How to take Dave Ramsey’s 7 Baby Steps into action

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Getting out of the debt cycle is not easy.

According to a survey by Empower, 37% of Americans cannot cover $400 emergency costs without borrowing money or immersing themselves in savings. And the surprising 145 million Americans have less than $1,000 in savings.

So, if you live on a salary, how do you beat your debt and build wealth?

You may have already heard of Dave Ramsey’s Seven Baby Steps. Radio hosts and personal finance personalities are popularizing this step-by-step guide to control your money.

“It’s not a fairy tale. Anyone can do it, and the plan works every time,” says Ramsey. “Many people use this plan to throw away their debts, increase their wealth and live and give to everyone else.”

Whether it’s a high-yield savings account or a low-cost investment option, here are some tools that can help you guide Dave Ramsey’s seven baby steps into action.

Emergency funds are savings buffers set aside for unexpected expenses such as home or car repairs. This allows you to avoid debt in case of unexpected financial situations.

“If you don’t have an emergency fund, you’re repairing or medical expenses for one vehicle away from a financial disaster,” Ramsey pointed out.

But launching an emergency fund doesn’t have to be overwhelming.

One of the easiest ways to kickstart emergency funds is to automatically save money on spare changes. Starting a new bank account and giving extra money can help you increase your emergency funds over time.

Another wise way to increase your emergency funds is to cut your monthly expenses.

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Money that you save on lower premiums will go directly to your emergency funds, allowing you to accelerate your progress towards financial security.

According to the Federal Reserve, as of the third quarter of 2024, the US total credit card debt reached an all-time high of $1.17 trillion.

Dave Ramsey recommends using the debt snowball method to pay off your debt. Focus on paying off the smallest debt first, while making the minimum payment to others. Once the smallest is paid back, continue to move the payment to the next minimum debt.

“Debt is not a mathematics problem. It’s a behavioral problem. The snowballing method of debt helps you change your behavior by giving you a quick victory and staying motivated,” says Ramsey.

Integrating all your debts is an effective way to get rid of your debts faster. Instead of juggling multiple monthly payments, there’s one predictable payment to manage each month.

Even after consolidating your large debts, it can be difficult to maintain your debt, especially with rising costs and unexpected costs. Budgeting and tracking helps you understand where your money is heading, so you can make all your dollars for yourself.

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Keep moving forward with Dave Ramsey baby steps by focusing on building your fully funded emergency funds as your debt is behind you. “Take the money you used to pay off your debt and save three to six months’ worth of expenses,” Ramsey said.

This will help you protect you from major, unexpected conflicts in your life, such as unemployment or a medical emergency, and help you get back on track without reverting to debt.

Parking cash in a high-yield savings account will help you to significantly improve your savings and maintain your course to meet your financial goals. Such accounts offer interest rates 10-12 times higher than the national average of traditional savings accounts, currently at around 0.41%.

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The next baby step is to start investing 15% of your total income towards retirement.

“By 67, you should still be working, not because you have to do it, but because you want it,” Ramsey said.

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By this point, following Dave Ramsey’s Seven Baby Steps, you have paid off most of your debts (except mortgages) and started saving for retirement. The next step is to start saving your children’s college expenses.

For example, you can open high yield checks and savings accounts that will help you build your savings over time.

Combining these two powerful tools, you can acquire high cash interest rates while systematically funding your tax 529 plan, creating a solid college savings strategy that works in the background, focusing on other aspects of family life and the next Dabramsey baby steps.

Now, take it all home. Your mortgage is the only thing between you and your complete freedom from debt. Ramsey said, “Baby Step 6 is a big dog!”

Refinancing your mortgage can help you pay off your mortgage in two effective ways. By securing a lower interest rate, you can choose a shorter loan term to either have more interest rates headed towards the principal, or to accelerate your path to homeownership while maintaining your current monthly payments.

Refinancing for a shorter period, such as moving to a 30-15-year mortgage, will typically receive lower interest rates, while significantly reducing the total interest paid over the lifespan of the loan. Monthly payments can increase, but you build your equity faster and own your home years before planning.

According to Corelogic, the average homeowner owns approximately $311,000 in shares as of the third quarter of 2024.

Having access to your home equity will help you cover unexpected costs, pay substantial debt, fund large purchases such as home renovations, and supplement income from retirement nest eggs.

HELOCS and HOME Equity Loans fees are typically lower than credit card or personal loan APRs, making them an attractive option for homeowners with substantial stakes.

Ramsey said the final step was the most rewarding thing. Continue to build wealth, become incredibly generous, and leave behind a legacy.

Real estate has long been a proven path to building generational wealth. For the 12th year in a row, Americans rank real estate as the best long-term investment of 2024, according to a new Gallup survey.

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The next factor to consider is the preservation and protection of your wealth. Life insurance is one such tool to protect your wealth, provide financial security to your family, and ensure that your heritage is preserved.

When choosing insurance type, Dave Ramsey recommends that family Choose a life insurance period You will be purchasing life insurance and investing significant savings in your tax savings tax retirement account.

Term Life Insurance provides coverage for a given period, usually ranging from 10 to 30 years. If the insured dies during this semester, the policy will pay the designated beneficiary death benefit. Term insurance is usually a cheaper and flexible option than life insurance.

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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.