Dave Ramsey's Complete Guide To Money summary

Saving money is like building a bridge to financial freedom. The more you put away, the closer you’ll get to being financially free. If you want to reach that elusive state, you need to start saving for three primary things: an emergency fund, big purchases, and investments. 

An emergency fund is a savings account used only for unexpected emergencies. What constitutes an emergency can vary from family to family, but it ranges from a broken-down car to a wisdom tooth extraction. This emergency fund should always be readily accessible, so never put it in nonliquid investments. 

For the average American, debt is simply a way of life. In fact, it’s so normalized that at one point, the credit card industry’s gross revenue hit over $150 billion. But if you want to live financially free, it’s time to change your outlook on debt. 

Baby Step #2 is all about getting rid of debt – and avoiding it forever. One effective way to do this is through the debt snowball. With this method, you’ll pay off your debts starting from the smallest to the biggest balance, excluding your home mortgage. Concentrate on clearing the first one while paying the minimum on all the others. As soon as you check that one off your list, you can move on to the next small debt, and then the next one – until you finish settling everything.

If there’s one thing you should do right this very second, it’s to get insurance. Insurance shields you and your finances from unforeseen risks. After all, you wouldn’t want a devastating event to take away the wealth you’ve worked so hard for. So get insurance – and get it now! 

There are a couple basic insurance types you need to have.

At some point in your life, you’ll probably walk into your office and see a banner saying, “Happy retirement!” But not all retirements are actually happy. Some are straight-up terrible, especially if you don’t have a financial plan for this new stage. 

That’s where Baby Step #4 comes into the picture. In this step, you’ll build your retirement fund by investing 15 percent of your household income into Roth IRAs and other retirement plans. A Roth IRA, short for Individual Retirement Arrangement, is a retirement plan with a maximum contribution of $5,000 per person per year. You’ll invest this amount in good mutual funds or real estate and watch it grow tax-free. Then, once you’re ready to withdraw it, you can enjoy the full amount as you won’t have to pay the government any taxes. 

It’s no secret that a college degree is one of the stepping stones to success. That’s why Baby Step #5 is all about starting a college fund for your kids. But this doesn’t involve just any regular savings account – you need to create one that’s tax favored.

There are three primary options available for you to consider. First, you have the Education Savings Account, or ESA. It accepts up to $2,000 per year and grows your investments free of taxes. The best thing about an ESA is that you can transfer it between your children if someone decides they don’t want to go to college after all. 

We’ve covered five Baby Steps – which means there are just two left! Remember all that debt you paid off in Baby Step #2? Well, Baby Step #6 takes care of the one remaining debt: your mortgage. At this point in your financial journey, try to pay off your home as quickly as possible. Whenever you have a spare dollar, allocate it to your mortgage to rid yourself of debt once and for all.

Now you have an emergency plan in place, your debts and home are paid off, your retirement funds are in order, you have insurance policies and investments, and you’re funding your kids’ college education. This is when you can finally tackle the seventh and final Baby Step: sharing your wealth with others.