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Regardless of who you are and what you learned about money growing up, everybody wants freedom when it comes to money. Maybe you want to travel the world. Maybe you want to retire when you want to instead of working because you have to. Or maybe you just want the ability to buy that OS Pro Maestro massage chair with zero gravity SL track, 40 heating elements, neck, shoulder, back, calf, toe, foot, and ankle rollers, chromotherapy lighting, and obviously HD Bluetooth speakers. Whatever floats your boat. No judgment here. Well, a little bit of judgment. It's a $7,000 massage chair after all. Good lord, that's a lot.
Freedom with money simply means you've reached a point where you decide what happens to your money. And most people don't have that freedom. So many people are in debt up to their eyeballs with no savings, living in a cycle of stress and drama. And I get it. Between inflation, debt, cost of living, rising interest rates, the metaverse, billionaires in space, aliens on Earth, we've got a lot going on.
So you can choose to use all of this as an excuse and justify why this won't be the year you make progress, or hear me out, or you can choose to change the way you handle your money despite all of that. And in today's video, I'm going to give you the exact plan you need to help you break out of this cycle of financial stress. It's called the Ramsey Baby Steps, and it's the same plan that helped me go from broke to millionaire in a decade. But before we get to these baby steps, why don't you step on over to those like and subscribe buttons and give those babies a little clicky click.
While you're at it, share this with a friend. That is a good deed right there, okay? A puppy just wagged its tail thanks to you hitting the like, subscribe, and share trio. All right, it's no secret. Americans are on the struggle bus financially, and there ain't no magic or Miss Frizzle to save us from this dumpster fire. Here's the stats. Eight out of 10 households are living paycheck to paycheck.
Almost half of Americans can't cover a $400 emergency without turning to debt. 55% of Americans have less than $10,000 saved for retirement. And the big issue here is debt. 40% of Americans are spending nearly half of their income on debt. We're talking student loans, car loans, credit cards, medical debt. Half of their income every month
to lenders. That is insane. And without debt, that money could be going towards more fun things. A nice vacation, a kitchen reno, college savings, retirement investing, or some charitable giving. The point is, debt is a thief. And that should make you mad. Debt is robbing you from your future by demanding that you pay for the past. And you work too hard to feel this broke. So how do we get out of the cycle? Enter the Ramsey Baby Steps.
In the first 90 days, the average household following this plan pays off $5,300 of debt and saves $2,700. That's an $8,000 financial turnaround in 90 days. And by the way, this isn't just any plan. Okay, this is a proven plan. 10 million people have now used this plan to get control of their money. And with each step, you'll change how you handle money little by little. So you've got to do these in order, focusing on one at a time. Let's get into it. Baby, step one is
is to save up $1,000 in a starter emergency fund. Now notice I said starter emergency fund. I know this isn't enough to cover those big emergencies in life. So don't come at me in the comments about how this isn't enough. And in 2023, really, it should be more like $4,000 with inflation. It's not meant to be enough. It was never meant to be enough. This is meant to be a little buffer between you and life and to get a fire under your butt to get out of debt and get to a bigger emergency fund. Most people knock out Baby Step 1 within 30 days. And here's the deal with Baby Step 1.
If you're not going to do this one, you're not going to get to the other ones because it's the easiest step, but it's also the hardest step because you've got to decide if you're a financial genius who's broke or if you're going to follow a proven plan. So if you're all in, how do you find this money for your starter emergency fund? Well, the key to this step and all the other steps is to get on a budget. Yeah, yeah, I said it. B-U-D-G-E-T, budget. Some of y'all just got a little sweaty, a little claustrophobic and
and dare I say mad. You tripping, bro. You tripping. A budget doesn't restrict you at all. It's freedom to spend. It's just an intentional spending plan. So call it that if the word budget scares you. I mean, think about this. For the first time ever, you're telling your money where to go instead of wondering where it went.
Now I'll spare you the gory details on budgeting since I did a whole video on budgeting for beginners. I'll link that in the description below. Go check that out after this video is done. Now once you get that thousand bucks saved, move on to the next step. In Baby Step 2, this is where you pay off all of your debt except your mortgage
using the debt snowball method. Now, most people knock out this step within 18 to 24 months. And here's how the debt snowball works. First, you line up your debt from smallest to largest, regardless of the interest rate. We're focusing on the smallest balance first. Now, attack that smallest debt while you make minimum payments on the rest. And create as much margin as you can with your money by spending less, making more, getting on a budget, getting a third job, whatever you need to do, and crush that debt as fast as you can. Now, because you're throwing everything at that smallest debt, it gets paid off super fast.
Once that smallest debt is gone, take the payment that's freed up and apply it to the next smallest debt and the next smallest debt. You see, now we've got something called traction here because then boom, the second debt's paid off and the snowball starts to pick up more and more snow with every debt that you pay off because you're freeing up those payments. Now, I know some of you are going, well, George, wouldn't it be mathematically proper to pay off the highest interest rate first? Well, yeah, Mr. Smarty Pants, it would. But if we were doing math, we wouldn't be in credit card debt, would we? Ah!
Got it! So math won't get you out of debt. Momentum will. That's what the debt snowball method is all about. You need some quick wins in order to stay pumped up about the process and make it to the finish line. And that brings you to baby step three. Once you pay off all of your debt, you're at baby step three, where you save up three to six months of expenses in a fully funded emergency fund. Most people knock out this step within six months of paying off their debt. Now, I hate to be the bearer of bad news here, but there's going to be some storms in the seven-day forecast of life.
It's not a matter of if, but when. And you got to make sure you have the money in the bank to cover it. Otherwise, you're going to go back into debt trying to cover that emergency and you're going to go back to that paycheck to paycheck cycle. So your emergency fund should be easy to access, secure, and liquid. I recommend storing that in a high yield savings account, which can earn a little more interest than your traditional savings account.
But remember, earning interest is not even the point of an emergency fund. Your emergency fund is insurance, not an investment. It keeps you from going back into debt ever again and it protects the wealth you're trying to build. So let's define what a true emergency should be. Ask yourself these three questions before dipping into that honeypot. Is it urgent?
Is it necessary and is it unexpected? It's gotta be all three in order for you to dip into that fun. Broken arm? Yes, emergency. Bro can want Beyonce tickets? Sorry, Bayhive. Does not pass the emergency vibe check. ♪ Uh-oh, not an emergency ♪ - Crossing my eyes?
Now, when you do need to use your emergency fund for a true emergency, you want to build it back up fast. So buckle down on the budget for a month or two and replenish it quick. Because I'm telling you, when you have that fully funded emergency fund ready to protect you, it changes everything. Think about that. What would it be like to have 10, 15, $20,000 set aside for emergencies with no debt payments?
It turns a crisis into an inconvenience. So make this a priority and get that pad between you and life. Once you've got that locked and loaded, you're on to baby step four. Now, side note before we get into that, while baby step one through three are done one at a time with focus intensity, baby steps four through six happen in succession and simultaneously. Let's get into it. In baby step four, you invest 15% of your gross household income into retirement accounts like a 401k or an IRA.
Now, the reason we do 15% and not more is because we want to leave some margin for Baby Steps 5 and 6, which we'll get to in just a second. Here's what's shocking. In our study of over 10,000 millionaires, we found that the number one investment vehicle was an employer retirement plan. Boring!
Not crypto, not inheritance from a rich uncle, just a good old boring 401k. My favorite version of this is Roth because you're investing after tax dollars, your money grows tax-free and you don't have to pay taxes on it when you take it out in retirement. And here's a real simple investing strategy to make this easy on you. Match beats Roth.
beats traditional. Let's play it out. So first, invest in your company's retirement plan up to the company match if there is one. That is a 100% return and it's free money. Take advantage of it. Second, move to your Roth IRA and invest up to the contribution limit. And third, if you still haven't hit that 15% mark, go back to the retirement plan with your employer and finish it out there.
And if you've got a Roth option through your employer with good investment options and low fees, you could just do all 15% there and call it a day. By the way, if you're self-employed, you can look into options like a solo 401k or a SEP IRA. You're not excluded from this. You've got to be investing. Now, those accounts are just shells. You've got to actually buy funds inside of them in order to be investing. I recommend growth stock mutual funds, which are a common type of mutual fund filled with growing company stocks. This will help you diversify and minimize your risk.
If you want more info on investing, check out my deep dive called Investing for Beginners. I'll drop that link below. All right, once you're investing 15%, you move on to baby step five, which is save for your children's college. Now, if you don't have kids or your kids are fully grown and out of the house and done with college or not going to college, you can leapfrog this step and move on to the next one. But
If you have brought humans into this world, it is wise to start stashing away some cash for your kids to further their education. First, look at opening an education savings account or a 529 plan. These are kind of like Roth IRAs, but specifically for education. Now, the ESA, education savings account, does have some income limits. So if you don't qualify for that, go with the 529 plan.
Now, let's say you invest around two grand a year into one of these plans. That's $167 a month. That money could grow tax-free to over $100,000 after 18 years of investing. And with a 529, you can invest way more than that. And that is money that will help your kids get a debt-free degree and avoid the kind of debt that weighed me down for so long. Now, if your kids are older and you don't have 18 years to save, there are still plenty of things you can do to help them get that diploma without debt.
Things like grants, scholarships, choosing an in-state and community college, and working throughout school to help pay for expenses. It may be the road less traveled, but being a student without a student loan is absolutely possible. So once you've got those plates of Baby Step 4 and 5 spinning, move on to Baby Step 6. In Baby Step 6, we are paying off the house early. Now, home ownership is a hallmark of the American dream, and paying off your house may sound impossible right now.
Heck, getting a house may sound impossible right now, but people that work the baby steps end up paying off their house between seven to 10 years early. That is amazing. And this can end up saving you a ton of interest. And I know from experience. My wife and I paid off our house in 2021 following these exact principles.
We did a 15-year fixed rate mortgage with a strong down payment over 20%. And get this, if we had opted for a 30-year loan, we would have paid $106,000 in interest alone. If we made normal payments on a 15-year loan, we would have paid $49,000 in interest. Because we got super intense and paid off the house in 26 months, we paid less than $10,000 in interest. $9,396 to be exact. Now take a second to imagine what it would feel like if you didn't have to send a mortgage payment to the bank of
month. That is a powerful, peaceful place to be. And that gets us to the mountaintop, Baby Step 7. The final step, Baby Step 7, is to continue to build wealth and give outrageously. The truth is, giving is probably the most fun you can ever have with money. Remember, your most powerful wealth-building tool is your income. And at Baby Step 7, you've got the power.
At this point, you can and should increase investing beyond that 15%. Heck, max out all the tax advantage accounts you can. Maybe you can retire early and leave an inheritance to your grandkids. That'd be pretty cool. You can invest more, you can spend more, and most importantly, you can give more. Now, to be clear, you should be giving no matter what baby step you're
This is a heart issue, not a math issue. But when you get to baby step seven, you can really dial it up. You can give to your church. You can give to organizations who are doing good work in community or around the world. You can leave a shockingly large tip for the single mom who's waiting on you at Denny's. You can do the hashtag tip the bill challenge, whatever it looks like for you. I'm telling you real financial peace does not happen until you're given back.
So that's it. Those are the seven Ramsey baby steps that so many people have used to become millionaires, to give outrageously, and to have a more financially peaceful life. And it's the same plan I use to go from broke to millionaire. And if it worked for me, an average George, I know it can work for you too. So if you're just getting started with these baby steps, I recommend you check out Financial Peace University.
This is a nine lesson course that has helped millions of people like you pay off debt, save for the future, and stop worrying about money. I'll drop a link below if you want to check that out and sign up for a class near you. As always, make sure to subscribe to this channel, like this video, and share it with everyone in your life who could use a little baby pep in their financial step. Thanks for watching. I'll see you guys next time.