Dave Ramsey is an American Financial guru who has a money management plan that is broken down into ‘Baby Steps’.
Dave Ramsey’s baby steps is all about freedom finance. It’s a fantastic plan but it is very much geared for a US audience (it uses/mentions financial products and terms that aren’t relevant here in the UK) so I’ve re-written them to align a bit more with our British pounds and pennies.
Baby Step 0 (BS0) Commit to not borrowing for anything ever again (except for a house in BS3b)
- Talk with your spouse and get on them on the same page concerning finances
- Create a budget and learn to stick to it
- Get current on the basics; food utility, shelter and basic transportation
- Get rid of ‘toys’ and all non-essentials (anything that will slow down your debt snowball)
- Cut your lifestyle
- Get current on ALL bills.
Baby Step 1 (BS1) Save £1000 in Baby Emergency Fund (EF)
- Cut up credit cards – you won’t be needing them anymore!
- Get life and long term disability insurance if you have debt or if your family couldn’t survive financially if you died (especially important if you have children)
- Get rid of any cars that you can’t pay off within 24 months
- Draw up a will
Baby Step 2 (BS2) Work on your Debt Snowball
- Pay your debts off smallest to largest (regardless of interest rate), minimum payments on all debts and then throw any extra money at the smallest debt.
- Start your replacement car fund
- Start furniture or other non-essential stuff replacement fund
Baby Step 3b (BS3b) Save for a house deposit
- Aim for a minimum of a 20% house deposit to make sure you get access to the best rates
Baby Step 4 (BS4) Start contributing 15% of your gross salary to retirement
- Make use of retirement vehicles and any company matching schemes to max tax relief
- Fund a LISA (Life Time ISA)
Baby Step 5 (BS5) Save for your child’s university or first house
- Consider a junior ISA or children’s bond – the money will be the child’s, but inaccessible until they turn 16/18.
Baby Step 6 (BS6) Pay off your house
Baby Step 7 (BS7) Give, build wealth and have fun
This is great, thanks for putting them in a UK version for us to grasp!
No problem!
I found you using the Money Money linky – great post! I haven’t read the book but it was clear from a lot I had seen online that some of the terms aren’t relevant for the UK (and at least we don’t need medical insurance!). This has made it really clear and simple.
Thank you, glad you liked it!
Good structure to work through debt payments. If you want to save for children without having to give them the money at 18, you could just put money into your own Isa and choose when to hand it over. Or tie it up fir a really long time by opening a pension for them! Thanks so much for taking part in #MondayMoney.
Great post, I’m really interested in investing in the uk bs 4, Is it as beneficial as the us? Is there any uk version of smart Vesta pros? Mutual funds… what on Earth there’s so many what ones do we pick and how? I need help lol
Hi Kayleigh!
I’m hoping I’m going to be able to answer all those questions in the coming weeks and months, I’m already doing research and talking to people who know a lot more about investments than I do (I’m still on BS2 at the moment) This is one of the reasons I’ve decided to ‘translate’ the Baby steps as there are so many differences in finance between us and the US.
Please feel free to email me any specific questions you have about BS4 or any of the BS’s and hopefully I can answer them in an upcoming post for you!
Brilliant I look forward to learning more from you! Thank you xx
When we work out our net worth do we include what our pension is worth at present – is that equivalent to USA 401k?
Yes 🙂 depending on who your pension is with you can sometimes go online and see it’s current worth. I’m planning on working out our net worth this month and doing a post on it and how to calculate it so keeps your eyes peeled!
This is amazing. Some great insights. Thanks for putting it together..
With the 15% towards retirement, if you have a pension with your employer where they make contributions too, are their contributions included in the 15%?
So if I contribute 9% through salary sacrifice and my employer contributes 11%, I have covered off the 15%?
It’s completely personal choice but for me I’d count the 9% you contribute as part of the 15% and then invest the other 6% elsewhere 🙂
This is great to have thr programme translated into English so to speak….I listen to his radio sjow via you tube daily, to keep me on track on BS 2