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Baby Step 1: Save $1,000 for your starter emergency fund
An emergency fund is a savings buffer set aside for unexpected expenses like home or car repairs — so you can avoid going into debt in case of an unplanned financial situation.
“Without an emergency fund, you are one car repair or medical bill away from financial disaster,” Ramsey noted.
But starting an emergency fund doesn't have to be overwhelming.
To kickstart your emergency fund, find out how much you can comfortably save every month after paying your fixed monthly expenses. The best way to do figure this out is tocreate a detailed budget.
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Another smart way to grow your emergency fund is to reduce monthly expenses.
For instance, if you’re a pet owner, you might have a monthly budget for the groomer and pet food, but do you have money set aside for an emergency vet bill?
With a pet insurance policy, you can reduce the impact of an unexpected medical cost for your fur baby. For instance, Spot Pet Insurance provides up to 90% cash back on vet bills and unlimited payouts on accidents and qualified illnesses.
You can also get up to $500 cash back on kennel and pet boarding costs and up to $1,000 on alternative therapies for your pet through Spot Pet Insurance.
The money you save trying to cover these expenses can go directly into your emergency fund, accelerating your progress toward financial security.
Baby Step 2: Pay off all debt (except the house) using the debt snowball
Dave Ramsey recommends using the debt snowball method to pay off your debts. Focus on paying off the smallest debt first while making minimum payments on the others. Once the smallest is paid off, move that payment to the next smallest debt and keep going.
"Debt isn't a math problem; it's a behaviour problem. The debt snowball method helps you change your behaviour by giving you quick wins and keeping you motivated,” according to Ramsey.
Consider consolidating your debt by taking out a single loan at a lower rate with Loans Canada. Instead of juggling multiple monthly payments, you'll have one predictable payment to manage each month.
This can both ease your interest costs and improve your credit score. You can shop for the most competitive interest rates on personal and debt consolidation loans, since Loans Canada specializes in comparing rates offered by different lenders.
You don’t need a minimum credit score or annual income to receive personalized loan offers.
Baby Step 3: Save 3 to 6 months of expenses in a fully funded emergency fund
Now that your debt is behind you, keep moving forward with Dave Ramsey’s Baby Steps by focusing on building your fully funded emergency fund. “Take the money you were using to pay down debt and set aside three to six months’ worth of expenses,” explains Ramsey.
This will safeguard you from life’s bigger unexpected bumps – like job loss or a medical emergency – and help you stay on track without slipping back into debt.
Consider parking this cash in an account that pays you a higher interest rate than a regular savings account — so that your idle cash can continue to make you money.
For example, open a personal account with EQ Bank and in just a few minutes you get access to the best features of a chequing account combined with a high-interest savings rate.
When you fund your account and set up a direct deposit, you can earn 3.50% on every dollar deposited into the account.
The account has $0 monthly fees and no minimum balances. Plus, you can withdraw from any ATM in Canada — for free.
Baby Step 4: Invest 15% of your household income in retirement
The next Baby Step is to start investing 15% of your gross income towards retirement.
“By the time you’re 67, you should still be working because you want to, not because you have to,” said Ramsey.
Start by making contributions to tax-advantaged accounts, such as your Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP).
These accounts can hold many assets such as cash, individual stocks, mutual funds or low-cost exchange-traded funds (ETFs). Consider opening a discount brokerage account, like CIBC Investors’ Edge, so you can enjoy low commissions on trades and no or minimal account maintenance charges, depending on the size of your portfolio.
Pay no account fees for RRSPs with a balance of $25,000 or more and TFSAs with a balance of $10,000 or more. For non-registered accounts, the platform waives maintenance fees if the account balance exceeds $10,000. Build your portfolio with CIBC Investor’s Edge and get up to 100 free trades and over $200 in cash back.
CIBC Investor's Edge
Build your own investment portfolio and enjoy low commissions
Baby Step 5: Save for your children’s college fund
By this point, following Dave Ramsey’s 7 Baby Steps, you’ve paid off most of your debts (except the mortgage) and started saving for retirement. The next step is to begin saving for your children’s university or college tuition.
Take advantage of free government grants and tax-free growth by opening a Registered Education Savings Plan (RESP). You can open one through platforms like Wealthsimple, which makes it easy for you to set up regular contributions. Your funds will be managed in a smart investment portfolio, so that you can help pay for your children’s expenses when and if they decide to pursue higher education.
You'll get a $25 bonus when you open your first Wealthsimple account through this page and fund at least $1 within 30 days. T&Cs apply.
Wealthsimple Invest
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Baby Step 6: Pay off your home early
Now, bring it all home. Your mortgage is the only thing between you and complete freedom from debt. As Ramsey says: “Baby Step 6 is the big dog!”
Refinancing your home loan through Loans Canada could help you pay off your mortgage early in one of two ways. The first is to secure a lower interest rate and maintain your current monthly payment with more of it going toward the principal. The second way is to opt for a shorter amortization to accelerate your path to mortgage-free homeownership.
When you refinance to a shorter amortization period, you significantly reduce the total interest paid over the life of your loan. Though your monthly payments may increase, you'll build equity faster and own your home outright years earlier.
Simply add your postal code and answer a few questions and you’ll be connected to a mortgage refinancing specialist with Loans Canada.
Baby Step 7: Build wealth and give
Ramsey said the last step is the most rewarding: keep building wealth, become outrageously generous and leave a legacy.
As your investment portfolio grows, you might consider diversifying with alternative assets, such as real estate. Owning real estate can offer steady rental income, but it can be expensive and time-consuming to manage properties.
Investing in Real Estate Investment Trusts (REITs) is one way you can gain market exposure to the real estate market.
REITs own and operate a range of real estate properties, including office buildings, apartments, hospitals and malls. Investors earn returns through dividends and potential price appreciation of the portfolio of properties — but you aren’t forced to deposit large sums as a down payment.
Instead, you buy and sell the shares of REITs — making it an attractive option for those who want exposure to the lucrative real estate market, without the hassle of property ownership.
You can buy individual REITs or a whole basket of REITs through an ETF through a self-directed online trading platform like Wealthsimple Trade.
Trade stocks and ETFs commission-free, plus get a $25 cash bonus when you open your first Wealthsimple account and fund at least $1 within 30 days. T&Cs apply.
Preservation of wealth
The next factor to consider is the preservation and protection of your wealth. Life insurance is one such tool for protecting your wealth, offering financial security for your family and ensuring your legacy is preserved.
In most cases, Dave Ramsey recommends families choose term life insurance over whole life insurance — and invest the significant savings in a tax-advantaged retirement account.
Term life insurance offers coverage for a period typically ranging from 10 to 30 years. If the insured person dies during this term, the policy pays a death benefit to the designated beneficiaries. Term insurance is usually less expensive and more flexible than whole life insurance — and the payout is tax free
With PolicyMe, you can get an instant life insurance quote after you fill out a form with your age, income and smoking status. You’ll get quotes based on the coverage amount and term length you select.
