Become Debt-Free

DAVE RAMSEY'S PLAN

Budgeting and self-control are key to becoming debt free. Spend less than you make. Tell your money where to go instead of wondering where it went. That’s the Dave Ramsey Plan.

To calculate your savings we’ll follow what we call the “Baby Steps.” There are 7 Steps and we’ll use all of them but Step 5 since we don’t know whether or not you have, or plan to have, children.


1. $1,000 in an Emergency Fund
2. Pay off all debt (except the house) utilizing the “Debt Snowball”
3. 3-6 months expenses in savings for emergencies
4. Fully fund 15% into pre-tax retirement plans and ROTH IRA, if eligible
5. College funding
6. Pay off home early
7. Build wealth!

The faster you get out of debt, the more you can save. The best tool for building wealth is your income. If your income is tied up making credit card and mortgage payments for the rest of your life, that’s less money you have to save.

We have seen that when someone starts to budget, they can reduce their monthly expenses by an average of 10%. To determine your Monthly Expenses we subtract your housing, consumer debt and savings payments from your income. Getting an extra job delivering pizzas can speed up the process by increasing your income. A single person could add $500 a month to their income and a married couple could add $1000 to their income if they both got extra jobs. Because we do not know your marital status, we assume an average of $750 a month for extra income from an extra job(s).

Step 1
Monthly Savings contributions are halted. We then take your Monthly Savings contributions, the 10% trimmed from Monthly Expenses and the $750 Extra Income and use it to save $1000 for a Beginner Emergency Fund.

A Beginner Emergency Fund will help you keep your head above water while you're getting out of debt. As soon as you start this journey, life will happen. Murphy's Law goes into effect. Murphy might even move in with you.

Step 2
We take your Monthly Savings contributions, the 10% trimmed from Monthly Expenses and the $750 Extra Income and add it to your Monthly Consumer Debt payment until we pay off all of your Consumer Debt.

Step 3
We save up 3 months of expenses using all of the money that was going towards paying off your Consumer Debt. This is your Fully Funded Emergency Fund. This can save you if you are ever out of work for a period of time or a serious illness affects you or someone in your family.

Step 4
Now that your Consumer Debt has been paid off and you have a Fully Funded Emergency Fund, we assume you take a well deserved break and drop the Extra Job(s) and raise your Monthly Expenses by 10%. At this point, we’ll start saving 15% of your Monthly Income, unless the Monthly Savings you entered was higher than 15%.

Step 5
We’re omitting Step 5 since we don’t know whether or not you have, or plan to have, children.

Step 6
Pay off the house. We take the Monthly Savings Contributions you entered and subtract from it the 15% we’re now saving. The remainder is added to the Mortgage Payment(s) until you own the house.

Step 7
Once your house is paid off, we add the Mortgage Payment(s) to your Monthly Savings. If there are any remaining balances on the Consumer Debt or Mortgage(s) at age 65, we subtract those balances from the Savings total before presenting the final number.


Realistically, “Dave’s Plan” is ridiculously low considering that we assume you never get a raise – imagine what that could do to your savings!

The basic principle here is if you save more than you spend, and aren’t in debt your whole life, you will have considerably more money than if you “charge it” and tie up your income paying it all back with interest, DUH!