Dave Ramsey is one of the very popular personal finance teachers. His books, courses and programs such as The Total Money Makeover and Financial Peace University have helped millions of people get out of debt. Dave Ramsey's Baby Steps are intended to help people kill debts and become financially stable.
Chances are you may have heard about 7 Steps of Dave Ramsey. These steps are basic principles and actions that you can take to get back on track and improve your overall financial situation.
How can you control your money? One step at a time! Millions of people have left worries about their money by working on Dave's Baby Steps. Now it's your turn to start managing money the right way.
# What is meant by Baby Steps?
7 Baby Steps by Dave Ramsey will show you how to save for emergencies, pay off all your debts for good, and build wealth. That's not a fairy tale or a good story for someone else. This is a proven and practical way for you to change your life step by step.
# Baby Step 1: Set aside 10 million rupiah for your First Emergency Fund
In this first step, your goal is to save 10 million as quickly as possible. Your emergency fund will cover unexpected life events that you cannot plan. Without an emergency fund, most people feel they have to go into debt to cover surprise costs like broken pipes or medical bills.
Save your emergency funds in a separate bank account so that you will not spend it intentionally or unintentionally on things that are not actually an emergency. You don't want to dig a deeper hole when you try to get out of debt. So how do you start the saving process for your emergency funds? The first step is to make a budget.
# Baby Step 2: Pay all your debts
Now it's time to pay off all the bad debt that you are ready to get rid of. Start by listing all your debts outside of your mortgage loan. Car loans, student loans or credit cards. Arrange the order from smallest to largest. Don't worry about interest rates unless your two debts have the same balance then you will register debt with a higher interest rate first. This is called the debt snowball method, and you will use it to clear your debts one at a time.
Now it's time to strike the first balance on your list. Pay as much as you can each month while making minimum payments for your other debts. Sell everything you can, get a second job and sell all unused items! You want to get rid of debt payments quickly. When you have paid it off, add the payment to the monthly payment on your next debt and start paying it.
This is hard work, but this is the victory. The small win you make at the beginning will motivate you to withdraw all your debts. And before you realize it, you are free from debt.
# Baby Step 3: Save 3 to 6 Months on Expenditures in Fully Funded Emergency Funds
In this step, you have successfully paid off all your debts. It's time to take the money you throw into your debt and build your emergency fund to cover 3 to 6 months of your expenses. Sounds like a lot of money, but rightfully so.
You want this to protect yourself from greater life surprises like losing a job or breaking down a car. With that much money saved, you no longer need to be in debt to cover this emergency. Enter this savings into your emergency savings or money market account so you won't be tempted to touch it.
# Baby Step 4: Invest 15% of your income for retirement
At this step, it's time to get serious about retirement no matter what your age. This is when you take 15% of your income and start investing it into your retirement.
If you are not too sure about what you are doing, a professional financial planner can help you find the right funds and make sure you are on the right track.
# Baby Step 5: Save for Your Children's School Funds
At this step, you have paid off all the debts except your house and started saving for retirement. Now it's time to save for your children's tuition. Saving money will put you ahead of the game when your teenager graduates from high school. Even if your children are in high school, you are not too late. You just need to set aside your money a little faster.
# Baby Step 6: Pay Your Home Early
Now it's time to bring everything home. There is only one thing that prevents complete freedom from debt and that is your mortgage loan. Can you imagine your life without home payments?
Any additional money you can use for a mortgage can save you dozens (or even hundreds) of interest. You will be amazed at how much you can save in the long run.
# Baby Step 7: Build Wealth and Give
Do you know what people can do without debt? Whatever they want! Baby Step 7 is the last step and the step that is arguably the most fun
Now you can live and give like everyone else. This is where you continue to build wealth and be very generous. Imagine how it feels to leave a legacy for your children and their children. That's all possible
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