Outlining The Plan (III)

Dave Ramsey’s plan consists of seven steps, which he calls baby steps to illustrate their simplicity (he stole the term from this film).

Baby Step One: Save $1,000.00 in the bank as a baby emergency fund.

Baby Step Two: List all of your debts from smallest to largest. Begin paying the smallest debt off first, paying minimum payments on the rest of the debts. After you eliminate the smallest debt, you take that money and begin applying it to the next smallest debt. And so on. Each time you finish a debt, you get a little more money to take aim at the next debt. Over the weeks and months, your “debt snowball” grows bigger and bigger until by the end, you are paying down thousands of dollars a month on one debt.

Baby Step Three: Build up your baby emergency fund (From Baby Step One) into a fully funded emergency fund of 3 to 6 months of expenses into savings.

Baby Step Four: Invest 15% of your gross income into retirement savings.

Baby Step Five: Save Money for kid’s college (if applicable)

Baby Step Six: Pay extra on your home mortgage.

Baby Step Seven: Invest and gain wealth. Then start giving it away.


Ramsey's plan is simple, but not easy. By simple, I mean he says nothing here that is too complex for non-business majors. In fact, the chief criticism of his plan that I’ve read is that it isn’t nuanced enough. But we have found it helpful to have things spelled out so clearly.

But it isn’t easy. It required us to change our outlook on money (or, more accurately, to develop an outlook on personal finance).

Next, tackling the snowball!