Right now, an estimated 70 percent of people in the U.S. live paycheck to paycheck. What if someone told you that you could get financially fit in just six steps? Bestselling author and get-out-of-debt guru Dave Ramsey says his plan has helped millions.
Ramsey is as well known for his straight talk as he is for the six baby steps. During our interview, Ramsey said it is all about intention and avoiding what he calls broke people habits.
He delivered his motivational message to a sold-out show in Orlando on Saturday. Backstage the man behind the best seller "Total Money Makeover," a six-step guide to getting out of debt, talked about why it works. Ramsey said it's all about showing people a clear path, a path he calls the six baby steps.
Step one involves setting aside a $1,000 emergency fund. This protects people from having to whip out a credit card and go more into debt in the event of a minor emergency.
Baby step two is called the debt snowball. The debt snowball lists debts smallest to largest regardless of the interest rate and attacks the smallest one. When that is paid, you use the extra money to attack the next one and so on.
The theory behind the snow ball: By paying off smallest debts first, people see they can move their debt meter and it builds motivation and momentum.
Followers swear by the snowball. Several of those who attended the Smart Money conference Saturday told us it helped them dig out of tens of thousands of credit card, car loan and other consumer debt.
In baby step three, Ramsey instructs people to build up their emergency fund to three to six month’s worth of expenses.
At this point in the plan followers are out of debt except for the mortgage. Baby step five entails investing 15 percent of your salary into retirement. Then move onto baby step five: Build funds for your child's college education.
With debt behind you and money flowing into retirement and college funds, it’s time to attack your mortgage. Ramsey says baby step six involves throwing any extra money at the mortgage payment in order to pay it off early.
Ramsey’s advice for following through on all the steps is simple. “If you do broke people stuff with money you are going to be broke people," he said. "If you do rich people stuff with money are you going to be rich people.”
He says the only way the plan works is to assign every dollar of your income by using a monthly budget. He offers a free, easy to use tool for budgeting. Just go to everydollar.com.