In this article, we’ll walk you through Dave Ramsey’s Five Foundations of Personal Finance as well as his 7 Baby Steps program to help you navigate your financial path, manage your money, and maintain your financial health over the long term.

What are the five foundations of personal finance? 

A financial knowledge strategy is as individual as the person who creates it. There is no one-size-fits-all approach, but the five foundations of personal finance, as articulated by Dave Ramsey, are a popular set of principles that are helpful to follow. 

Dave Ramsey's Five Foundations of Personal Finance
Foundation 1. Start an emergency fund: Aim for $500
Foundation 2. Pay off your debts.
Foundation 3. Buy your car with cash.
Foundation 4. Pay for college with cash.
Foundation 5. Build wealth with investments and give back.
The Five Foundations of Personal Finance by Dave Ramsey

Foundation 1. Start an emergency fund: Aim for $500

If you have significant debt, saving money may seem impossible. Start small. Begin by putting $5 into your savings each week.

Re-evaluate your current lifestyle and consider what you need to live comfortably and what you can do without. Don’t scrimp too much—your quality of life should come first. Instead, think about which expenses you can reduce while avoiding becoming unhappy.

For example: 

  • Eat at home. A home-cooked meal is less expensive than eating out. 
  • End any club membership or subscriptions that you don’t need.
  • Take public transportation or ride a bicycle rather than getting an Uber or driving your car. You’ll also benefit from some light exercise. 
  • Sell your secondhand and unused belongings. One person’s trash is another one’s treasure!

What other personal finance rules might you be missing out on? Check out this fun video on 10 Personal Finance Rules School Doesn’t Teach You for more insights!

Foundation 2. Pay off your debts. 

If you already have debts (college tuition, credit card bills, etc.), make it a priority to pay them off as soon as possible. The faster you can pay off your debt, the less interest you’ll have to pay. That means you’ll be able to keep much more of your money over the long term. To help you get out of debt, make a spending budget and stick to it.

Ask yourself: 

  • Do your expenses usually outweigh your income? If so, by how much? 
  • Where can you start cutting back on your spending? 
  • What opportunities are there to earn a little extra income?
  • How much money do you want to pay towards your loans each month? 

Hold onto the receipts from your purchases to see how much you’ve spent each month. By analyzing your receipts, you’ll become more aware of your spending habits and can adjust them as needed. 

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Foundation 3. Buy your car with cash.

The latest statistics from Lending Tree show that every month, Americans borrow more than $60 billion for new vehicle loans. And paying them off takes 69.7 months for new cars and 67.4 months for used cars.

Dave Ramsey’s tips for purchasing a car with cash are as follows:

1. Set a reasonable budget.

Be honest about the type of car you need.

2. Save up for your car.

Use a zero-based budget or other budget types to keep yourself accountable toward your saving goals.

3. Don’t purchase brand new.

Of course, if you have money to burn, feel free to splurge. But for everyone else—buy a pre-owned car.

4. Know where to shop for pre-owned cars.

Look for private sellers, online car retailers, and independent used car dealerships in your area.

5. Inspect before you buy.

Get a car inspection before you purchase that pre-owned car. It will cost you some extra cash, but it could save you tears on the flip side.

6. Brush up on some negotiation tactics to get the right price.

We suggest reading Never Split the Difference by Chris Voss to help you go into your negotiation ready with the right tactics that will help you get a great deal.

Foundation 4. Pay for college with cash.

According to NerdWallet’s 2021 study on household debt, the average United States household student debt was $58,957. And the total amount of student debt owed in the United States clocks in at $1.59 trillion.

While many high school students think that going into debt for college will be worth it in the end—those paying off college loans disagree.

Dave Ramsey advises against going into debt for college and provides two rules for determining if you should even go:

Rule 1. Pay cash for college.

Rule 2. If you have cash or a scholarship, go. (If you don’t have either, then don’t go.)

Research the price of attending college. Compare the cost of a big state university with the cost of a smaller state university.

Foundation 5. Build wealth with investments and give back.

Step 5 is about the big picture and your long-term financial goals and happiness. Ask yourself questions like:

  • What other financial goals do I have?
  • Where do I want to be financially in 10 years?  
  • What kinds of things do I want to own? 
  • What kinds of experiences do I want to have? 

By answering these questions, you’ll be able to adopt a long-term perspective of your finances rather than just focusing on covering this year’s expenses. 

Don’t worry too much if these questions are challenging or if you don’t know how to respond with certainty. The goal isn’t to schedule your entire life. Instead, it’s to get you to start thinking about it so you can eventually build a financial roadmap. 

Remember that your financial planning blueprint should be as adaptable as your life.

Check out the following bestselling books on investing and finance:


What are the seven steps to financial success in Dave Ramsey’s “7 Baby Steps” program?

So now that you know what the foundations are, what connections can you make between the 7 baby steps and Dave Ramsey’s 5 foundations of personal finance?

Let’s look at the 7 steps to financial success in Dave Ramsey’s “7 Baby Steps” program:

Dave Ramsey’s 7 Baby Steps Program
Step 1. Start an emergency fund of $1000.
Step 2. Pay off your debts with the snowball method.
Step 3. Grow your emergency fund.
Step 4. Start saving for your retirement.
Step 5. Start saving for your child’s college funds.
Step 6. Pay off your mortgage.
Step 7. Establish wealth.
7 Baby Steps Program by Dave Ramsey

Step 1. Start an emergency fund of $1000. 

The first step in Dave Ramsey’s 7-step plan is to save $1,000 that you designate for emergencies. He advises that you place this emergency money in a separate account until you reach at least $1,000. Placing it in a separate account will help prevent you from using it to cover sudden expenses. See Foundation #1. Start an emergency fund.

Step 2. Pay off your debts with the snowball method. 

Settle all of your debt using the debt snowball method. The snowball method starts by paying off smaller debt amounts and gradually increases as your ability to pay them off grows. List out all your debts from the smallest debt amount to the largest. Then start by paying off the smallest debts first and then move on to the larger amounts owed. See Foundation #2. Pay off debt.

Step 3. Grow your emergency fund. 

Once you have good control of your debt, the next step is to save money in case of an emergency. According to Ramsey, there are three reasons to have an emergency fund:

  1. If you lose your job, you will still have enough money to last several months. Your savings amount will give you a ballpark estimate of how long you have to find a new job. 
  2. If you need to upgrade your car, you will be able to pay for the necessary repairs or put money toward purchasing a new one.
  3. If you need to go for a health check-up, you will be able to pay your medical bills. 

Step 4. Start saving for your retirement. 

Next up is to spend 15% of your household income toward saving for the day when you’ll retire. To find out the number to put aside for retirement, multiply your monthly income by 0.15 and commit to putting that toward your retirement. See Foundation #5 Build wealth with investments and give back.

Step 5. Start saving for your child’s college funds. 

Use a 529 college savings plan or an education savings account to save for your child’s college expenses. Schedule a meeting with your banker or hire a financial consultant to help you plan for your child’s education. See Foundation #4: Pay for college with cash.

Step 6. Pay off your mortgage.

The sixth step is to pay off your house loan. Put all your extra monthly income into paying off your mortgage loans as early as you can manage. See Foundation #2. Pay off debt.

Step 7. Establish wealth. 

The last step is to build wealth for yourself and give back to the community. By reaching this step, you are now at a place where you can focus on building wealth and giving back to your community. This is the step where you focus on letting money work for you, so you can enjoy financial freedom. See Foundation #5 Build wealth with investments and give back.

Follow The 7 Steps To Success! 


Frequently asked questions

What personal finance tips do I need to know?

Tip 1. Practice self-control: pay with cash, not credit.
Tip 2. Beware of bad advice: educate yourself.
Tip 3. Learn how to oversee your financial resources can stick to a budget.
Tip 4. Pay yourself first: start an emergency fund.
Tip 5. Start saving for retirement now.
Tip 6. Get a grip on taxes by ensuring your tax-related documents stay organized.
Tip 7. Guard your health.
Tip 8. Protect your wealth.

What are some of the key items to know about personal finance?

1. Find a job that pays you a monthly salary.
2. Watch your expenses and ensure they don’t match or go over your income. 
3. Educate yourself on the foundations of personal finance and money 
management. 
4. Begin investing based on what you’ve learned about investment.
5. Consult with financial professionals if you can.
6. Be aware that managing your finances can be confusing, and studying daily to improve your financial knowledge is always a good idea.
7. Find a way to balance your happiness and financial success.


Bonus infographic: 5 steps to setting achievable financial goals

Title: 5 Steps to Setting Achievable Financial Goals 

Sub-title: Discover how to set achievable financial goals and become wealthy - Best advice from Brian Tracy. 

Step 1. Realize your core values.
Step 2. Align your goals with your values. 
Step 3. Think big but start small. 
Step 4. Take time to plan and be prepared to commit to it for a long period. Recognize that your financial goals are long-term endeavors.
Step 5. Expect the best
Infographic: 5 steps to setting achievable financial goals.

In closing

The more you understand your current financial situation, the more straightforward the path forward will become. Start by applying the five foundations of personal finance—and soon you’ll have a solid financial plan that will work for your unique situation. 


Originally published April 4, 2022. Updated on October 13, 2022.


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