Why You Need to Get to Dave Ramsey’s Baby Step 7 Today



When I first started out on my financial journey, I wasn’t really aware of Dave Ramsey.  In fact, I had reached his final Baby Step 7 (Build Wealth and Give) when I became more familiar with him.


insurance build wealth and giveTruthfully, the only reason that I took Dave Ramsey’s Financial Peace course was to hear his input on insurance.  At the time, I kept hearing so many mixed messages in regards to insurance that it made my head spin.  Fortunately, after listening to Dave’s explanation, I was relieved.  It was much less overwhelming and much more simple than I had thought.


Quick side note: Lucky for you, if you don’t have time or interest in listening to Dave talk about insurance, I created my own comprehensive insurance guide that addresses which insurances you actually need.


Dave Ramsey’s Seven Baby Steps

build wealth and giveStep 1 – $1,000 to Start an Emergency Fund

Step 2 – Pay Off All Debt but the House

Step 3 – 3 to 6 Months of Expenses in Savings

Step 4 – Invest 15% of Household Income Into Retirement

Step 5 – College Funding for Children

Step 6 – Pay Off Home Early

Step 7 – Build Wealth and Give


Everyone always assumes that when you finally hit Baby Step 7, life is grand.  You have already paid off your home (Baby Step 6), which in many perspectives is the pinnacle of financial achievement.  At that point, you should have also completed all of the prior Baby Steps as well.  So, the hard work is over then, right?


Hahaha…not quite.


Of course, you have to make quite a few sacrifices until you reach Baby Step 7.  That is why, in my opinion, you should strive to achieve Step 7 as soon as possible.


Why Baby Step 7 Isn’t Easy

build wealth and giveThe tricky part about Baby Step 7, though, is its vagueness.  What is the right amount of wealth to build, and what is the right amount to give away?  Both could vary greatly depending on the person.


At Step 7, it’s on you to figure out whether you will follow the Safe Withdrawal Rate or the Trinity Rule.  You are left to your own devices to figure out how quickly you can reach FIRE.  More importantly, you must determine how much money you can save along the way without being to extravagant or too cheap.


Admittedly, once we hit Baby Step 7, my wife and I struggled for a little bit.  It took us some time to figure out exactly what our plans moving forward were.  


There is some fine print associated with Baby Step 7, though.  On Dave Ramsey’s website, he states that once you reach Baby Step 7, you should go back to Step 4 and increase your contributions from 15% to maxing out your 401(k) and IRA accounts to the IRS limits.  


Maximizing your 401(k) and IRA Contributions

If you and your spouse work in companies that offer 401(k)s, each spouse should contribute $18,000 to his or her 401(k), and if you’re older than 50, you can contribute an additional $6,000 as a “catch-up contribution.”  That means a total combined contribution of $36,000 if you’re married and both working, or $48,000 if you’re both working and both over 50.


When you factor in your IRA, whether that’s a Traditional IRA, Roth IRA, or even creating a Backdoor Roth IRA, that means that you can contribute $5,500 per person, or if you’re older than 50, an additional $1,000.  That’s a total of $11,000 for a couple under 50 or $13,000 if you’re over 50.


Grand Totals

That adds up to a grand total of $47,000 that you can invest in tax-advantaged accounts if you’re under 50 and married with both spouses working.  The total is $61,000, if you’re over 50 with both spouses working.  


Unless you are making over $400,000 a year, you should see a significant increase in the percentage of your income that is to be invested for retirement.


If you are single and working and under 50, the contribution limits are similar.  $18,000 would max out your 401(k) and $5,500 for your IRA.  That leads you to a grand total of $23,500.  If you are over 50, you can contribute an additional $6,000 into your 401(k) and $1,000 into your IRA to give you a grand total of $30,500.


Spousal IRA Contribution

build wealth and giveMy wife and I have diligently maxed out our IRAs along the way.  In fact, I’ve maxed out my IRA every year since 2003, when I first jumped into the workforce.  


At the time, I thought I was smart because I was essentially day trading my IRA portfolio, so I put as much money in there as possible.  In hindsight, that was probably not the smartest move.  


Up until 2012, I had maxed out my IRA but contributed only the minimum to my 401(k) in order to get the match (5%).  It wasn’t until I paid off my house that I maxed out my 401(k) contributions.


A smart thing I did do was contribute to my wife’s IRA, even while she was not working.  For those that aren’t aware, a spouse that does not work outside the home is still able to contribute.  As long as you have compensation or earned income of at least the amount you contribute to your IRAs, you can utilize the spousal IRA contribution.


Maxing Out and Super-Saving

build wealth and give enjoying life today retire earlyFor my wife and me, that means that we can contribute $29,000 to our tax-advantaged accounts.  That may sound like a lot of money, but in reality, when you look at how long it takes to earn a million dollars, it would take us 17 years to achieve that figure at our current trajectory.  


My wife and I have been super-saving since 2012.  We save close to 65% of our take-home pay and almost 75% of our overall pay in order to reach FIRE as quickly as possible.  We hope that will be in four short years.


So why do I encourage everyone to get to Baby Step 7?  It’s because this is when you really determine what type of lifestyle you are going to live.  You no longer have Dave to guide you.  The training wheels are off your bike, and you can go as quickly or slowly as you want towards FIRE.


Baby Step 7 is the fun part.  


Value Spending

build wealth and giveMight my wife and I be closer to retirement if we had been a bit more tight with our finances?  We did traverse around Europe for a month and go on a cruise to Alaska and another one around the Mediterranean.




But, I didn’t feel guilty about spending money on those trips.  They were thoroughly enjoyable, mostly because I didn’t carry any debt.  I had the money to pay for the trips and all of their expenses immediately.  I was able to weigh the costs of delaying retirement by making lifelong memories with my wife.


So I readers, which Baby Step are you on?  What do you plan to do when you reach Baby Step 7?  Share your thoughts below.

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.


  1. I am doing all the first five steps and have completed. I skipped step six as I am borrowing money from the equity in my house. Hence, I don’t think that I will do step number six.

    I am currently on step seven and lucky for me, I somehow did an estimate and calculated my FIRE number to be $2M last year. I think that you are right, step number seven is pretty vague, but if you did the first six steps, you can definitely figure out your number.
    Leo T. Ly @ isaved5k.com recently posted…Basic Personal Finance ConceptsMy Profile

    • Thanks for sharing Leo!!! That doesn’t surprise me that you skipped Baby Step 6 🙂 You always seem to have a plan and it’s clearly working!!! Can’t wait to hear when you reach your FIRE number 🙂

    • I think Dave does a great job when it comes to debt. Some of the other things he has to say I don’t see quite eye to eye. But for the most part I think he does a great job of bringing people to the table.

  2. Dave was one of the first resources we found and help spring board our debt repayment of $109K. We are somewhere between steps 3 and 4 now, after a job loss depleted our e-fund. His steps are a great guideline but may vary to fit your personal situation.
    Brian recently posted…Debt Discipline Turns FourMy Profile

  3. We are on steps 4/5/6.
    I’m very close to 15% contribution, depending on my next raise I should be there soon.
    We are contributing to one of the kids 529 but haven’t gotten a social security number for the other to open the account yet.
    We are over paying our mortgage and hope to have it gone by the time our oldest son is 16! That way we can cash flow college.
    Budget on a Stick recently posted…Beyond Stealth WealthMy Profile

    • Thanks for sharing!!! I personally got rid of my mortgage because it was a freeing feeling but for those comfortable with debt I can see the tax benefits.

  4. We are on step 6. And have quite a ways to go to pay off the home. I’ve been focusing more on beefing up the investments instead of making extra principal payments. I hope to start doing that in the near future though. As long as it is paid off before retirement, I’ll be happy.
    Mr Defined Sight recently posted…My Favorite Financial AdviceMy Profile

    • Thanks for sharing Mr. Defined Sight!!! I can definitely see the pros of investing. I got lucky in that we paid off the house and the market returns barely exceeded the market 🙂

  5. Hi Rob! We are past #4, but we are essentially skipping #5 for now (we have a small 529 plan but do not contribute actively) and are on #6- paying off our mortgage. And I think we have some of #7 in there… because we are contributing much more than the 10-15% towards retirement with the intent of building wealth.

    Have a great weekend!
    Mrs. Adventure Rich recently posted…A Recipe for SpontaneityMy Profile

  6. Well I’m skipping step 6 for the time being and trying to get to a 50% savings rate. I think this might be our first year hitting that mark. At that point I would consider putting extra towards our 15 year mortgage. 65-75% is just insane.

    I agree that once you are out of debt and saving like a boss (well mini boss compared to you) it makes spending money so much more enjoyable.

    Don’t agree with a lot of what Dave says but I think he is still a great start for people. They just need to not become one of his disciples that can’t learn or hear another opinion besides Dave’s.
    Grant @ Life Prep Couple recently posted…Happiness Comes From Progress. So Stop Comparing!My Profile

    • That’s awesome to hear how much money you are saving Grant with a mortgage!!! You are crushing it!!! Sounds like you are going to reach FIRE in no time at all.

  7. Great post about baby step 7! We are working on baby steps 4, 5, and 6 currently. Mainly working our investments up to that 15% level. Our mortgage is a little on the high side percentage-wise of our take home income (34.48% including HOA and home repair fund), but we are below the 15 year level at this point. Every chance we’ve gotten, we’ve reduced the term of the mortgage while keeping our payment close to the same as we can.

    Having to put a roof on our home this year, we had to go back to Baby Step 3 and are in the process of rebuilding our emergency fund as well.

    As far as when we’ll get to BS7, it’s still going to be a bit as we’ve slowed down our gazelle intensity after finishing BS3 in the past. We have been taking more vacations and being less frugal with our money after working so hard to dig out.
    We also took a breather last year when I became a stay at home dad too, but I believe that we can’t get this time with our girls back.
    We are definitely in a much better place since working the baby steps then we were before too!

    • Thanks for sharing Steve!!! It sounds like you all are doing an outstanding job of taking care of that mortgage!!! Awesome job and I definitely understand taking a breather here and there 🙂

  8. I’m doing these in all sorts of the wrong order, haha. Right now we’re working on building up a bigger emergency fund, but we’re already saving more than 15% for retirement. The biggest reason we need more in an EF is that we’re moving, so our expenses will be going up.

    No kids, so skipping the college thing altogether which is nice.

    For us then we’ll focus on paying off the house in 20 years MAX and invest the excess. Any side money we make is going straight to paying off the house.

    If we can continue on our current income, we should be able to FIRE in 20 years which is a long ways away, but still more than 15 years “early” so we’d both be happy campers.

    I’m not sure if paying off the house more quickly makes sense. We could pay it off in 10 years or less if we really focused, but it’d be putting a lot of our other savings on hold for the time-being. Super-charge savings in 10 years, or moderate savings for 20 years? Idk. Compounding makes me think a moderate approach would be preferable…

    • I definitely way investing more than I should have and neglected my emergency fund. It wasn’t until I needed that emergency fund that I really saw how valuable it was. I never understood the importance until then 🙂

  9. Ah step 7…the holy grail. I suppose once you have hit 7 you become a Jedi Master. You have made it through the training and can go back and figure out investing….though you are right to point out that is unlikely.

    I disagree with Dave regarding the tax-deferred accounts. I think they should be maxed out annually even before paying off your home. Just my thoughts and I am sure others would disagree.
    Dads Dollars Debts recently posted…Hump Day – August 2nd, 2017My Profile

    • I think if you’re doing either one of those things that you’re way ahead of the game. So as long as people have a strategy I don’t worry too much 🙂

  10. Thanks for the post. One of the issues I have with Dave Ramsey is his Step 7. I keep looking and asking myself, “What is step 8?” I quickly “graduated” from his program. His guidance after the initial baby steps is pretty vague. I reached FI years ago but continue to work since I enjoy it. I end up saving, investing, and giving a lot more than I used to. I don’t have a clear cut guideline though.

    • It definitely would be nice if he would have gone a little bit further but he’s going for the masses who struggle with the first couple of Baby Steps so I’m sure he figures that those that are savvy enough to reach Baby Step 7 can figure the rest out.

    • Thanks for sharing Jason!!! Dave has great guidelines but it doesn’t fit for everyone. Sounds like you’ve found what works and are going full speed ahead. Congrats!!!

  11. We are working on #5. Currently have a 529 for our 1 year old and fortunately both sets of parents for contributed a huge chunk into Baby With Cents college fund. We are only putting in $1K a year but plan to increase the contributions as he gets into school.
    We don’t own a home yet but once we do, #6 will be in our sights.

    • Thanks for sharing Kris!!! That’s awesome that you parents and in-laws have been able to help fund your babies education. Definitely a huge blessing while you get everything set up for the future!!!

  12. I took a little break from the blogging world this past month, but I continued to enjoy your posts, so thanks for the time and work you put it all.

    The first finance book I read was by Chris Hogan, who is a close partner to Dave Ramsey and also preaches the 7 steps. We’re currently putting money away toward retirement (a little more than 15%), but we’re also saving for a house downpayment. The 3-6 month emergency fund was one of the first things my wife and I saved toward after getting married. As a former boy scout, “be prepared” has always resonated strongly with me. We also give a lot of money to our church, so I guess we’re also on step 7!

    Great post – it’s far too easy to get distracted by complicated math and strategies and lose sight of the basics.

    • Thanks for stopping by Matt!!! That’s awesome that you were so diligent in putting away 3-6 months of expenses. I definitely struggled with this and neglected it until it was too late. Now I definitely see what it’s so important and it’s something that I stress to friends and family today 🙂

  13. Hi MSM,
    I am actually on stage 7 but with a huge caveat – I have skipped stages 5 & 6! We don’t have kids so thats not a problem. Stage 3 is debatable – I am just about on 3 months but dont feel the need to hold more cash at this stage.
    Why have I skipped stage 6? I am paying down the mortgage, and overpaying, but I am making the most of the tax breaks in the UK! I get tax free returns higher than the mortgage interest rate so I will do that!
    FIREin’ London recently posted…July ‘17 PerformanceMy Profile

  14. Thanks for sharing this. Those are simple and effective steps to follow. I have never attended one of his seminars. I do listen to him occasionally on the radio. He provides some solid advice.
    Dave recently posted…I Bought a LemonMy Profile

    • I think Dave is great for debt and he has a little bit to go with investments. His advice is a bit vague at times but overall he does a solid job of pulling people in.

  15. None of the steps are easy, to be honest. Well, maybe the first one, although starting from scratch means it’s gonna take a while to save $1,000 and not ‘touch it’.

    We don’t have kids or bought a home yet, so I guess we’re somewhere in the middle.

    Regardless of what step anyone is, I believe it’s important not to lose sight of ‘living in the present’. Glad to hear you guys aren’t sorry about spending money on your big trip, it would be a shame to keep planning for the future and let life pass by. We only get 1 anyway 🙂
    Adriana @MoneyJourney recently posted…Can you distinguish frugal from cheap?My Profile

    • Thanks for sharing Adriana!!! You’re right we only get one life and it’s definitely a struggle to plan for the future while living for today. It’s definitely a balance and not always an easy one 🙂

  16. I’m 4 years away from mortgage being gone. I’m making my IRA and putting some in the wife’s. But, I’m like you I travel too much and love it. Thanks for the post.

    • Very true DC!!! With how fast tuition has been rising you may never be able to catch up to the costs of college. I do wonder if there is a bubble coming in the college market.

  17. So I’m curious: how close are you to financial independence already? Not your specific numbers, but percentage-wise, where are you guys at?

    I look forward to the day when our savings rate is that high. We’re in the midst of some crazy adjustments, but as soon as they’re done, we’ll hopefully be soaring right along with you.
    Mr. FWP recently posted…Why We Gave Away $2,500 Today, And Challenge Fellow BloggersMy Profile

    • We’re probably 75% of the way there if we want to move from the high cost living area that we live in now. Probably 50% of the way there if we wanted to stay, although neither one of us really do. So closer each year 🙂

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