Expanded Baby Steps to Financial Peace

I typed up the following overview of Dave Ramsey’s Baby Steps to Financial Peace last year after taking the FPU course. It’s based on an existing expanded baby steps list, some quotes from the DaveRamsey.com site, and some of my favorite related links and resources. If your finances need an overhaul in 2009, check out the steps below and give some thought to giving them a try.

The Expanded Baby Steps to Financial Peace

Both Dave Ramsey’s Financial Peace University course and his Total Money Makeover book are based on the premise of following seven Baby Steps to Financial Peace. These steps are to be completed in order for best results, but inevitably questions like “Where in the Baby Steps should I start saving for a house downpayment?” and “When do I get life insurance?” that are not covered specifically in the original seven steps always come up.

Luckily, the folks over at the MyTotalMoneyMakeover.com forums have come up with a pretty comprehensive list of expanded Baby Steps for us to use. In the unlikely event that your particular situation is not included in these expanded steps, try posting your question in the free Living Like No One Else forum.

So without further ado, let’s take a look at the Expanded Baby Steps!

Baby Steps 0.X: Before You Begin

These are the “pre-Baby Steps” that should be taken care of before you begin the official program. Your chances of success will improve greatly if you can set the stage by making sure you are adequately insured, knowing where you money is coming from and going to every month, getting rid of unnecessary expenses and possessions, and completing as many of these items as possible.

  • 0.1 Commit to NEVER borrow money EVER for ANYTHING other than possibly a house.
  • 0.2 Talk with spouse and get him/her on the same page as you concerning finances.
  • 0.3 Do a written budget.
  • 0.4 Temporarily stop all retirement contributions.
  • 0.5 Get current on all bills. (You MUST have Shelter, Food, Utilities, Basic clothing)
  • 0.6 Get Health insurance NOW (chances of getting sick w/ major medical bills are larger than that of death), especially if you have children.
  • 0.7 Get Life insurance NOW if you have considerable debt/your family couldn’t make it financially if you died. Especially important if you have children !! Social Insecurity provides only a small amount of coverage if you have dependents.
  • 0.8 Amputate “toys” (bikes, boats, ATV’s etc) if they will keep you from completing the snowball within 12 months
  • 0.9 Cut lifestyle (Cut CATV, Cellphone, Regular phone “extra’s”, Internet, Eating out, etc) and/or take second job if $1000 EF will take more than 30-90 days. (depending on income)

Tools & Resources:

* If you do not have Microsoft Excel installed on your computer, you can download OpenOffice.org for free to view the spreadsheet or use Google Docs online.

Baby Step 1: Save $1000 in a starter emergency fund

This is the first official Baby Step. Dave Ramsey states that most families can come up with this amount in around a month. Save only the $1000 for now (or $500 if your annual household income is under $20,000), then move onto Baby Step 2. The $1000 starter emergency fund (EF) should take care of the most common unexpected expenses like car repairs that would normally send you back into credit card use when you are trying to pay down your debts.

From Daveramsey.com:

An emergency fund is for those unexpected events that are not regularly planned for happening in life – you lose your job, there’s an unexpected pregnancy, the car’s transmission goes out, or, or, or. Something like this WILL happen. Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time. So get a rainy-day fund, an umbrella.

This beginning emergency fund will keep life’s little Murphies from turning into new debt while you work off the old debt. If a real emergency happens, you can handle it with your emergency fund.

It’s also the perfect time to get in the great habit of budgeting. John Maxwell says, “A budget is telling your money where to go, instead of wondering where it went.” You don’t have to start a household budget with a perfect month. Start where you are. Write down what you have today. Income and expenses. From then on, spend all your income on paper with purpose before the month begins.

No more borrowing! It’s time to break the cycle of debt!

How do you get this $1000 together?

  • Hold a garage sale!
  • List smaller, easily-shipped items (tech items do well) on eBay, Amazon, or Half.com.
  • List bigger items on your local Craigslist for pick up ONLY, and watch out for scammers!
  • Get a second job in the evenings or on the weekends. This isn’t forever–just until you power through Baby Step 2.
  • Cut back on non-essential spending.
  • Cancel subscriptions to luxury services.
  • Visit the IRS Withholding Calculator and see if you have been overpaying your income tax each month. (Hint: If you usually get a big, fat refund every April, chances are you can free up a lot of money by just changing your withholding for the rest of the year.)

Expanded Baby Step 1 Actions:

  • 1.1 Chop up your credit cards (CC’s). You have an EF now, no NEED to keep those CC’s !!
  • 1.2 Amputate cars that you can’t pay off within 24 months (You have an EF to fix the “bondo buggy” if something should happen.)
  • 1.3 Consider raising insurance deductibles to $500 or $1000 and dropping full coverage on paid-for “bondo buggy” (You have an EF ya know!)

Baby Step 2: Pay off debt using Debt Snowball

2.0 Pay off all debt except for the house using Debt Snowball

From Daveramsey.com:

The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted.

You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.

So list your debts in order with the smallest payoff or balance first (excluding the house). Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first.

Expanded Baby Step 2 Actions:

  • 2.1 Start car replacement fund (do not PURCHASE car until step 3 is done or old car dies)

Use the Lloyd’s Debt Snowball spreadsheet to plan your Debt Snowball payments. If you do not have Microsoft Excel installed on your computer, you can download OpenOffice.org for free to view the spreadsheet or use Google Docs online.

Baby Step 3: 3 to 6 months of expenses in savings

Baby Step 3: 3 to 6 months of expenses in savings

Once you’ve paid off all of your debt except for the house, it’s time to pad that $1000 starter emergency fund up to a full three to six months of basic living expenses so you will be truly ready for the bigger emergencies that may crop up: job loss, extended illness or injury, etc.

Having a fully-funded EF will also allow you to reduce the cost of certain types of insurance (esp. car and medical) by increasing your deductibles.

From Daveramsey.com:

Congrats! Now that you’ve completed the first two Baby Steps, you have momentum! But wait… don’t start throwing all your “extra” money into investments quite yet.

It’s time to build up your full emergency fund.

Ask yourself, “Self, what would it take for you to live for 3 to 6 months if you lost your income?” Your answer to that question is how much you should save.

An emergency is something you had no way of knowing it was coming, something that has a major impact on you and your family if you don’t cover it. A great place to keep this money is in a money market account.

Remember, this stash of money is NOT an investment; it is insurance you’re paying to yourself, a buffer between you and life.

Expanded Baby Step 3 Actions:

  • 3.1 Start furniture or other non-essential stuff replacement fund
  • 3.2 Move up in car if you still feel the need to (must pay cash for it)

Tools & Resources:
Dave recommends keeping your emergency fund in a money market account or other liquid bank account that pays a decent amount of interest but is NOT an investment account. Here are some reliable online savings accounts and a frequently-updated list of high-yield checking accounts:

Baby Step 4: Invest 15% of household income into Roth IRAs and pre-tax retirement

From Daveramsey.com:

If you’ve reached this step, you have no payments (but the house) and have saved 3 to 6 months of your living expenses.

It’s finally time to get serious about building wealth.

I don’t suggest investing more than 15% because the extra money will help you complete the next two steps – college savings and paying off your home early.

Well, why not less than 15%? Some people want to invest less or none so they can get a child through school or pay off the home super-fast. I hate to tell you, but the kids’ degrees won’t feed you at retirement, and if you throw all your money into your house, you’ll end up having to sell it to eat and buy the book 72 Ways to Prepare Alpo and Love It. Bad plan.

Expanded Baby Step 4 Actions:

  • 4.1 Take your first vacation since finding Dave if you can pay cash for it. (No using the EF !!!)
  • 4.2 Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI.

Tools & Resources
It’s possible that you already know everything about opening a retirement account and investing in mutual funds, but on the off chance that you need some pointers, here are some excellent starting points:

Baby Step 5: College funding for children

From Daveramsey.com:

Whether you are saving to go college or you’re saving for your child to go, the important principle is to start NOW! You should have already started Baby Step 4 – investing 15% of your income – before saving for college.

In order to have enough money saved for college, you must aim at something. Your assignment is to determine how much per month you should be saving at 12% interest in order to have enough for college. If you save at 12% and inflation is at 4%, then you are moving ahead of inflation at a net of 8% per year!

NEVER save for college using:

  1. Insurance
  2. Savings bonds (only 5-6% growth)
  3. Zero-coupon bonds. (only 6-8% growth)
  4. Pre-paid college tuition (only 7% inflation rate)

The best ways to save for college are with Education Savings Account (ESAs) and 529 plans.

Remember, college IS possible without loans!

Tools & Resources
Here are a few quick links to education calculators, general information, and low-cost mutual fund companies offering ESAs and 529 plans:

Baby Step 6: Pay off your house early!

From Daveramsey.com:

Can you imagine what life would be like if you had absolutely no payments – not even a house payment?!

You’re not too far from making that a reality! You’ve come this far in the Baby Steps; now it’s time to throw all that “extra” money into the largest investment you’ve probably ever made: real estate.

As you attack this last debt, you will gain momentum much like you did back in Baby Step 2 with the Debt Snowball. Remember, having ABSOLUTELY NO PAYMENTS is totally within your reach!


  • When selling a home, think like a retailer.
  • When buying a home, think like an investor.
  • Never get more than a 15-year fixed mortgage.
  • Don’t tie up more than 25% of your income in house payments.

Tools & Resources:
Check out the calculators and sites below to help you determine the value of your home and how much can be saved by paying it off early!

Baby Step 7: Build wealth and GIVE!

From Daveramsey.com:

You can’t shake hands with a clenched fist. – Golda Meir

HOORAY! You are now debt free, house and all! Doesn’t it feel… weird?

“What am I going to do now that all this money isn’t tied up in debt and house payments?” you may be asking yourself.

Build wealth and give like never before. Continue to work toward leaving an inheritance for generations to come. Bless others now with your excess. It’s really the only way to live!

Vow to never have a fistful of dollars held so tightly that those precious dollars never get away. Some people think if they clutch those dollars tightly enough, never giving, they are on the path to wealth. The real world teaches that the opposite is true.

Just try it. Let me know if it doesn’t work.

Tools & Resources:
While many people will choose to give to their religious organization first, those who also wish to give to secular charities might be interested in the following sites which evaluate and/or provide information about legitimate, registered charities or provide you with investment opportunities that will help disadvantaged individuals worldwide via microloans:

  • Charity Navigator – Impartial ratings of charities and charity search engine
  • GuideStar – Another charity rating site (Free registration required)
  • Zopa CDs – Invest in a guaranteed rate CD and help someone out at the same time!
  • eBay’s MicroPlace – Your investment dollars fund organizations that make loans to the world’s working poor.
  • Kiva.org – Lend directly to a specific entrepreneur in the developing world – empowering them to lift themselves out of poverty.

ABW1D3: January Progress & Vegetarian Fail

I know the month started last week, but I think I’m a Monday starter because I didn’t really feel ON until yesterday.

I like the workouts I’m doing this month a lot; I wasn’t sure if I would, but they are essentially a hybrid of traditional gym lifts and the Red Carpet Ready moves using heavier loads. I will probably go heavier on many of the weights on Build days, but the overall flow is not bad. I will be designating this workout block the Action Babe program, or “AB” for shot in my logs.

Diet-wise, I am still not ready to tofu it up, mostly because I wasn’t able to get to the Asian grocery this weekend for cheap bean curd. I’ll go sometime this week, but until then, I’m still a practicing omnivore. In fact, I went grocery shopping Monday night, scoring some seriously cheap protein–split chicken breast for 88 cents/pound and pork roast (for Chinese BBQ pork) for 98 cents/pound. I think I picked up close to 25 pounds of meat combined.

I know, I know…I am already a failure as a vegetarian, and I am less than a week into the new year.

Frozen veggies were also on sale, so I loaded up on those as well. I am starting to think that I should have bought myself a new chest freezer last month instead of the K2 Alexis inline skates and Panasonic TZ5 camera.

As far as some of my other January mini-goals go, I did successfully clear out my belongings from Mom and Dad’s house Saturday and help them take down the Christmas tree, and Sunday DH and I cleaned up the vegetable garden. We WERE going to hack down the out of control banana tree, but lo and behold, the contrary thing went and popped out a massive appendage loaded with beautiful green bananas while we weren’t paying attention. DH wanted to cut it down anyway, but I argued that we should give the bananas a chance to ripen. There are enough on the tree to freeze up for a year of green smoothies! (Oh hey…another reason I need a chest freezer!)

I also dug up a colander full of homegrown sweet potatoes, harvested some sweet potato vine leaves for stir fry — which came out very tasty with a faint floral note — and reseeded my square foot garden with fancy lettuces, kohlrabi (I have no idea how to eat this so tried and true recipe suggestions are welcome), radishes, sugar snap peas, snow peas, purple dragon carrots, edamame, Swiss chard, and spinach. It’s probably too late in the season to start some of these, but we really haven’t had much of a winter so far, and all those leafy greens would have bolted if I’d planted them earlier.

And before I forget, here’s an amazing protein smoothie I just whipped up this morning. Squeeze in a full serving of fruit, over 20g of protein, and a serving of dark green veggies all in one shot! For all of you veggie-phobes out there, don’t worry–you cannot taste the spinach at all.

Ruby Red Green Smoothie

1 c. light soy milk
1/2 c. light ruby red grapefruit juice
3/4 scoop chocolate or vanilla protein powder
1/2-2/3 c. chopped frozen spinach
3 wedges frozen peaches
4 strawberries
1/2 small banana

Directions: Throw all of the ingredients into a blender and mix on your frozen drink/smoothie setting until well-blended. Some ground flax seeds or flax seed oil can be added for a boost of healthy fat.


– Action Babe circuit B
– YF Yoga

M1: 3 white/1 whole egg spinach and jalapeno omelette, 1.5 slices WW French bread, 1 t. pumpkin butter
M2: Ruby red grapefruit green smoothie
M3: 3 white/1 whole egg spinach, mushroom, and jalapeno omelette, 3/4 c. asparagus veggie mix, tangerine
M4: 14g raw almonds, 20g raisins
M5: 4 oz. chicken breast, 2 corn tortillas, 2 c. salad mix, 2 T. salsa
M6: 1/2 c. soy milk, 3/4 scoop protein powder, 1/2 T. cocoa, 1/2 oz. pistachios

Valerie Waters 5-Hour Live Webcast Today

Just in case anyone reading this is interested in learning more about Valerie Waters, the trainer whose program I used to achieve the results below this past fall, she will be webcasting live today for five hours from 5 PM – 10 PM EST (2-7 PM Pacific). The show will include interviews with some of her celebrity clients, other fitness pros, and one of the test subjects of her Red Carpet Ready program, Mary Bess Dalton, who has appeared weekly on Red Carpet Ready TV as she followed Val’s 6-week program.

There will also be more information about Val’s new Diamond Express physique transformation coaching service for those who want a bit more help than the basic RCR e-book package can provide. The cost is on par with what you would pay for about two months’ worth of personal training, and includes:

  • a full year of access to the Red Carpet Ready Club as a gold level member
  • a Valkit consisting of a pair of Valslides and a Valband
  • the Red Carpet Ready e-Book
  • a preview copy of Val’s upcoming Action Babe workout e-Book for those who like a more muscular look
  • Access to the private Diamond Club member area on the RCR Club forums
  • Val’s Five Pounds in Six Days emergency program

Check it out!

(For those on a shoestring budget, you can get a taste of Val’s programs by doing her free Action Hero workouts.)


Hello 2009!

Hey all! Sorry I’ve been incommunicado for the past month; all I can say is that 12 hour work days and a slew of holiday obligations can really chop one’s web posting time down to nothing. I think this happens every December, because I am feeling a sense of deja vu as I type these words.

I’m back again, though, and ready to start the 2009 off with some new plans on the fitness and nutrition front and in other areas of my life.

I’m also reviving the Project Wonder Woman blog which has been sadly neglected since last February. If you want to join me in working toward some grown-up chick scout badges for trying out new things and improving yourself in lots of different areas, check out the PWW blog and drop me a line if you want to become a contributor.

  1. Cooking/Nutrition: Get back to 90% clean eating (it’s been an uncharacteristically sloppy holiday season for me food-wise) and TRY to go mostly vegetarian
  2. Fitness: Complete two full months of Val Waters’s free Action Hero workouts (bonus action babe workout, too) without skipping any unless sick or injured, then follow up with the full New Rules of Lifting for Women program
  3. Knitting: Learn how to knit from the Stitch and Bitch book & make a knitted Sackboy doll to go with my crocheted and sewn ones
  4. Money: Complete Baby Step 2 of Dave Ramsey’s Total Money Makeover plan by paying off my second mortgage
  5. Sewing: Do two back to back 6-month Wardrobe Refashion pledges and only sew my own clothing from fabric in my stash or clothes already in my closet
  6. Budgeting/Travel: Save up for a European cruise (second honeymoon since DH and I were frugal with our first one in 2007) in the fall
  7. Gardening: Get my veggie garden in order and make a month to month plan to keep it that way
  8. Painting: Complete all of the painting exercises in my watercolor pet painting book & learn how to use Corel Painter
  9. Singing: Take one month of voice lessons (I love karaoke, but have never been in a choir or taken real lessons.)
  10. Yoga: Make flexibility training a regular part of my routine instead of an occasional chore.
  11. Writing: Complete all of the exercises in just ONE of my many writing books
  12. Make My Own Badge: Any of the following – Get off my butt and just study for my personal training certification, work all the way through one PHP/MySQL programming book, or learn how to use my new video editing software by going through all of the included tutorials

For January in particular I want to:

  • Garden: Tear out the dead plants from my garden and cut down the invasive “dwarf” banana tree. Plant some cold weather veggie seeds.
  • Exercise/Nutrition: Complete all of my planned workouts and follow my meal plan. Swap out one meat-based protein portion per day with a vegetarian, egg, or seafood option.
  • Craft: Make my items for the Discworld Swap at Craftster–I’ll probably crochet some Discworld characters and sew some kind of bag…not sure what else. Make a “Spockboy” Sackboy doll for my co-worker.
  • Writing: Write five blog posts a week. Post at least four times a week at the two fitness forums where I am an administrator or moderator.
  • Money: Create a new budget for 2009 using the free PearBudget spreadsheet. Update W-4 withholding for me and my husband after plugging in our numbers in the IRS withholding calculator. File our taxes!
  • Organization: Cut down on extraneous online community involvement until I have a better grip on my real life work, hobby, education, and social commitments. Clear out and donate/toss my old stuff from my parents’ house.

I think the key to achieving these things is to flat out set a date for them instead of stopping at the list making stage. I have to schedule things right into my calendar for them to actually seem like tasks instead of goals. Goals are nice, but they will never be anything but words on paper unless I break them down into doable tasks.