Dave Ramsey Baby Steps for Six Figure Debt
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Are Dave Ramsey’s Baby Steps the Right Financial Plan for Six Figure Debt?
- The Dave Ramsey plan is not for me.
- I make a large income.
- I can afford a car payment, a nice house, and I totally deserve those cute shoes I saw yesterday.
These are a few things I used to tell myself. I now realize they were keeping our family crazy broke.
Yes, we were getting by. No one was starving. The kids had clothes and a nice Christmas.
But, I was scared.
My control freak self, would sit down and try to keep the bills, student loans, car payments, and groceries paid. I never asked my husband for help, or for his opinions, or thought that just maybe if we worked together, things would be better.
Instead, I would just panic and yell, “OMG don’t spend any money for the next 4 days!”
This obviously left my husband frustrated, because he works all the time and is thinking, where the heck is our money?!
Enter money AND marriage stress.
About a year ago, we realized we needed to do something, so we actually decided to “budget” our money better.
Related Post: How to Make a Budget for Beginners
After a couple of months of sort of sticking to a budget, we felt like we got a huge raise! We had more money to throw at debt, and we really thought we would be able to start digging our way out of our money hole.
The only problem is that we also have a business. Oops! We forgot to do a budget for the business! Our medical practice was still spending money like Congress (as Dave would say).
The big issue of course, is that we get paid out of the business.
When the overspending of our medical practice caught up with us, we suddenly couldn’t pay ourselves.
We had to live off of our savings, and sat around confused… yet again wondering why we had no money!
Okay y’all. It’s back to square one.
Who ya gonna call?! Dave Ramsey.
If you have never heard of Dave Ramsey, I highly recommend you get on board.
- He teaches very basic, common sense personal finance.
- When you are free from debt, you and your family have more money to use to save, build wealth, and give.
- This ultimately will bring you to financial peace. Yay!
We knew we had a ridiculous amount of debt, mostly because of student loans. Throw in a new, growing medical practice and Yikes. What a mess!
The easiest thing to do was to panic, worry, and allow myself to become completely consumed with hopelessness.
I didn’t want to add up all of our debt, because I was scared to know the truth.
The funny thing is that once we actually knew the numbers, we were able to develop a plan. I immediately felt more in control and more at peace than ever.
If you have debt, or just struggle to understand basic personal finance, I would recommend you start by reading The Total Money Makeover.
After you read that, you will probably be crazy motivated. The next step would be to take Financial Peace University. You can take it online, or find an in person class near you.
Related Post: Best Personal Finance Books for Women
My husband and I are taking Financial Peace University right now, and it has completely changed the way we talk about money. We actually communicate and know exactly where our money will go each month. We are only on the 4th week of the class!
We are in baby step 2 which is PAY OFF ALL DEBT. Yes, we will be here a while…join us will you?!
I started blogging about our debt free journey, because I wish to inspire the hopeless (me a few months ago!) If you don’t think you can do it…we need to hang out!
Yes, you’re going to work your @$$ off, and it won’t be easy, but it will be soooo worth it.
It doesn’t matter if you make $40,000 or $400,000 a year…Dave Ramsey’s 7 Baby Steps will work for you.
What are Dave Ramsey’s 7 Baby Steps?
Baby Step 1: Starter Emergency Fund of $1,000
Would you be able to scrounge up 1000 bucks in the event your car broke down, or you had an unexpected medical bill (without reaching for the credit card)?
80% of Americans live paycheck to paycheck.
This means most people in America would be stressed out, perhaps even panicked if a minor emergency came up.
You would think as a six figure earner, that this would be totally easy to come up with. It’s not.
If you don’t have a budget, and you aren’t purposefully building an emergency fund, you probably won’t get there.
You might build up $1,000 quickly, but do you have the discipline to only use the money for emergencies?
Once you dig in to the emergency fund, will you build it back up, or throw in the towel and declare that this plan just doesn’t work??
If you really lean in, you could build up a $1000 emergency fund the first month!
Are you behind on your bills or struggling to cut the budget? Try selling things around the house, pick up a little side hustle, or even do surveys to grab some extra cash!
Baby Step 2: Pay Off All Debt (except for the house)
This is the baby step where most people get stuck.
If you are reading this blog, it’s quite possible that you have six figure student loan debt, and maybe even more on top of that!
You thought it would be a great idea to finance your wedding, your car, your clothes, and even your most recent online shopping venture.
I mean, you went to school for like 11 years…you earned that Louis Vuitton bag girl! (Disclaimer: I have never owned a Louis Vuitton bag, but I really feel like I deserve one now! haha!)
It’s awesome, that you worked so hard, but it will be even more rewarding when you can make your cushy income WORK for you.
Right now, you are giving away most of your monthly income to debt payments.
“It’s fine…most people have student loan debt.” I know you just said that.
Don’t be like most (broke) people, be weird!
The best method to pay off debt is to list your debts from smallest to largest.
Pay minimum payments on everything, and attack the tiniest loan with all your might!
Once the smallest loan is paid off, take what you were paying on that one, and move on to the next.
You will be so motivated, that you will be done paying it off much faster than you ever thought possible.
Related Post: How to Pay Off Student Loan Debt Fast
Baby Step 3: Bump Up Your Starter Emergency Fund to a Fully Funded 3 to 6 months of Expenses
Can you imagine being debt free? Now you can start saving money for yourself and your family.
You can make sure that your family is prepared for an emergency when it happens. Spoiler alert: It will happen.
A fully funded emergency fund makes an illness, a job loss, or a broken AC in the Texas summer, a minor inconvenience.
Work on this step with the same intensity as baby step 2. You are almost to the fun stuff!
Now you have no debt, and a fully funded emergency fund! Yay!
This is when people will often pause and save for a down payment on a house or better known as baby step 3B.
Note: Baby Steps 4, 5, and 6 are done simultaneously.
Baby Step 4: Investing 15% of Your Household Income
Let’s save for the future!
Now that you are living with peace, it’s time to start building some wealth.
You should consult with an Investment Adviser and invest 15% of your family’s gross household income into retirement accounts.
Recommended Reading: Retire Inspired by Chris Hogan
Baby Step 5: Save for Kid’s College
If you have kids, you definitely want to start saving for their college. Let the power of compound interest do its job!
You by no means, owe it to your kids to pay for college.
They are capable of working their way through college, selecting a lower cost institution, and applying for the hundreds of thousands of scholarships and grants available.
However, ensuring that your children can go through school without debt, is an amazing gift, and a great way to change your entire family tree.
Recommended Reading: Smart Money, Smart Kids by Rachel Cruze & Dave Ramsey
Baby Step 6: Pay Off Your House
Oh yes, we are going there!
If you are on baby step 1 or 2 right now, this might sound completely crazy.
It’s not. It’s actually genius, and the majority of people with a net worth of at least 1 million dollars have this goal in their plan! They budget, stay away from debt, and pay off their house!
Can you imagine what kind of wealth you can build with zero payments in your life?!
Recommended Reading: Everyday Millionaires by Chris Hogan
Baby Step 7: Build Wealth & Give
I dream of this baby step every day.
I imagine the kind of things I would do, and the blessings I would be able to give to other people.
I get goosebumps thinking about it!
Once you have zero payments…not even your house…you just have options and opportunities.
You can build wealth and opportunities for generations to come, and most importantly…you now have the ability to bless others.
Recommended Reading: The Legacy Journey by Dave Ramsey