{"id":17324,"date":"2020-10-28T10:52:00","date_gmt":"2020-10-28T14:52:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=17324"},"modified":"2025-09-15T10:13:00","modified_gmt":"2025-09-15T14:13:00","slug":"total-money-makeover-steps","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/total-money-makeover-steps\/","title":{"rendered":"The 7 Total Money Makeover Steps for Financial Health"},"content":{"rendered":"\n

What are the seven Total Money Makeover<\/em> steps? How do Dave Ramsey’s 7 steps help you get to financial health?<\/p>\n\n\n\n

The Total Money Makeover<\/em> steps are the seven actions you need to take to live a better life. You get to a debt-free state and be set up to enjoy your money later with Dave Ramsey’s 7 steps.<\/p>\n\n\n\n

Read on for seven the Total Money Makeover<\/em> steps.<\/p>\n\n\n\n\n\n\n\n

Editor\u2019s note: This article is part of\u00a0Shortform\u2019s guide to saving money<\/a>. If you like what you read here, there\u2019s plenty more to check out in the guide!<\/em><\/p>\n\n\n\n

The Seven Total Money Makeover <\/em>Steps<\/strong><\/h2>\n\n\n\n

Now you\u2019re ready to begin the process of putting your financial problems behind you by following these steps in sequence<\/em>:<\/p>\n\n\n\n

Step #1: Save $1,000 Cash<\/strong><\/h4>\n\n\n\n

Everyone needs a rainy day fund because it\u2019s guaranteed to rain<\/strong>\u2014there\u2019s always a financial emergency at some point.<\/p>\n\n\n\n

Saving $1,000\u2014fast\u2014is the first of the Total Money Makeover<\/em> steps because, without a financial cushion for emergencies, an unexpected expense will prompt you to dig yourself deeper into debt by borrowing more. Granted, $1,000 won\u2019t get you through a life-altering crisis, but it\u2019s enough to keep smaller crises from triggering debt. You\u2019ll build on this amount in step #3 when your finances are in better shape.<\/p>\n\n\n\n

Do whatever you can to round up $1,000: cut your spending, work extra hours, or sell something (by having a yard sale, for example). Most people can find the money in less than a month, but if you can\u2019t, sell more or take on an extra job.<\/p>\n\n\n\n

When you get $1,000, stash it where it\u2019s accessible in an emergency but not so easy to grab that you\u2019ll be tempted to spend it for non-emergencies (for instance, by keeping it in your sock drawer).<\/p>\n\n\n\n

Step #2: The Debt Snowball <\/strong><\/h4>\n\n\n\n

You need to get rid of debt to get control of your income and put it to work for you. The debt snowball<\/a> method is the way to pay off debt. There are two steps:<\/p>\n\n\n\n

1) List your debts in order, from the one with the smallest balance to largest<\/strong>. Exclude only your mortgage, which will be addressed in another step.<\/p>\n\n\n\n

2) Each month, apply every extra dollar you have after basic expenses toward paying the smallest debt until it\u2019s paid off. <\/strong>Make the minimum payments to stay current on the other debts on the list. <\/p>\n\n\n\n

After the smallest debt is paid, apply the payment you had been making on it, plus any additional money you have, toward paying off the next smallest debt. When the second debt is paid off, apply the payment amounts from the first two debts, plus any other money you can find, to the third debt on your list, and so on.<\/p>\n\n\n\n

Each time you pay off a debt, you increase the amount you can pay on the next one\u2014your payments continue to snowball until your debts are paid off. <\/p>\n\n\n\n

Step #3: Boost Your Emergency Fund<\/strong><\/h4>\n\n\n\n

The next of the Total Money Makeover<\/em> steps is boosting your emergency fund to give yourself a cushion against life-disrupting problems like a job loss or medical bills.<\/p>\n\n\n\n

You need an emergency fund large enough to cover three to six months of expenses<\/strong>, enabling you to manage for up to half a year without an income. In one survey, 49% said they couldn\u2019t cover even a month\u2019s expenses if they lost their income. To make sure you\u2019re not in this situation, the amount in your emergency fund should be between $5,000 and $25,000<\/strong>. <\/p>\n\n\n\n

As noted in step #1 (create a $1,000 emergency fund), your emergency fund must be in the form of cash and easily accessible. A great option is a money market account with no penalties, and on which you can write checks. <\/p>\n\n\n\n

Step #4: Save for Retirement<\/strong><\/h4>\n\n\n\n

The next of Dave Ramsey’s 7 steps is building your wealth by investing for retirement\u2014it\u2019s the key to being financially fit for life.<\/p>\n\n\n\n

Invest 15% of your gross annual income for retirement, and make compounding interest work for you. When calculating your 15%, base it on your gross annual income before taxes. Exclude any company 401(k) match, as well as potential Social Security benefits. You can\u2019t count on the government coming to your aid in future years\u2014it\u2019s your job to provide now for your future needs.<\/p>\n\n\n\n

The best way to build your wealth over time is to invest in growth-stock mutual funds<\/strong>. Mutual funds go up and down in value in the short term, but over the long term (more than five years), they provide an average 12% annual return on investment. <\/p>\n\n\n\n

Choose mutual funds with a record of growth for more than five years, preferably 10<\/strong>. Spread your investment dollars over four types of funds:<\/p>\n\n\n\n