Experiencing financial crises can be challenging to overcome. Some people get into a lot of debts that they may never be able to pay off. Others may become depressed and less interested in life as a whole.
However, the resilient seek financial solutions that can pull them out of such problems, eventually bouncing back to become financially stable.
Such people who do not allow their financial problems to get the best of them understand the essential steps they must take to get out of debt — Dave Ramsey’s baby steps.
This article will provide a comprehensive outlook on the essential financial tips inspired by Dave Ramsey. It has helped millions of people worldwide escape debts and other financial issues.
But first, we need to know who Dave Ramsey is and what Dave Ramsey’s Baby Steps is all about.
Who Is Dave Ramsey?
Dave Ramsey is a renowned author, radio host, and Christian evangelist. With a net worth of over two hundred million dollars, he is one of the wealthiest financial experts in the world.
While he has delved into many ventures in his life, he gained prominence for his financial advice, which has helped millions of people pay off debts.
Dave Ramsey was born on September 3rd, 1960. He ventured into real estate in his early twenties, making his first millions. However, he lost almost all his money and filed for bankruptcy due to many financial crises.
Today, Dave Ramsey has become one of America’s most reliable financial advisers. He has amassed a lot of wealth along the way. He has a strong media presence and has gained a lot of respect because of the financial tips he provides.
What Is Dave Ramsey’s Baby Steps?
Dave Ramsey’s baby steps are simply a list of financial tips created by Dave Ramsey which helps you navigate your way through the hurdles of financial challenges.
These steps — when properly utilized — can help an individual create an emergency fund, settle all their debts, and consistently build wealth. These baby steps have proven highly effective and have worked for millions of people.
That said, below are nine essential Dave Ramsey tips that can help you become financially stable and independent:
1. Develop A Spending Strategy
Creating a spending plan is a great way to avoid debt and financial issues. However, it would be best to know how much you will spend within a specific timeframe.
Don’t spend away all your money simply because you have a reliable source of income. Instead, create a spending budget and avoid paying for the things you do not need.
For example, you can decide to spend a certain amount each month on groceries, bills, and other stuff.
Since you can make a rough estimate of how much you will spend on these items and utilities, you can create a budget around that particular amount.
2. Don’t Spend More Than Your Budget
This Dave Ramsey baby step is as essential as the first one I talked about.
First, of course, it would be great to spend within the budget you created. While this may be difficult in the first few months, you will get used to it with time.
Eventually, you will be grateful that you did not get discouraged during the process. Having a budget is vital but spending within that budget is more important.
Spending within your budget will save you from many financial problems in the long term.
3. Always Remember The Necessities
Our society is structured to have a list of things that are more important than others.
These important things are what we need in our everyday lives. Without them, we may not be able to live an enjoyable life.
However, to ensure that we do not lack these basic things, we must prepare ourselves financially to safeguard them.
Of course, Dave Ramsey’s Baby Steps identify these basic things as highly essential. They include:
Food: We cannot do without food. Of course, humans can go a few days without eating, but someday, they may die if they don’t eventually eat something. This is why food is fundamental to us.
That said, it would be best if you set out financial plans to cover your food consumption (perhaps every month).
Have an idea of how much you would spend within a specific timeframe to ensure that you don’t spend too much money on food alone. You have other things to sort out too.
Rent: This is perhaps one of the most important things you should be financially prepared for. No one likes getting embarrassed by the landlord for not paying their rent when due.
So make sure you set aside a specific amount for rent at the end of each month so that by the time your rent expires, you already have money for renewal without many problems.
Utilities: These include all the essential bills you need to pay, such as electricity bills, water bills, telecommunications bills, and a couple of others.
You also have to set aside specific sums to cover these bills before the month ends. By doing so, you will have access to essential amenities such as electricity, water, data, etc., without interruption.
Transportation: You don’t own a car yet? You have to set a specific amount aside to cover your transportation costs. Even if you own a car, you occasionally have to visit a gas station for refueling.
This will cost money too. Therefore, as a car owner, you should have monetary plans for your vehicle.
4. Avoid Debt At All Cost
This is one of the essential parts of Dave Ramsey’s Baby Steps. No matter how challenging your financial situation is, do whatever you can to avoid borrowing money from people or organizations.
It is better to rally for support and look for people who can help you out of your financial problems. Debt is perhaps the fastest way to financial doom, so you must avoid it at all costs.
Some debts however cannot be avoided like student loans and emergencies if you didn’t have an emergency fund set up.
While you’re paying off your loans, there are some things to avoid. You can read about it here.
5. Create An Emergency Fund
An emergency fund can save you from a lot of mess. Having one is extremely vital because it assures you that you can get it when things go wrong and money is needed without touching your savings.
I can’t recall the number of times having an emergency fund had saved me.
6. Avoid Spending Temptations
It is normal for human beings to want to acquire all the goods things of life. However, these come with financial consequences — you must spend a lot to achieve this.
Therefore, as one who seeks to practice Dave Ramsey’s Baby Steps, you must avoid spending temptations.
Of course, there will always be a moment when you will develop a strong urge to acquire the things you desire.
You may eventually spend so much while saving little if you cannot resist this urge. That said, the best way to spend a lot of money is to avoid spending temptations that may arise occasionally.
7. Use The Snowball Method To Pay Your Debts
If you are in debt and do not know how to pay them off, the snowball method is for you.
In one of Dave Ramsey’s Baby Steps, the idea of paying off smaller debts before paying off bigger ones was highlighted — this is called the snowball method of paying off debts.
For example, let’s assume you owe five people money; say $10, $20, $30, $40, and $50, respectively.
The most effective way to pay off these debts is to begin by paying the person you owe the smallest amount to and end up by paying the person you owe $50.
This is simply what the snowball method is about — it has been an effective means of paying off debts for many years.
8. Use Cash More Often And Credit Cards Less
In our world today, we cannot overemphasize the importance of having credit cards. Credit cards can sort out our immediate needs and pay for the expenses later.
However, credit cards have disadvantages; the more you use them, the more money you will pay later. As a result, it would be best to use cash more often than credit cards.
Having cash in hand can help you decide what you should buy. It can also help you spend money wisely.
If you are entirely dependent on credit cards, you may never understand how important it is to get out of debt.
This financial tip is derived from Dave Ramsey’s Baby Steps and has proven true in many cases.
9. If You Can, Give
Giving has proven to be highly beneficial for ages. The act of giving is practiced by even the wealthiest people in the world.
While many people believe that they will receive more when they give, others give because they can.
Whatever perception you have about giving is not more important than practicing the act of giving.
Bill Gates — one of the wealthiest people in the world — is known to have funded many developmental projects over the years.
He has helped build infrastructure in many rural communities, saved the lives of millions of people battling deadly diseases, and even funded academic projects in different parts of the globe.
He does not give away his money to fund these projects because he expects anything in return.
He doesn’t do so because he understands how important it is to give back to humanity and support humanitarian causes.
Dave Ramsey’s Budgeting Tips For Beginners
Budgeting is undoubtedly an essential part of Dave Ramsey Baby’s Steps.
It is not wrong to assume that anyone without a budget has poor financial management skills because budgeting is the backbone of excellent financial status.
Budgeting does not only help you save more money. It is also a means of ensuring that your financial needs are met.
People who have a good knowledge of Dave Ramsey’s Baby Steps understand how budgeting can make one pay their debts as quickly as possible.
This part of the article will highlight some essential tips to create an excellent budget. Below are a few vital budgeting tips for beginners:
1. Don’t Wait Until The Beginning Of The Month To Create A Budget
Budgeting can prove challenging if you don’t know how to handle the system.
One of the most common mistakes people make while budgeting is that they wait until the beginning of the month before creating a budget.
This can leave you confused and financially frustrated. The best time to create a budget is before receiving that salary or profit.
Ensure you have already mapped out plans for spending your money before you get paid.
Waiting until the beginning of the month isn’t a good idea for many reasons. One of the reasons is that you might be tempted to spend your money on the things you didn’t plan if you haven’t created a budget yet.
By the time you finally make one, you might have spent almost all your money on the things you didn’t need.
2. Budgeting To Zero Is A Great Idea
Knowing what budgeting to zero means is important for one who seeks to practice Dave Ramsey’s Baby Steps.
Budgeting to zero means putting all your money into your budget until the last penny.
For example, you have $5000 with which you wish to create a budget. All you have to do is ensure that every dollar is allocated to something in the budget. This is an ideal breakdown; you can budget:
- $1000 on bills and utilities
- $1500 on groceries and other household items
- $500 on books and academic materials
- $500 on transportation and vehicle maintenance
- $1500 as savings
Looking at the list above, you will notice that every single dollar is on the budget. This is what budgeting to zero is all about.
3. Use Effective Budgeting Tools
The age of the internet has made many things easier for us.
Today, with a simple Google search, you can find just any information on the internet. Of course, you can download and install vital financial apps too.
There are numerous budgeting tools online. All you have to do is look for the one that suits your needs the most.
Of course, you can get budgeting tools offline as well. If you are smart enough, you can create one for yourself.
4. Separate Your Needs From Your Wants
There is a vast difference between needs and wants from a financial perspective. As one who seeks to practice Dave Ramsey’s Baby Steps, it is essential to note this.
Your wants are what you desire and wish to have, but you can also do without them. On the other hand, your needs are the things you must have. Therefore, they are important to you and relevant to your well-being.
For example, having a lot of clothes and shoes in your closet can be considered a want.
It is necessary to replace worn-out clothes and shoes with new ones because it is important to appear well-dressed.
If you can separate your wants from your needs, you will save more money. Therefore, while creating a budget, you must ensure that you do not prioritize the things you want over those you need.
5. Don’t Forget To Have Fun
You can make your budget as flexible as possible. This will help you enjoy a healthy financial life. Create a budget that allows you to set money (no matter how little) aside for fun and self-treats.
While you should have a budget that lets you save more money, it is also important not to forget about having fun.
People usually prefer more than one option on how to do things and if you would like to get another alternative method to budgeting, check out this guide here.
Dave Ramsey On Saving Money
Sometimes, people feel that they cannot save money because they have failed to do so after many attempts.
Even though they tend to spend less and save more, an emergency may come up and swallow all their savings.
However, such people may not realize that saving money requires a lot of commitment and effort.
They do not know how to budget their money; perhaps that’s why they end up losing their savings each time they attempt to save.
If you are waiting for the perfect time to start saving money, it may not come. You have to create that “perfect time” yourself — that perfect time is this moment.
That said, there a numerous strategic ways of saving money and saving them for good. Below are a few Dave Ramsey tips for saving:
1. Use the Snowball Method To Pay Off Debts
Being in debt is one of the most significant factors that prevent people from saving.
Monthly debts are worse. You may spend all your salary or income paying off monthly debts.
Hence it is essential to find a lasting solution to get rid of debts. One of the most effective ways of paying off debts is using the snowball method discussed earlier in this article.
With this method, you will start getting rid of your debts by paying off the smallest debts until you pay off the biggest ones. If you would prefer other methods of paying off your debts, read this article here.
2. Reduce Your Grocery Budget
When you create a strategic budget, you may be surprised to find out how much you spend on groceries alone.
If you realize that you spend too much, the ideal thing is to cut grocery costs and put the money elsewhere in the budget — perhaps in your savings.
3. Automatic Subscriptions Won’t Do You Any Good
If your subscription payments for entertainment services like Netflix, Spotify, Amazon Prime, etc., are automatic, it is high time you canceled them.
In any subsequent purchase or subscription you make, ensure that you do not activate auto-renewal options.
These payments may cost you a lot of money, and when you forget that they renew automatically, you may be spending money on things you didn’t plan for. This may drastically affect your budget plans.
4. Save Money Automatically
Many people have no idea that they can save money automatically. However, the process is relatively simple.
All you need to do is connect your bank account to a savings account where you can approve the transfer of a particular amount of money every month.
You can decide to lock up the funds for a particular timeframe on the savings account. You won’t be able to access your money in the savings account until that timeframe elapses.
This can help you save more money and use your money to do important things in the future.
5. Spend Your Bonuses Wisely Too
Sometimes, when we receive an unexpected amount of money, we are primarily confused about what to do with it.
As a result, we often resolve to spend the money on irrelevant things since it’s not part of our budget.
However, this is not an ideal financial decision. To spend such money wisely, you can either transfer a significant part of it to your savings or use it to settle your bills.
The most important thing is to make sure you use the money to solve your immediate financial needs.
I have provided the essential Dave Ramsey’s Baby Step tips in this article and some interesting examples.
I am confident that you have gained deeper insights about having a healthy financial life.
By now, you should also know the importance of budgeting and why it is essential to pay off debts as quickly as possible.
Save this for later!