A Beginner’s Guide to the Baby Steps

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You make decent money. So why does it feel like your paycheck slips through your fingers month after month, year after year?

At best, you have a vague sense that you’re “doing okay.” At worst, you’re drowning in debts and fighting off bill collectors. Either way, the Baby Steps can help.

These seven money markers provide a clear path to follow as you pay off credit cards, fund your retirement, and build the kind of wealth you only dreamed possible.

As you complete each step, you’ll become increasingly confident and motivated to move forward. Wouldn’t it be nice to finally have control over your income instead of wondering where it all went?


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Here’s a quick introduction to the 7 Baby Steps.

Baby Step 1: $1,000 Emergency Fund

An emergency fund is for all those life events you can’t plan for, like the loss of a job, a medical issue or a faulty car transmission. It’s not a question of if these events will happen. It’s simply a matter of when. So don’t skip this important first step!

Related: How to Save $1,000 in One Month

Baby Step 2: The Debt Snowball

List your debts (excluding the house) in order from smallest to largest. You’re not concerned with interest rates or terms right now—you’re concerned with paying off debts quickly. Getting rid of smaller amounts first will give you some quick, momentum-boosting wins as you move on to larger loans.

Related: How the Debt Snowball Method Works

Baby Step 3: Fully Funded Emergency Fund

What would it take to live for three to six months if you lost your income? Your answer should tell you how much to save in your fully stocked emergency fund. Remember, this stash of money is not an investment—it’s a buffer between you and life.

Related: 4 Quick Ways to Build Your Emergency Fund

Baby Step 4: Invest 15% of Household Income into Roth IRAs and Pretax Retirement

Now is the time to watch your money grow. You’ve been paying off debt and saving like crazy, but now you get to invest for retirement. So go ahead, let compound interest work its magic.

Get expert investing help from the only investing professionals Dave Ramsey recommends.

Baby Step 5: College Funding for Children

College isn’t getting any cheaper. So if you’re able to, bless your children by saving now. (You can also encourage your kids to get good grades, a part-time job and scholarships.) Remember to start saving 15% for retirement before you start saving any money for college.

Related: The Top 4 College Questions Answered by the Experts

Baby Step 6: Pay Off Your House Early

Yes, you can actually own your own home outright! Amazing, isn’t it? Imagine walking barefoot through your front yard knowing that the grass beneath you is yours, not the bank’s! How cool will it be when all of your mortgage payments can go toward investing and spending?

It took Lorena 14 years to achieve her dream of paying cash for a home. Find out how she did it.

Baby Step 7: Build Wealth and Give

The final step is the most fun. It’s time to build wealth, leave an inheritance for future generations, and bless others with your excess. Your goal here is not to become a money hoarder, it’s to live and give like never before. You’ve earned it!

Related: Why It’s Okay to Enjoy Wealth

This isn’t some pie-in-the-sky dream. The Baby Steps have worked for millions of families across America and they’ll work for you too. The key is to start small and stick with them over time.

It’s amazing what a proven plan can do for your paycheck!

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