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Do the Dave Ramsey 7 Baby Steps Really Work? Our Review of Each Step

Claire Matthews

Financial Advisor, MoneyBeagle

Dave Ramsey has built an empire on his financial expertise and advice. The businessman and radio show host made a name for himself with his patented Financial Peace University philosophy and products.

The self-made millionaire is now heard on over 500 radio stations, boasting a legion of loyal listeners. His Christian-themed approach to financial management has made him extremely popular with the evangelical crowd. The instruction of Ramsey relies heavily on the character of the follower in order to bring about lasting success. Many churches even offer Financial Peace University workshops to their members.

In addition to his popular radio talk show, Ramsey has also written a myriad of best-selling books including:

  • “The Total Money Makeover: A Proven Plan for Financial Fitness”
  • “Smart Money Smart Kids”
  • “Dave Ramsey's Complete Guide To Money: The Handbook of Financial Peace University”
  • “The Financial Peace Planner: A Step-by-Step Guide to Restoring Your Family's Financial Health”
  • “More than Enough: The Ten Keys to Changing Your Financial Destiny”

Ramsey has built his teachings alongside the principle that in order to build financial wealth, you must first get out from under debt. The financial guru believes that the best way to pay off debt and live a debt-free life is by subscribing to the snowball effect of debt reduction. Through this process, consumers can finally live free of crushing debt and work toward living a life of financial freedom.

While Ramsey boasts millions of followers who subscribe to his brand of financial management, his teachings are not without criticism. Many economists and financial experts believe that Ramsey is on the right track with his teachings, even if they do not subscribe entirely to all of his recommended steps.

The teachings of Ramsey are built on seven patented baby steps that are to be followed in a particular order in an effort to achieve the maximum results. After you have taken the pledge to adhere to the principals of Ramsey's philosophy, it is time to take that crucial first step in the journey to financial freedom:

Baby Step 1: Save $1,000 to Start an Emergency Fund

Not having to live paycheck to paycheck is a true game changer. Ramsey strongly believes that you should have an emergency fund of at least $1,000 set aside for a rainy day. You never know when financial disaster will strike and you do not want one misstep to derail all of your efforts. The recommended amount of $1,000 should hopefully guard against a simple car repair and medical emergency so that you do not sink into a financial hole should the unexpected happen.

The emergency fund should be kept in an account separate from your regular checking or savings account. This fund should be easy to access but not too easy that you have to resist the temptation to dip into it for things that are not true emergencies. You will need to make a budget in order to find the extra money needed to start funding this account.

It is hard to find a financial expert to disagree with the philosophy of a rainy day fund. Most Americans are woefully unprepared for a financial emergency. By making the conscious effort to put a little money aside, you better prepare yourself to weather a financial storm.

Baby Step 2: Pay off All Debt Using the Debt Snowball Method

Conventional financial advise has traditionally told people to pay off the biggest debts first, specifically focusing on the ones with the highest interest rates. This process of debt payoff is referred to as the “avalanche method.” Ramsey takes an entirely different approach to debt payoff. Referred to as the “snowball method,” Ramsey's process stipulates that you start by focusing on paying off the smallest debt first.

By following the snowball method, followers line up their debts and put as much money as possible toward the smallest debt while only paying the minimum amount due on the other debts. The philosophy behind this method relies on the encouragement that people will get by paying off debts one at a time. It is this motivation that will encourage people to keep at their goals to become free of debt. If you were to start with the biggest debt first, it could take years to pay off and all of the motivation is lost.

Once the first debt has been paid off in full, Ramsey advises taking the money that you were putting away toward that and snowball it into the next debt on the list. When each debt has been paid off, the money that was going toward its payoff rolls into the next account until all of the debt is gone.

What is most controversial about this method is that Ramsey advises his followers to not pay attention to interest rates. His method of debt pay-off revolves around the balances of each debt account and not the interest rate. Most traditional debt pay-off plans take a different approach and focus on paying off the accounts with the highest interest rates since those are what are costing you the most needless expenditures each month. Borrowing money is a costly venture and many financial experts believe that you will get out of debt faster if you eliminate the high-interest rates first. In the end, it is most important that you make a plan and that you stick to it. We talk more about how to pay off credit card debt fast in another article.

Dave Ramsey Baby Steps

Baby Step 3: Save 3 to 6 Months of Expenses for Emergencies

Once you have paid off all of your debt, you can turn your focus into putting more money away. Before you begin focusing on investments and your long-term financial goals, Ramsey advises that you build up an emergency fund of three to six months of expenses. While it may seem like a large amount of money, the goal of this fund is to cover your expenses should you find yourself out of a job.

Like your initial emergency fund, this money should be put away where will you not be tempted to dip into it. A separate emergency savings or money market account are good choices for this stash of cash. The goal of this fund is to have the money necessary to get by so that you do not drive yourself into debt again if you are in dire straits. If you shop around, you can even find an account that will pay you a small amount of interest, making this a slight money-making venture.

It is hard to find an expert who disagrees with this goal of having a significant amount of money socked away. It is clear that Americans struggle mightily when it comes to saving meaningful amounts of money. What many experts do not agree on is the philosophy that this fund should be built up in its entirety before looking at your investment strategy.

Ramsey's approach is especially controversial if you are not taking advantage of an employer-matched retirement account at the expense of building up more money. In essence, that is turning away free money. Six months of living expenses may be an unreasonable amount to save for some people. In a situation like this, it is important to analyze your situation and the risk of losing a job and make your own determination. For example, a household with two solid incomes will likely only need to replace one income in the event of a job loss.

Baby Step 4: Invest 15% of Your Household Income into Roth IRAs and Pre-Tax Retirement Funds

Regardless of your age when you reach this baby step, it is time to start focusing your money on investing in your future. Investing 15% of your gross household income will likely put you in the position to retire comfortably, depending on when you start this process. The first part of this puzzle is investing up to your employer match in the company 401K program. This strategy will allow you to harness the free money and use it to your advantage.

The next step is to take the remaining part of the 15% and put it into a Roth IRA. If your company does not offer a retirement plan or a match, Ramsey recommends putting all of the 15% into an IRA. Followers of Ramsey spread their money across four mutual funds: growth, aggressive growth, growth and income, and international for maximum results.

Critics of Ramsey argue that this approach is too simplistic. When it comes to investing, there are no one-size-fits-all approaches. While Ramsey's approach works well in a perfect world, not everyone will be able to find 15% to invest each year. And followers who are getting started on this step later in life will want to be more conservative with their investment approach versus those who have more time to afford to be riskier with their accounts.

Baby Step 5: Save for Your Children’s College Fund

Once you have paid off your debt, built up your emergency fund, and started a solid investment strategy, it is time to begin thinking about the future of your children. Funding your children's college education is the single best thing that you can do for them as they grow older. A solid education is a gift that lasts a lifetime and Ramsey is a believer in helping your child to go to college.

Ramsey also advocates that you do your research before investing in a 529 or state-sponsored education investment account. This is in agreement with financial planning experts who recommend leveraging the power of Educational Savings Accounts (ESA) and 529 tax-advantaged savings plans. Most experts, including Ramsey, advise against using pre-paid tuition plans.

Dave Ramsey Baby Steps

Baby Step 6: Pay off Your Home Early

With money to burn, Ramsey advises that now is the time to start thinking about paying off your home early. While most people do not consider a mortgage to be true debt, Ramsey believes that it needs to be paid off in order to be considered truly debt-free. Putting extra money toward your mortgage can save you thousands of dollars of interest over the long run.

This is a step in which many experts break with Ramsey. Some people believe that Ramsey projects too much negativity toward debt. Demonizing debt is a bad idea because some amounts of debt can be healthy and useful. Low-interest debt can actually build wealth when leveraged smartly. Mortgage interest is also a significant tax advantage, making many experts in disagreement with Ramsey about paying it off early.

It is also important to analyze the opportunity cost. For example, you could possibly be losing more money down the road by deciding to pay off your mortgage early rather than investing more money in the markets. For some people, paying off your house early may not always be the best use of your discretionary income.

Baby Step 7: Build Wealth and Give

Once you have built your wealth and secured your financial future, Ramsey believes that now is time to pay it forward and give back. One of the central tenants of Ramsey's financial philosophy is the idea of giving away your wealth. Ramsey has built a reputation on his religious-forward leanings. This is why his philosophies and classes are so popular with churches. Leaving a legacy through your financial gifts and time is the reward for all of the effort and discipline that went into completing the process of the preceding baby steps.

Of all of Ramsey's baby steps, this one is the most personal in nature. The amount of money that you give is always going to be specific to your individual preferences and beliefs. That said, you would be hard pressed to find somebody who disagrees with Ramsey's approach to giving back to those in need.

There is no doubt that many of Ramsey's ideas to achieve financial freedom are divisive and controversial. Only you can decide what approach works best for your personal situation. As with most things in the world of finance, it is important to examine your individual needs and preferences when devising your personal financial philosophy and processes. While Ramsey's steps are all grounded in sound financial ideals and philosophies, the rigidity of the rules may not be in the best interest of every individual.

Common Questions People Have for Dave Ramsey

Questions About David Ramsey

This section covers the most popular questions about David Ramsey himself. Use this section to find the answers you want about David Ramsey.

How much is Dave Ramsey worth?
Investopedia claims that David Ramsey has an estimated net worth of $55 million.
Which Dave Ramsey book should I start with? recommends that you go with the starter special. This contains four books to help you manage money.
Where is Dave Ramsey from?
Dave Ramsey was born and raised in Antioch, Nashville TN. He went to the University of Tennessee, Knoxville.
What Sirius XM channel is Dave Ramsey on?
SiriusXM subscribers can listen to Dave Ramsey on channel 145.
Is Dave Ramsey a financial advisor?
Dave Ramsey doesn’t claim to be a financial advisor, as this title carries certain legal responsibilities. He does give advice on managing money and will help you pick a financial advisor.
Does Dave Ramsey have a credit card?
Dave Ramsey doesn’t state whether or not he has a credit card, but strongly advises against them for most consumers.
What is Dave Ramsey known for?
Dave Ramsey is known for offering practical financial advice that helps people manage their money and get out of debt.
Where is Dave Ramsey’s office?
Dave Ramsey’s office is found in Brentwood, TN. The address to the office isn’t public information.
How did Dave Ramsey make his money?
Dave Ramsey initially made his money through real estate transactions, according to his profile on Investopedia.
Does the Dave Ramsey program work?
It depends on your financial situation and discipline with your money. Dave Ramsey’s program is a great tool for helping people understand how to manage money effectively without falling prey to scam deals.
How does Dave Ramsey invest?
Dave Ramsey focuses his investment strategy on holding mutual funds in your 401(k) or IRA. He recommends one growth fund, one growth and income fund, one aggressive growth fund, and one international fund.
How do I call into the Dave Ramsey show?
You can call into the Dave Ramsey Show by calling 888-825-5225. You’ll want to call while the show is live to get through.
Where was Dave Ramsey born?
Dave Ramsey was born in Antioch, Nashville, TN. He’s lived in and near Nashville for most of his life.

Questions For David Ramsey About Getting Out of Debt

This section answers popular questions about David Ramsey’s strategies for getting out of debt.

How to be debt free?

Dave Ramsey recommends a 7-step program to start getting out of debt. It’s called his Baby Steps, and they’re designed to help pay off debt and save money. Another option is debt relief companies however you need to be very cautious which ones you choose. For example, is national debt relief a scam?

How to use Dave Ramsey envelope system?

According to, the envelope system is a strategy to create budget categories, each represented by an envelope. You fill the envelope up until you reach your budget for that category.

What does Dave Ramsey say about debt consolidation?

According to his website, Dave Ramsey is extremely leery of debt consolidation offers. He cites untrustworthy companies and too-good-to-be-true offers. Perhaps a debt consolidation loan calculator can help you decide if it even makes sense versus paying off debt on your own. Remember it may be challenging to find debt consolidation loan very bad credit options.

How to pay off student loans?

Dave Ramsey’s website highlights a series of steps to pay off student loans. They involve making more than the minimum payment, sticking to a budget, and applying all extra income to student loans until they’re paid off.

Questions for David Ramsey About Financial Products

David Ramsey offers advice on lots of financial products. This section will help you understand his position on different products.

Are home warranties worth it?

On his website, Dave Ramsey says that you should never buy a home warranty, as you’re not likely to get a return on the value you put into the warranty.

How much life insurance do I need?

That depends on the type of life insurance you’re considering. Dave Ramsey’s website says that you should have insurance that totals 10 times your income.

Is Aflac worth it?

According to, Aflac can be a good option, but most supplemental insurance products aren’t worth it.

Do I need an umbrella policy?

Dave Ramsey says on his website that you should consider umbrella insurance when your net worth is $500,000 or greater.

How to pick a financial advisor?

Dave Ramsey’s website has a ton of articles about hiring financial advisors. The important thing is to make sure the financial advisor is qualified, experienced, and has goals that align with yours.

What type of life insurance does Dave Ramsey suggest?

Dave Ramsey suggests term life insurance and doesn’t think that cash value life insurance is a smart buy according to his website.

Do I need long term disability insurance?

On his website, Dave Ramsey says you should definitely have long-term disability insurance and that you should carry it your entire life.

Does Dave Ramsey recommend reverse mortgage?

Not in most cases. On his website,, he says that you should avoid reverse mortgages because you lose value, will owe fees, and will likely owe more than your home is worth.

How much homeowner’s insurance do I need? recommends that you buy at least $300-$500,000 in homeowners insurance.

How does term life insurance work?

Dave Ramsey explains that term life insurance works by covering you during the years that you’ll be working, ensuring you leave behind enough for your family.

What does Dave Ramsey say about car insurance?

On his website, Dave Ramsey says that one of the biggest things you should look for is a policy with a higher deductible and a lower premium. This will save you money in the long-term.

What is a home equity loan?

Dave Ramsey’s website explains that a home equity loan is a loan you get on the part of your house that you’ve paid off already on your mortgage.

Should I refinance my mortgage?

On his website, Dave Ramsey says that you should refinance your mortgage if you can get a lower interest rate.

Questions for David Ramsey About Big Purchases

We’ll answer your questions about David Ramsey’s advice in this section.

How much house can I afford?

In order to figure out how much house you can afford, Dave Ramsey’s website recommends a four step process. Add up your monthly income, multiple your monthly take home by 25% to get your max mortgage payment, use a mortgage calculator to determine your budget, and factor in home ownership costs.

Who does Dave Ramsey recommend for mortgage?

Dave Ramsey’s blog recommends talking to Churchill Mortgage. He also recommends you take out a 15-year fixed rate mortgage with a payment no more than 25% of your monthly take-home pay.

How to buy a used car?

Dave Ramsey’s website lists 8 steps to buying a used car. Set your budget, find your ideal car, shop for that car used, determine the value of the car, inspect it yourself, go on a test drive, take the car to a trusted mechanic, and the negotiate to get the best price.

Why leasing a car is bad?

According to his website, Dave Ramsey says that leasing a car is a bad idea because you don’t generate any return or value on your investment.

Should I pay off my mortgage early?

Dave Ramsey says you should pay your mortgage off early if you’ve already satisfied the other conditions in his baby steps plan.

Questions About Saving Money and Investing for David Ramsey

This section covers questions about David Ramsey’s tips for investing and saving money.

What growth stock mutual funds does Dave Ramsey invest in?

Dave Ramsey doesn’t list the mutual funds he invests in. Instead, he advises you get four different funds. A growth fund, a growth/income fund, an aggressive growth fund, and an international fund.

How to budget?

Dave Ramsey’s website recommends that you use the envelope system to budget. This involves thinking of your bills in budget categories, and allocating enough money to each category to cover your expenses.

How to balance a checkbook?

Dave Ramsey recommends that you keep personal records of every transaction you make in a register. This will let you keep a running balance of your checking account.

How to use Dave Ramsey every dollar?

Every Dollar is a budget tool that Dave Ramsey recommends and sponsors. It lets you set different categories of budget so you can see how your finances are being used.

Why is financing a car a bad idea?

On his website, Dave Ramsey says that car payments are a bad idea because you pay more than the value the car loan will produce for you.

What are the advantages of a Roth IRA?

According to, Roth IRA’s are good because they’re funded with after-tax dollars and grow tax free.

How many savings accounts should I have?

Dave Ramsey’s website doesn’t give any specific advice on the number of savings accounts you should have, but does recommend you have at least $1,000 in an emergency funds account.

How much does Dave Ramsey say to save for retirement?

Dave Ramsey says that you should pay at least 15% of your monthly take home pay into retirement savings to be ready for retirement.

How to invest in mutual funds?

Dave Ramsey’s site and show say that you should have four different mutual fund investments, a growth fund, a growth/income fund, an aggressive growth fund, and an international fund.

What to do with tax refund?

Dave Ramsey’s advice on what to do with a tax refund depends on your financial situation. For example, if you have student loans, then Dave Ramsey recommends putting your entire tax refund towards paying off those loans.

Other Questions for David Ramsey

People have a lot of questions for David Ramsey. This section answers questions that don’t fit into our other categories.

How to get rid of a timeshare?

On his website, Dave Ramsey recommends that you contact Timeshare Exit Team, which is a consumer protection group that helps timeshare owners get out of their contracts.

What does a credit score measure?

Dave Ramsey says that a credit score is used by lenders to measure how much of a risk you pose as a borrower.

What does it mean to leave a legacy?

Dave Ramsey’s website and Financial Peace University says that leaving a legacy means to make an impact on the generations that come after you.

What does Dave Ramsey say about YNAB?

Dave Ramsey doesn’t specifically say anything about YNAB, but he does argue strongly for having and sticking to a budget.

What identity theft protection does Dave Ramsey recommend?

Dave Ramsey recommends Zander Insurance Group for identity theft protection services.

What to do with inheritance?

Dave Ramsey’s website says that what you should do with an inheritance depends on your financial situation and goals. No matter what, he recommends that you go slowly and build a team of people to help you manage your money.

How to get out of a car lease?

On his question and answer show, Dave Ramsey recommends selling the leased car. You’ll need to get the early buy-out amount from the company. Then, find out what the car is worth and sell it to reduce your liability.

What is Dave Ramsey Financial Peace University?

Dave Ramsey’s website describes his financial peace university as a training program to help people manage their money, get out of debt, and stay out of debt.

How much is Dave Ramsey’s Financial Peace University?

According to third-party reviewers, Financial Peace University essentially costs $129.99 per family.

What does Dave Ramsey say about cryptocurrency?

Dave Ramsey recommends staying away from cryptocurrency investments unless you understand the market and the technology.

Claire Matthews

Claire Matthews

Financial Advisor, MoneyBeagle

Claire is a noted financial writer and author of hundreds of articles about personal and business finance. Before getting her MBA, she graduated with a BS in Economics. Her coursework focused on the different ways that debt, debt structure, and debt restructuring affect micro and macro-economic issues.

Upon graduation, she took a job at an investment bank that worked with municipal and county governments to help them reorganize and structure their debt so they could continue to provide essential city services.

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