Dave Ramsay’s 7 Baby Steps to Financial Peace

As part of my submersion into all things finance, I’ve decided to start educate myself in finance by reading through the “classics”. I’m also going to be applying them to my own financial situation and taking away things I need to concentrate on. This should then help rebuild our path to FI since I had to quit work.

Who is Dave Ramsay?

According to my pal Wiki Dave Ramsay is “an American businessman, author, financial broadcaster, television personality, and motivational speaker”

I must admit I had never heard of him, but I saw his name mentioned on one of the hundreds of FI blogs I read (I cant remember which one) and signed up for his email course to see what it was all about.


Dave sets out seven baby steps to sorting your finances out.

Baby Step 1 – $1,000 £1,000 to start an emergency fund

I’m in the UK so I’m instantly changing this to £1,000! Dave recommends for this first step to go through your unwanted items, work an extra job “do whatever it takes” to save $1,000 as quickly as possible.

I’m cheating on this step as after closing and emptying all my matched betting accounts I already have £1,000 so I’ve opened a separate bank account and thats where it will live.

I was disappointed by the lack of actual assistance in this step but at the same he obviously cant do it for you. The point of this step is to get you used to saving.

Baby Step 2 – Pay off all debt but the house.
Dave Recommends listing all your debts except the mortgage. Starting with the smallest debt you then create a snowball approach by paying off the next one with the extra money you now have.


Mr Fire’s student loan isn’t really an issue since the interest is 1.25% which is less than inflation plus if when he does reach FIRE we will be below the income threshold. Even if we do end up paying it all back, its automatically deducted from his salary.

We don’t really have any debts that are suited to this method as all we have is a  family business loan that doesn’t need paying back in full for a while or charges interest. It does need paying back though. Maybe I should rethink skipping this one?

I’m always confused as to where our “loan” fits in. The logic behind paying loans off is they are a drain on your overall expenses. Ours does not do this. But can we truly achieve FI if we are still carrying this loan? Am I using the fact that its a family business loan as an excuse?

Baby Step 3 – Have 3 – 6 months of expenses in savings. 

This one is topping up the emergency fund FIRE style. He recommends working out 3 – 6 months worth of living expenses and then working towards saving it. This then should mean your never in debt again.

Again no real suggestions on how to achieve this other than selling things and another job.

Baby Step 4  Invest 15% of household income into retirement

The options here are of course US related (401(k), Roth IRA and Traditional IRA. Mr Fire pays into his pension monthly and I already have an ok size frozen for when I can access it at “retirement” age. I tried to think of a UK alternative to this but my options only seem to be ISA or pension. Since we already have a pension, I’m guessing we should max our ISA’s and this should be something we do yearly? Finding an extra £20k a year to stash into an ISA (roughly £167 a month each) sounds very challenging!

Baby Step 5 – College

Again this mentions the US way of saving for children. I guess in the UK we just have Children’s saving accounts and Isa’s? Money Saving Expert was a good one to read for this.

I really like the idea of our child being involved in the whole process of saving bit I do think currently she’s a little too young. I think we would probably be looking at an account she can use (save and withdraw)  She currently has a piggy bank. We will start introducing pocket money and then move to her own bank account.

The children’s ISA seems a good way to save for her future. Definitely more thought is needed though as there are many options.

Baby Step 6  – Pay off the Home

This is my favorite one! I always love the idea of being able to pay off the mortgage and own our house. We also have big plans for redevelopment which makes more sense to do after we have paid off the mortgage.

The principle behind this one is easy, once you no longer have to pay the mortgage  off you ultimately reduce your living expenses. I wonder why you can’t do this one first? It would mean less money is needed in the emergency fund and would make it easier to pay off our non interest business loan.

Dave recommends a few ways to achieve this step:

  1. Aim to pay an extra “month” each year. He says this means you “reduce your mortgage by four years and nearly $7,000 off the mortgage”
  2. Just pay $20 a month instead
  3. Take your lunch to work and use the savings to pay off mortgage.

Baby Step 7 – Give

This one really does sound like fun! Dave encourages you on this last step to live and give like no one else.

Has it helped me

Surprisingly yes. I didn’t think it would as I felt like I have “heard it all before” but I really took notice of this. It really started to make me think about my financial future. I even thought of things that Dave didn’t mention here such as life insurance ect…

Here are my things to work on:

Things to focus on

Where are you up to with FIRE?


  1. We’ve been loosely following Dave’s baby steps for years. While I don’t agree with everything he teaches, he does a really good job of getting average people to kick debt to the curb. I just went though Financial Peace University so if you have questions let me know.

    What I’ve found interesting is how many people pursuing financial independence got their start via Dave.

  2. I note you mention looking into getting a will. I think this should be a priority given (if I remember correctly) Mr Fire is not your little one’s bio dad? Don’t do what I did and not write one because I didn’t know how to word the thorny issue of care for DD1 if I popped my clogs.

    You need to write a codicil laying out who you would like to care for your DD. Mr Fire (even if you are married) has no legal standing (unless he has formally, court approved, adopted her?) Your peace of mind is well worth the £150-200 it will cost via a proper solicitor (not will writer or home written).

    I don’t want to worry you – but get it done and it’s off your list 🙂

    • Hi,
      Thanks for your advice. No Mr Fire ins’t her bio dad (sob) My ex would be all over anything he could get his grubby little paws on to if I were to depart suddenly! I will get on the will ASAP!

      • Sorry for butting in but a Codicil is an amendment to an existing Will.
        The normal clause for choosing who is to look after your child is….. “I appoint (insert name) to be Testamentary Guardian…etc”
        I would suggest going for a solicitor written Will rather than a Will writer – look out for Make a Will Month in September when you donate to charity for a solicitor written Will.

  3. Just a thought on the student loan – If the student loan is the older type like I have then it shouldn’t be classed as debt. It’s linked to inflation so the amount of money never really increases even if you don’t pay it back. It’s also not something you have to mention on mortgage or loan applications in general, and they don’t appear on your credit file so I don’t include them in my finances personally. It would be nice to have the extra £100 or so a month though hehe.


  4. Nice post hun. Well done for using Excel, I find it very useful even though I’m no pro.
    If you do decide to switch accounts and happen to choose Nationwide let me know 😉 I’ll share my referral code and we’ll each get £100 provided (as always) T&C’s are met. 5% interest up to £2,500 for a year which is decent.

    Regarding your family loan – why not merge it with step 3? So money is in the bank for your family should they need repaying AND it doubles as an interest earning emergency fund.

    Finding an extra £20k a year to stash into an ISA (roughly £167 a month each) – Umm….did you mean week? (167+167)x12=4008

    • Hi,
      WOW thats great! I know there is alot of controversy around Dave R at the moment but I’m glad I found his free course as it really helped me think more about my money.

  5. Hi LMF!

    Been reading for a little while, but just wanted to say keep it up!

    Regarding paying off the mortgage, remember two things:

    1) “you can’t eat it in retirement”: meaning that once you pay off your mortgage, even in normal retirement, you can’t use get to those funds to live off of. People assume they’ll “just downsize”, but that depends on being in an active market and not during a property crash; similar to being invested, but in a world that moves a lot slower that stocks.

    2) Expected long-term returns on the stock market are (currently) higher than mortgage interest rates: in the same way as not taking an employer pension match is “free leaving money on the table”, paying off the mortgage quicker than you would do naturally is the same…compared to investing the intended over-payment into stocks. This isn’t true if your mortgage rate is higher than 6-7%, but I’m not sure anyone in the UK is trapped on something as horrible like that. Of course, in the situation where interest rates do go higher than expected returns, you have the liquidity to change course and decide to make a bulk over-payment from the invested assets, if you so choose. You can’t easily go in the other direction (see point one).

    From the context of FIRE, paying the monthly minimum on the lowest mortgage you can get *and investing the difference* is the best way to go to build up your FIRE pot. It then becomes a case of either setting your magic target withdrawal figure to include the mortgage payments as just another bill, or then beginning to work on clearing the mortgage before pulling the trigger…with an added bonus of some additional compound returns during the time it takes to pay off the house.

    • I’d also follow to say that if you can get a mortgage interest rate below inflation, then the real value of the outstanding mortgage debt is being eaten by inflation, in the same way that savings in a 0.01% current account do.

      Paying the minimum mortgage payment and investing the difference for as long as this is true is one of the few times normal people can make inflation work for them, rather than against them!

    • Paying off the mortgage or investing the overpayments is something we have thought long and hard about and I’ve ran it through my mind quite a few times.

      If we were to go with the pure mathematical reasoning, assume that past performance of the stock market is an indication of future results, and that we can guarantee that the sequence of returns is favourable that I would dive straight in and put my last penny in vanguard tracker funds. Unfortunately I’m not Mystic Meg and I can’t guarantee that.

      Paying down the mortgage guarantees a return, even if the principle is being eaten away by inflation at the moment (but then again my wages aren’t guaranteed to rise with inflation.) Not only that but it reduces our expenses by about 40% which is a massive chunk and not to be sniffed at.

      In a future post I’ll explain where our income in FIRE will come from and hopefully that will shed a little more light on why we are reducing our expenses as much as possible rather than investing in stocks and shares.

      P.S. I’ve just re read this and I notice I’ve used the word guarantee a lot which makes it sound like I’m fairly risk adverse which I think is fairly untrue.

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