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Dave Ramsey is not a household name for no reason. He has helped thousands of people achieve debt-freedom with his hard and fast rules, or “baby steps” as he calls them, for achieving financial peace. While I can’t claim to follow all of his recommendations to a tee, my husband and I are on a mission to work our way through his baby steps. Most of Ramsey’s guidelines are targeting middle-aged people with houses and kids that need to dig themselves out of years of financial ruin, so I have translated his baby steps to be appropriate for baby adults, like myself – twenty-somethings with no kids and no house.

  1. $1000 in emergency fund

    Before attempting to pay off debt or buy a car in cash or put a down payment on a home or any other financial dream, you need to build a cushion in case of emergency. Get $1000 in the bank, and never let your savings drop below that. If you need to dig into the $1000 to pay for a legitimate emergency, return to this step to build your cushion back up to $1000 before putting your money anywhere else.

  2. Pay off debt

    Dave Ramsey recommends the “snowball method,” which simply means that you pay off your debt in order of smallest remaining balance, regardless of interest rates. This helps build momentum, and the early wins will motivate you to keep going. The key to living a life of financial peace and freedom is saying farewell to debt and never letting it creep back into your life again!

  3. 3-6 months expenses in emergency fund

    If you have a budget, you should easily be able to calculate what 3-6 months of expenses equates to. For many people, this is around $10,000-15,000. Your eyes might have just bulged out of your head at the thought of saving up that amount of money just to let it sit in the bank for a potential disaster. But I promise you that disaster will come. Especially if you don’t have an emergency fund! You will have a really hard time staying out of debt if you don’t have this kind of money in savings when you unexpectedly lose your job or have to replace your vehicle.

  4. Save up for a home

    This is where we start deviating a bit from Dave’s classic baby steps. This is a step that he considers 3b if you don’t already own a home. But do not jump into this step unless you can put down an absolute minimum of 10% down payment (preferably 20%), you can do a 15-year fixed rate mortgage, and your mortgage does not equate to more than 25% of your take-home income. I know you’re probably thinking, “You just told me to get rid of debt forever, and now you want me to take on a mortgage?” But home debt is a little different because homes typically appreciate in value. Of course, the best option is to buy a home in cash, but in the long-run, home ownership will save money over renting and leave you with ownership over something of value. If you have not completed Steps 1-3 and cannot meet the recommendations above for purchasing a home, however, renting is the wiser option for the time being. Do not rush into the home step because people are trying to convince you that paying rent is “throwing your money away.” Those people are probably in debt up to their eyeballs.

  5. Invest in your retirement

    I know this can be a hard one for millennials to grasp. We’re still struggling to get our careers started, and we’re expected to start thinking about retirement? But starting a retirement fund early will allow it to grow exponentially over time. If you wait until you’re 45 to start thinking about this step, you will lose out on potentially millions of dollars. Dave Ramsey recommends putting 15% of your income towards retirement, which may seem high, but if you have followed his steps up to this point and are a budget ninja, it is achievable. Regardless of whether or not you’re investing the full 15%, invest something!

  6. Pay off home early

    This step should feel a lot like Step 2 but conquering it from a much stronger financial foundation. You have your emergency fund, you’re settled into your home, your retirement fund is growing, and you have no other debt payments to worry about, so you should be able to throw all kinds of money towards your mortgage. Paying off your home early could save you tens of thousands of dollars on interest in the long-run!

  7. Build wealth and give

    Now that you have a comfortable emergency fund, no debt of any kind, and a growing retirement fund, you are truly free! You have the opportunity to take the money you’ve been putting towards debt and use it for investing, traveling, having fun, and my favorite – giving! I work in the nonprofit sector, so I have a deep understanding of how great the need is around the world for people that are willing to share their wealth with those less fortunate. Being generous is fun and rewarding! And splurging on yourself every once in awhile isn’t so bad either – you deserve it by the time you’ve reached this step. Congrats!

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