cover all the aspects of your life. From emergency funds to your kids’ college funds, there are tips and tricks to manage such expenses successfully. He emphasizes on always having an emergency fund so you don’t have to worry about the expenditures when you are already going through a rough patch in your life.
At the end, the baby steps can work best if you follow the right order. Instead of paying off your home right away, you should wait for the right time. Dave Ramsey also highlights the importance of contributing to the betterment of society. The seventh step is about giving back to society and doing whatever is in your capacity to change lives. This will not only inspire others but also help you improve and grow individually.
Dave Ramsey is one of the top-rated personal finance advisers in the world, and for good reasons. In his book The Total Money Makeover, he gives worthy tips on how to make money. The businessman suggests you start by saving money for emergencies and paying off your debts. Once that is covered, you can consider investing in various funds or stocks to experience financial growth. If you can’t think of a proper roadmap to becoming successful, Dave Ramsey’s seven baby steps may just help you find your way.