Now's the time to happen to your money with the 7 Baby Steps! We say to practice the Baby Steps with gazelle intensity, in this order. When you focus on a step and attack it until you've finished, it feels incredible! Here are the 7 Baby Steps.
Baby Step 1: Save $1,000 for Your Starter Emergency Fund
In this first step, your goal is to save $1,000 as fast as you can. Maybe you work a side gig, sell something, or cut the restaurant spending for a while. Your emergency fund will cover those unexpected life events like a fender bender, urgent care visit, etc. With emergency savings set aside, you won't dig a deeper hole while you’re trying to work your way out of debt!
Baby Step 2: Pay Off All Debt (Except the House) Using the Debt Snowball
Next, it’s time to pay off the cars, the credit cards, and your student loans. Start by listing all of your debts except for your mortgage. Put them in order by balance from smallest to largest, regardless of interest rate. This is called the Debt Snowball method, and you’ll use it to knock out your debts one by one.
Pay minimum payments on all debts except the smallest, and go after it with your extra money. Once it's knocked out, take all that money and throw it on the next debt until it's gone. Repeat that process until your debts are wiped out.
Baby Step 3: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund
You’ve paid off your debt! Don’t slow down now. Take that money you were throwing at your debt and build a fully funded emergency fund that covers 3 to 6 months of your household expenses. This will protect you against life’s bigger surprises, like the loss of a job or your car breaking down, without slipping back into debt.
Baby Step 3b: Save for a Down Payment on a House
This is an optional step where, after paying off all debt (except a mortgage) and fully funding your emergency fund, you focus on saving for a home down payment. The more you can put toward the house, the less you finance, and the more money you save!
Baby Step 4: Invest 15% of Your Household Income in Retirement
It's time to get serious about retirement, no matter your age. Take 15% of your gross household income and begin investing it into your retirement. Start with your company’s 401(k) plan if they match you. After that, invest into Roth IRAs, one for you and one for your spouse (if you’re married).
Baby Step 5: Save for Your Children’s College Fund
By this step, you've paid off all debts (except the house) and started saving for retirement. Next, it's time to save for your children’s college expenses (that is, if they make it through Algebra II and Chemistry unscathed). We recommend 529 college savings plans or ESAs (Education Savings Accounts).
Baby Step 6: Pay Off Your Home Early
Now, bring it all home. Baby Step 6 is the big dog! Your mortgage is the only thing between you and complete freedom from debt. Can you imagine your life with no house payment? Any extra money you can put toward your mortgage could save you tens (or even hundreds) of thousands in interest.
Baby Step 7: Build Wealth and Give
You know what people with no debt can do? Anything they want! The last step is the most fun. You can live and give like no one else! Keep building wealth and become insanely generous. Leave an inheritance for your kids and their kids. Now, that's what we call leaving a legacy!
Pro Tip: With the Financial Roadmap (you get access to it with a Premium membership), you can keep track of your Baby Step progress.
Next Steps
When you complete a Baby Step, update your Financial Roadmap to get a look at your latest numbers.