Dave Ramsey Baby Step 5 Explained

Baby Step 5: Save for Your Children’s College Fund

This step is one that I can say that I did not do, because we got started on the Dave Ramsey steps too late in life. Depending on your particular age and situation, you have to make your own choices here. Maybe you have to skip this step to save for retirement for yourself.

Perhaps your particular child/children are not geared for college. Depending on what their individual giftings are, their goals may be met better another way. 

And, if they are going for a degree, make sure it's a degree that will get them into the field/profession that they want to be in. I know so many people who have gotten degrees and they don't use them in the field they work in. They went back and had more education to qualify in their field of interest.

 Avoiding student loan debts can be one of the biggest factors in staying out of debt as a young adult. If you can pay for your kid's college tuition then you'll ensure their financial security in the future, as they'll better be able to stay out of debt. 

Dave Ramsey recommends using either a 529 college savings plan or an education savings account (ESA). Talk to your bank or credit union about setting up these accounts for these specific purposes. 

If you’re saving for college, Ramsey advises, “as much as possible” use Educational Savings Accounts (ESAs) and 529 tax-advantaged savings plans known as qualified tuition plans.

“Never use insurance, savings bonds, or pre-paid tuition.”

And he says: Pay cash. No college loans.

Also, there is absolutely nothing wrong with your kids saving up for their own college if you cannot. They can work and save ahead of time, and work during their college educational years.

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Dave Ramsey Baby Step 4 Explained

 

Baby Step 4: Invest 15% of Your Household Income in Retirement

Now you can shift your focus off debts and what-ifs and start looking up the road. This is where you begin regularly investing 15% of your gross income for retirement. Because if you're still working at 67, it should be because you want to, not because you have to. An investing pro can help you build a solid strategy.

How: Here’s the simple breakdown. When you start this step, first look into your employer’s 401(k), if you have one, and invest up to the match. Then open a Roth IRA and max out how much you can contribute to this fund. If you hit the max and still haven’t reached 15% of your income, go back to your 401(k) and contribute the rest there!

Note: If your employer offers a Roth 401(k) and you like the investment options, you can invest your whole 15% there.

Because it’s so confusing, we suggest you don’t make money moves like that without finding a reputable investment pro. These people enjoy investment lingo but know how to talk to you in a way you can understand. They’ll listen to your preferences and help guide you on your investment journey as you set yourself up to save for the retirement of your dreams.

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Please note that I am not affiliated with Dave Ramsey or any links. I have done the baby steps

and just wish to share them with others.