How to Win With Money in 7 Simple Baby Steps
Raise your hand if life is busy? Phew! Glad we’re not the only ones. Sometimes it can feel like we’re winning at life if we get the kids fed and in bed by 8:00. Still, we all have bigger dreams, don’t we? And, let’s be honest, most of them require money and financial stability. If only there was a proven way to go after our goals while also living our busy, day-to-day lives . . .
If only . . .
Okay, teasing time is over. We have the answer: Baby Steps.
What Are the Baby Steps?
The Baby Steps are your key to financial peace. And the steps are simple. So why isn’t everyone winning with money? Because each step also requires a bit of discipline. After all, if you want to live like no one else, you have to live like no one else. Don’t worry if this sounds redundant now—you’ll get there eventually. Let’s dive in!
Baby Step 1: Save $1,000
Beginner emergency fund: Use this to ward off any delays in your master plan. A starter emergency fund can be used to repair the plumbing, pay for medical bills, or fix the car. Basically anything that would have put you in debt before this fund existed is no more!
How to crush this step: Save money as fast as you can. Host a garage sale, do some freelance work, get a side job, and put a pause on dining out. As soon as you’re holding $1,000, open a new checking account and deposit the money. Swear on the life of your little sister’s cat that you won’t touch it unless you have a real emergency. Use the EveryDollar app to track your progress and watch your savings grow!
Baby Step 2: Pay Off Debt
The debt snowball: List out all non-mortgage debt from smallest to largest. You’ll pay off your debts in this order regardless of interest rates. Sound crazy? Research backs up this approach—paying off debts from smallest to largest to build momentum—as both efficient and effective.¹ And lucky for you, we built a debt category right into the EveryDollar budget!
How to crush this step: Throw every extra dollar you can find at the first debt on your list and don’t let up. Meanwhile, continue to make minimum payments on all your other debts. Whenever you say “Adios!” to the smallest debt, do a happy dance then get back to work. Keep on keepin’ on until you are debt-free!
Baby Step 3: Save Three to Six Months of Expenses
Fully funded emergency fund: You worked your tail off to get out of debt. A fully funded emergency fund will prevent you from ever going back again. Determine how much money you’ll need to live for three to six months without your regular income. Store your stash in a money market account with check-writing privileges.
How to crush this step: If only one person in your household works, aim for putting the full six months of expenses in the bank. You’re an old pro at this point, so go ahead and do what you do best: Save! Then perform a little Jedi mind trick and try to forget the fund exists—until you need it, that is. But don’t worry, EveryDollar will remember.
Baby Step 4: Invest
Retirement savings: With no debt and upwards of $10,000 in the bank, you can start planning your long-term goals without worry. Start putting 15% of your household income into retirement accounts.
How to crush this step: Max out your employer’s matching plan by first investing in a 401(k). Anything left over should go into a Roth IRA. That might look like 5% in a 401(k) with a match and 10% in a Roth IRA. It’s always a good idea to spread your investments across different types of mutual funds, including growth, aggressive growth, growth and income, and international.
Baby Step 5: Save for College
Children’s college fund: It’s time to save for college! Whether you choose to contribute a portion of your child’s tuition or pay for all four years, we recommend using a 529 college savings fund or an Education Savings Account (ESA) to do so. By using tax-advantaged savings vehicles, you’ll make the most of your money while little Johnny goes from letter-tracer to test-acer.
How to crush this step: Do some research. Based on where you live and how much you make, one plan may be better than the other. Once a decision is made, build the college fund into your EveryDollar budget so you never miss an opportunity to save.
Baby Step 6: Pay Off Your Home
The final debt frontier: We’re talking life with no house payment and tens of thousands of dollars saved by ending your home loan early. Attack this step with a vengeance, and if you’re like the average American, you’ll gain around $1,400 a month.² Imagine seeing that in the “left to budget” category on EveryDollar. Yes, please!
How to crush this step: Consider refinancing. A 30-year mortgage or any adjustable-rate mortgage may fare much better in a 15-year, fixed-rate situation. Make sure you check the terms of your mortgage as some companies will put extra money toward your next payment instead of toward the total debt.
Baby Step 7: Build Wealth and Give
Living like no one else: Build wealth, become insanely generous, and leave an inheritance for future generations. Years of planning and working the Baby Steps got you here, and now you get to have all the fun while you live like no one else!
How to crush this step: Return to your 401(k) and Roth IRA and max those babies out! As your retirement fund grows, use your remaining wealth to live your dreams—take trips, goof off with your family, and help those in need. Oh, and try not to break our EveryDollar app with all those zeros.
Important to note: On each of the first three Baby Steps, you should complete the task at hand before moving on to the next items in line. Steps 4 through 6, though, can occur simultaneously. And Step 7 will last for the rest of your life.
Why Should I Follow the Baby Steps in This Order?
We’re so glad you asked! Pull up a chair—let’s chat.
Sure, you could decide today to make money a priority, and we would applaud you. You could save and invest willy-nilly, and you’d probably be a tad better off than you are right now. But you wouldn’t win with money—at least not every time. Winning requires hard work and a plan, remember? By following the Baby Steps in the order listed above, you:
1. Focus on one goal at a time. Rather than end up cross-eyed from trying to juggle too much at once, you can aim well and hit your target with no problem.
2. Avoid going into debt again. By building up safety nets along the way—through the starter emergency fund, a fully funded emergency fund, and even retirement and college savings—you can say goodbye to credit cards and loans.
3. Keep your priorities in check. Consider your kids for this one: Being debt-free is more important than over-the-top birthday gifts they’ll soon forget. And getting squared away for retirement (so no one else needs to worry about your care) comes out on top—yes, even above helping with the kids’ college degrees.
4. Easily monitor and celebrate your progress. When you save up $1,000, you’ll know. When you pay off that last debt, you’ll know and celebrate! And as you move through each of the Baby Steps, you’ll know, without a doubt, you’re well on your way to a life of wealth and generosity.
How Can I Maximize My Efforts?
If the Baby Steps are your plan, then the budget is your playbook. With a budget, you tell your money what to do every single month, so that at year’s end you’re that much closer to reaching Baby Step 7.
Want to know the basics of budgeting? Give every single dollar a name, so your income minus your expenses equals zero. Lookie there! You just made a budget. Now stick to it!
What Should I Do Next?
Determine where you are in the Baby Steps. Write down your step, tell a friend—do whatever you can to solidify this Baby Step as your numero uno money goal. And if you haven’t already, it’s time to create your monthly budget—always with your Baby Step in mind. Live like no else, and trust us, soon you’ll live like no one else.