Baby Step 2 was reviewed by me right here, and aptly it is about the Debt Snowball and using this method to eliminate all non-mortgage debt. I am not a Ramsey follower per se, in that I haven’t read much of what he’s written beyond the occasional website, but I am a fan of a snowball-like approach to debt reduction. I choose to aim my snowball from highest interest to lowest, because that is what works for me. Ramsey’s snowball is smallest balance to largest, for the psychological benefit of frequent victories. Again, know thyself. Know what works for you, and adjust accordingly. The snowflaking concept I discuss so much is truly a spinoff of the snowball, focusing on adding more and more small sources to the snowball as snowflakes to increase its effect.

We then go to Being Frugal to learn about Baby Step 3: The 3-6 month emergency fund. But wait, didn’t step 1 say $1000 for an emergency fund? That was when we were in debt. At the end of step 2, we’re debt free (except our mortgage if we have one). Now we need to save more and more and more until we have a fully funded emergency fund, which is 3-6 months of expenses. Not 3-6 months of salary, but 3-6 months of expenses, which is not (usually) quite the same. Lynnae goes through why you need it, where you should put it, and what isn’t an emergency.

Baby Step 4 is saving 15% of your salary for retirement, illustrated with great graphs by tackles Baby Step 5: Saving for college for your kids. Ramsey makes the point that you need to save for retirement first (Baby Step 4) because your children have options for college, and you don’t have as many for retirement. But if you can save for college for your kids, the no-debt guru advocates helping your kids start off their adult lives with no debt as well. David shares his experience in his post with having parents who helped with his college education.

But what about that mortgage? Baby Step 6 is discussed at Moolanomy, which is Paying Off Your Home Early. Pinyo really lays out the hard facts for and against mortgage prepayment and comes to the conclusion that like many things, it is not a cut and dried decision, and really depends on the individual circumstances. For me, I fall into the “pay off early” camp, although I am a long way away from Baby Step 6 right now.

Which brings us to Baby Step 7: Build Wealth and Give! Plonkee Money does a great job of explaining how once you’ve got everything else under control, your job is happiness. Yours, those around you, and others in need. Build your wealth through investing, and give your wealth away to those less fortunate. As Plonkee so elegantly says: Step 7 is the rest of your life.

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