This is my take on Dave Ramsey Baby Steps UK edition. While Dave Ramsey’s methodology is really effective in helping you to become debt-free, I have made some tweaks to make it relevant to the UK.
What are Dave Ramsey’s Baby Steps (original)?
- Save $1000 for your starter emergency fund
- Pay off all debt (except the house) using the debt snowball
- Save 3-6 months of expenses in a fully-funded emergency fund
- Invest 15% of your household income in retirement
- Save fro your children’s college fund
- Pay off your home early
- Build wealth and give
Hi fellow mums (and dads), I know you’ve worked hard all your life to create the family you now have. Life these days are all about juggling raising kids, looking after older parents while trying to advance on your job.
While living in a nice house, you are also sitting on probably the largest debt you have in your life. I’m sure you know paying off the mortgage debt earlier is probably the right thing to do, but life got in the way of doing long term financial stuff and it all just feel such a big task!
Do you know…
By overpaying £200/month would reduce your mortgage term by 3 years and save you more than £11,000?
That’s 2 luxury family holiday!
But it’s not all too late for you.
In this post – Dave Ramsey Baby Steps UK, you will learn how to take small actionable steps today to secure your finance in the future to be ultimately debt free.
Before we jump in, let me tell you a little bit about Dave Ramsey.
Who is Dave Ramsey?
Dave Ramsey is a well-known American financial guru who helped millions of people to be in control of their finances. In particular, his money management plan walks you through a sequence of steps to be debt free, famously known as Dave Ramsey’s 7 “baby steps”.
While Dave Ramsey’s baby steps is a fantastic financial tool, it was very much geared towards the US audience.
… Which is why I have created this post – Dave Ramsey Baby Step UK edition. My take on this long term financial guide that is relevant to the UK, so you can too benefit from these steps to be debt FREE.
Dave Ramsey Baby Steps UK [Step 0] – Create a Budget and Stop Borrowing What You Can’t Afford
Before taking your first baby step, Dave Ramsey advises creating a monthly budget.
Rolling your eyes? I was too…
Like many of you, our finance is not stretched by any means. I don’t want to go back to the penny bitching uni days that I am writing down every expense… I simply don’t have the time, nor worth my effort at this stage of my life.
The idea here is to analyse 2-3 months of your bank statement to be able to outline, the monthly income, regular expenses, bills etc. This quick and easy budgeting app can help you to do all that in just a few minutes. And it’s FREE!
By creating a budget, not only you have a good idea of what you can or cannot afford at a monthly basis, but also can detect some of the regular unintentional expense that adds up quickly.
When I did this exercise, here are some items brought to my attention:
- We spent £100/month just on coffee
- By canceling my personal mobile (I already have a work mobile), I can save £240 a year
- I can also save £96 by cancelling my audible as I already have loads of credit for free books
Budgeting also doesn’t mean you have to cut everything out to a bare minimum. It just means that you make plans for all your expenses including things you spend for fun, and other fine things in life, as long as it’s within what you can afford.
Having a monthly budget will also set the foundation to help you pay off your debt earlier (more on this later).
Now you are ready to take on Dave Ramsey’s baby steps to be debt free.
Dave Ramsey Baby Steps UK [Step 1] – Save For an Emergency Fund
We all know, $hit happens in life and they can be costly.
I’m talking about dental fillings, car tyre punchers, dishwasher stop working etc… things you just have to pay for in order for life to function normally.
Dave Ramsey’s 1st baby step [UK] to be debt free is to save an emergency fund of £1000 for those unplanned and costly events in life.
This will prevent you from falling back to borrow money with a high interest rate.
Want to save money on your weekly food shopping?
Dave Ramsey Baby Steps UK [Step 2]– Payoff Debts Except for Mortgage and Student Loan
This 2nd step of Dave Ramsey’s Baby Steps definitely take some interpretation in order to make it relevant to the UK.
The original advice is to pay off all debts except the mortgage.
While that’s true, the additional exception in the UK is the student loan.
With the low-interest rate and the policy for the student loan in the UK, in most cases, there is NO advantage to pay if off early. The cash is better saved for other things. You can read more in details HERE.
So if you have been sensible with money and don’t have any debts apart from Mortgage and Student Loan, well done! You can skip straight to the next step.
For the rest of you who still have other debts, you can use Dave Ramsey’s “The Debt Snowball” strategy. (Personally, I’m not a fan of the name as it sounds like getting your debt bigger. Is it just me?)
Anyway, if you can get past the name, The Debt Snowball is a way to reduce your debt one at a time.
List out all your debts from the smallest to the largest, except mortgage and student loan. Start with paying off the smallest, before moving to the next smallest until all debts are paid off.
I know it all sounds really easy, but to implement it takes discipline and structure, which is why having a monthly budget (baby step 0) is particularly important if you have the habit of impulsive buying.
Dave Ramsey Baby Steps UK [Step 3] – Save for a 3-6 month for Living Expense
Once you have paid off the debt mentioned in baby step 2, the next step to debt free is to save for a 3-6 month worth living expense, including the mortgage.
Unlike the £1000 emergency fund (baby step 1), this lump sum is to create a cushion for times that your income will be disrupted, instead of borrowing money with a high-interest rate.
It could be situations that you lose your job, or want to make a career change intentionally, or even starting your own business…
Unlike US, we have pretty good employment law in the UK. Many people get a decent redundancy package. If you get more than 6 months worth of pay from your redundancy package, you are probably fine without having to save additional money.
However, if you simply lose your job and don’t get much out of the employer, it is a good idea to save up to 6 months of living expense to allow you to transition.
Starting a side hustle is a great way to create additional income to pay off your credit card debt, or save for emergency fund.
Here are some ideas on how to make money online:
Dave Ramsey Baby Steps UK [Step 4]– Invest in Your Pension
Dave Ramsey’s baby steps #4 [UK] to debt free is to invest in your pension.
In fact, I would say, it’s NEVER TOO EARLY to invest in your pension, so you can consider this as a Baby Step that can be done in parallel to Steps 0-3.
Aim to contribute 15-20% to your pension which can be (but not limited to) a private pension, an investment ISA, or a company pension.
Most of us are probably in a company pension scheme. Many of the employers match your contribution (see below), so take advantage of that by maxing out the company contributions. That is FREE money towards your retirement!
Regardless of what your employment situation is, the idea here is to have a savings plan for your retirement and START NOW.
Dave Ramsey Baby Steps UK [Step 5] – Fund Your Children’s Education? Saving for Your Children’s Mortgage Deposit
The original Dave Ramsey’s baby step 5 – fund your children’s education, doesn’t apply as is in the UK.
As a starter, colleges are free to attend for children who are under 19 before enrolling the course. If you live in Scotland, that free ride continues into University education. So one financial weight off of your shoulder.
For the rest of the UK, I am afraid we will need to put some thought on our children’s university education. But don’t start panicking yet, remember the student loan that I mentioned earlier?
Assuming the interest rate for the student loan remains one of the lowest interest rates, it’s worth to take advantage of it instead of saving for it. This is because of the way the loan is set up, your child only need to pay it back when he/she starts to earn a certain amount of money after graduating.
For us, it makes more sense to save for our children’s mortgage deposit. If they have a larger deposit on a house they will get a lower mortgage rate, so helping them to get at 80/20 Loan To Value rate or better, would be a huge help in buying their first property.
Dave Ramsey Baby Steps UK [Step 6]– Payoff Your Mortgage Early
This baby step from Dave Ramsey works exactly the same in the UK. The steps to debt free are ultimately having your mortgage paid off completely.
It won’t happen overnight, but by setting up a small amount to overpay your mortgage each month, will make a huge difference for the long run.
Paying off a mortgage is the ultimate goal for our family too. Although we are still a long way from achieving that, by overpaying 20% of our base monthly payment, we will be able to pay off our mortgage 5 years earlier.
Before you set up that overpay amount, make sure to check that you won’t be penalised by paying it early. Most cases you can pay up to 10% of standing balance each year without incurring any overpayment charges.
Dave Ramsey Baby Steps UK [Step 7] – Build Wealth and Give
Now you’ve gone through all the steps to be debt free, Dave Ramsey’s final baby step [UK} is to build wealth and give.
This is another step that I think can go in parallel with other baby steps. Personally I interpret give as in forms of both time and money.
If you are in a position that you can donate money to charities and/or causes that you are passionate about, amazing. But if you are in early steps to be debt free, you can always give your time by volunteering.
Finally, continue to build your wealth the way it has worked for you.
Final Thoughts…
There you have it. My interpretation of Dave Ramsey Baby Steps UK edition to be debt free.
It is a great long term financial guide breaking down to easily actionable baby steps that everybody can do.
Notice that I didn’t give you too many specific “how-to” for each step because I believe it is not about penny-pinching and following these steps to a T. Instead, I want to help you to see the forest (not the tree).
Once you decide what your long term financial goal is, then you can follow the structure and adapt Dave Ramsey’s baby steps to suit your personal situation.
I’d Love to Hear From You…
Where are you financially in Dave Ramsey Baby Steps to be debt free?
Comment below, I’d love to hear from you.
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Hi Chloe,
I’ve heard of Dave Ramsey before, and just recently (about 2 months ago) have started watching some of his video clips on Youtube. I got to say his advice on getting debt free sounds great, but the way I see it, it can be probematic for many Americans (myself included) as staying disciplined and structure can be very hard. Not to mention that the level of debt in America is so high as well. I live in the USA so reading your post abuot how to tackle this debt free plan from a different country was interesting. I didn’t realize that the UK had low interest rates for student loans, let alone that the loans need to be paid back when the student reaches a certain income level (you learn something new everyday). I would agree with you on this point. If the United States had low interest rates on student loans, I wouldn’t pay it off right away either. I would rather work on funding some other investments that could generate a greater rate of return.
However, one important thing that I will say is that because I’ve started to listen to Dave Ramsey so much lately, I can say that it makes me not want to get into debt. The only debt I currently have is on a phone bill that I’ll be paying for until the next year (which I don’t plan on paying off eary because I recieved a buy one get one free deal onit), but the experience of having to constantly make payments every month to the phone company doesn’t feel great. That’s why I plan on avoiding any debt I can.
One final thought is that although, I agree with Dave Ramsey and think that this debt free plan can work for a lot of people in the USA, UK, or whereever, as long as they have the discipline to stick to the plan, I don’t particularly agree with all the points that Dave Ramsey makes like on credit cards for example. But, nevertheless, I respect the man, and think his teachings can go a long way as long as you listen, understand, and follow.
Great post. I really enjoyed it!
Thanks for sharing your view. I agree, Dave Ramsey’s overall methodology can change the way how people plan for their financial future, but the important thing is that you need to figure out how to adapt to suit your own situation.
Nice post you have here, If we, all mamas and papas can follow the advice from Dave Ramsey step by step on creating a monthly budget before taking our baby steps, It will really help in reducing our monthly debt. Though the article sound like is for only people in UK, but I tell you this can be applicable to all, irrespective of where you are located. Thanks for sharing this wonderful advice from Dave Ramsey, I will surely share your website with friends in UK for advice.
Some of the advice is slightly different from country to country, but you are absolutely correct that the general concept of how to save money, create a budget and make plans to pay off debt is the same.
Thank for sharing!
Hello there! Thanks a lot for sharing this beautiful piece of information with us. I find it very informative and educative and I must commend your efforts. Your thoughts are indeed very valuable, well done. Right from when I was little, I was really concerned about debts. I think the reason is I hated to see how people that are in debt are humiliated. Because of this, I tried every means necessary to avoid it. I’ll definitely share this article with my friends, thanks alot
Glad you found it helpful. Please feel free to share.
I’m so excited I came across this today….. Its indeed really helpful to most people in our society who spends lavishly on irrelevant things and end up borrowing to keep up, and this has led so many people bankrupt but with an article like this one would learn to spend wisely. I really like your say on investing on pension that is a very wise thing to do saving for the future…. I really enjoyed reading this article…. I’m looking forward to seeing more of your post.
It’s never too late to invest for our future. I certainly feel that responsibility especially after having children. Whatever we go about money will have a long term effect down the road. A small effort today, will result in big saving tomorrow.
Thanks for stopping by!
I am so happy that I have found this! I love Dave Ramsey but I am British, so you’re right, there are a few things that are different!
I have just started working on the Baby Steps with my husband.
Thanks, June
I found Dave Ramsey’s baby steps are really effective but definitely need to be modified to suit UK. I’m glad you found this helpful.