The first time I heard of Dave Ramsey, I was at church.

My dad had been laid off for a few years at that point, during the first economic depression of the 2000s. Thankfully, my mom retained her job, however, my dad was considered the breadwinner up until that point so our family’s income decreased exponentially.

Our church routinely promoted Dave Ramsey’s program, Financial Peace, at the time which was also taught by my friend’s parents. So, my parents decided to try it, knowing they would need the financial help until my dad could find another job.

I recall some immediate changes to our family’s habits in the upcoming months.

My dad would give us the choice between eating out for lunch or dinner after church on Sunday and that was one of the few times we went out to eat. I distinctly remember my mom’s blue coupon folder that she would tote around the grocery store for deals to get us through the week. Our nanny was moved to part-time rather than being full-time since most of us went to school all day and my younger brother could go to day-care the remainder of the day.

Even as a middle-school kid, you realize the financial surroundings your parents are in, even when you don’t fully understand them.

Knowing they were trying to make better financial choices for us and for our family’s well-being made me understand the importance of creating a healthy relationship with money. It’s not always rainbows and sunshine, but being able to be firm and strong-willed with your budget will pay off in the long run.

Since I’ve been living on my own for a few years now, I’ve tried to start a budget with Dave Ramsey’s Baby Steps and Budget from his Financial Peace program. Each portion of Dave Ramsey’s Financial Peace process can help you maintain financial freedom, but seeing as it’s a few years old, it might not be feasible for you to maintain the exact proportions for Dave Ramsey’s budget.

With inflation, Dave Ramsey’s Financial Peace budget doesn’t take into account how much the housing market has risen, as well as the educational expectations. You might need to accommodate for these differences but Dave Ramsey’s budget does give you reliable guidelines on how to start a budget.

Most of these sections have been condensed to cover a broader section compared to the smaller categories Dave Ramsey suggests.

Dave Ramsey’s Budget

Necessities: 40-45%

Includes: Rent/Mortgage, Utilities, Food

Rent/Mortgage payments are a big chunk of your budget. Whether you rent, lease, or are buying your home, it will take up to half of your budget in some areas. Dave Ramsey’s Financial Peace budget suggests only putting aside about 25% of your income for a down payment on a house. In today’s market, that can be anywhere $25-50,000. And that’s for a modest 1-3 bedroom house that hasn’t been updated for a few years.

My biggest suggestion for this section of Dave Ramsey’s Financial Peace budget is to shop around for utilities and food. Utilities do not cost the same across the board, you might be stuck in a certain area, especially if you’re out in a rural area, but most places will have a few utility companies that will compete for your service.

Food is another big spender for Dave Ramsey’s budget. Originally, Dave Ramsey’s Financial Peace budget suggests about 10-15% of your income be dedicated to food. This includes groceries, Taco Tuesday night outs, and daily Starbuck’s morning coffee runs. Try to see where you can cut if at all possible. You might need your morning coffee, but you might be able to substitute your Starbucks for a canister of Folgers you make at home.

Transport: 15-20%

Includes: Gas, Insurance, Loan Payment, Public Transport Costs

Some of Dave’s Ramsey’s Financial Peace budget for transport will fluctuate depending on your needs.

I know in larger cities, you might have the option to ride public transport, whether that be a bus, train, or streetcar, and those rates might be more fixed than the fluctuating price of gas if you drive into work every day.

This will also depend on your commute and travel during the week or month. When I had to commute to my job every day, it cost me more around 40% of my budget for gas and upkeep of my car every month. Now that I’m closer, it probably costs about 7-10%, including trips back home once or twice a month.

For some people, it might be cheaper to live outside of where you work or to take another mode of transport to commute into the city. Taking those alternative modes of transport into consideration could impact your need for loan repayments or insurance costs.

Like utilities, make sure to look for the best insurance for your vehicle and driving needs. If you have an older vehicle, younger drivers, or drive more throughout the year, it’s helpful to have different rates and quotes. Also, be wary of special offers or promotions. Special pricing won’t last forever and you will need to make sure the normal price fits with your lifestyle.

Health: 20-30%

Includes: Medications, Visits, Insurance

Most insurances are paid through your employer, so sometimes there is not much you can do about the provider, however, companies usually offer two types of plans to fit different needs across the company. Usually, health insurance providers will have low- and high-deductible options.

Most companies also offer options for dental and vision insurance as well, but it’s not as complicated to understand compared to your health insurance.

Depending on your insurance needs, you might be putting away money for a flexible spending plan, higher or lower contributions for each paycheck, or you might hit your deductible early on in the year which is bound to make your costs fluctuate. There are many variables when it comes to healthcare costs. Try to see where your costs range from during a normal month and set aside portions or more emergency funds for unexpected medical bills that arise.

Visits and Medications may also vary depending on your doctor, type of medication, or when you visit the doctor per your deductible. Again, determine what a normal doctor visit might entail and what the general medication you receive will cost you. Most doctors and pharmacists will work with you on types of medications to fit your payment needs if you need certain price points.

Personal: 15-30%

Includes: Recreation, Personal, Miscellaneous

Personal expenses are going to vary from person to person. For me, it means being able to go to Barnes and Noble to buy a few books, going out to eat with friends, and saving up for my hobbies, whether that be photography equipment, calligraphy pens, or new running shoes.

For others, personal means going in for a massage, getting a mani/pedi and having a glass of wine.

This category is for whatever makes life worth living for you. It also might mean dedicating your funds for a particular event or festivities. Best friend getting married soon? You’ll have to use personal funds for that bridesmaid's dress, or the travel recommendations. Holidays coming up? If you can’t barter with your friends, you might need to buy them a physical gift with your funds.

Dave Ramsey’s Financial Peace budget for personal funds can fluctuate. I might not need or have time to go to Barnes and Noble or find anything worthwhile on Amazon. While I could save the money, I could also put it towards another category that might need it or save it for a bigger personal purchase for the next month or two.

Saving: 10%

Includes: College Funds, Emergency, Trips, Goals, Etc.

Saving can be put to many uses in Dave Ramsey’s Financial Peace Budget. Specifically, he targets this section for saving for your children’s educations. With so many people, younger generations especially, deciding to not have children, biological or through other means, it’s important to delve into how you should divide those funds.

If you are going through Dave Ramsey’s baby steps above, you might set aside more money for your emergency fund. Instead of the suggested 3-6 months supply, you might allow yourself a larger amount, say 6-12 months in preparation to switch job markets or, better yet, start your own business.

If you want to save for something, stick with something similar to an education fund. Save for a beach house that you’ve always wanted. Save for that remodel for the bathroom you’ve wanted to splurge on. Maybe you’ve wanted to travel for a length of time, and now you can save up to travel in first-class all the way.

My main point in this category of Dave Ramsey’s Financial Peace budget: have a substantial goal you want to achieve for your finances. A lot of people focus on clearing away all their debt, which is commendable but have something you want to pursue once you’ve reached it to reward yourself even more for your hard work.

Giving: 10%

Includes: Charities, Church Offerings, Non-profit Organizations

Dave Ramsey’s Financial Peace budget specifically focuses on giving back once you learn how to start a budget, both through the Dave Ramsey baby steps and the Dave Ramsey budget.

I do find it important to give back once you are financially stable and able to do so. Giving can mean a plethora of things, however. You could devote 10% of your time to build homes, contribute 10% of your income to a medical research organization you support or split between volunteering your time and donating your money to causes you support.

The reason I offer up alternative ways to give back is simply that it can mean various things to different people. You might be in a situation where you aren’t financially able to contribute to causes you care about but you can offer your services. If your a graphic designer, like myself, you might lower or pro-bono your costs towards a charity to promote an event instead of donating cash to their organization. You are still offering your time but you are not sacrificing your utility payment to give back either.

Now that we know how to start a budget, it’s important to know how to reach a more stable financial freedom.

Dave Ramsey’s Financial Peace program refers to these next steps as Dave’s Ramsey’s Baby Steps. They set you through a process that helps you manage your money in a processed, step-based routine to help you payoff debt and how to save for your next financial goal.

Some of Dave Ramsey’s Baby Steps build off of previous steps, however, most can stand alone from each other.

Like portions of Dave Ramsey’s Financial Peace budget, it’s important to be flexible in your goals within Dave Ramsey’s Baby Steps as some ‘steps’ might not apply to your living situation.

Dave Ramsey’s Baby Steps:

$1,000 Emergency Fund

Establish a $1,000 emergency fund. Let me reiterate: This is only for emergencies.

Eating out does not apply as an emergency.

Only dig into this stash for medical, vehicular or family emergencies. If you’re further along in this program, you might have more in your emergency fund but it’s important to start with $1,000 to cover any emergencies before you pay off debt or before you learn how to budget.

Debt Payoff

First off, tally up all your debt, minus your mortgage. Some types of loans and debt are considered as good debt, mortgages and student loans being two of them.

Once you compile all your credit, auto, and personal loans, you have a few options. Most people rely on the debt snowball method when using Dave Ramsey’s Baby Steps. What this means: categorize all your debt by card, loan, and amount.

Next, determine how you want to rank each category. Many people go by the amount, highest to lowest, but some go by the interest rate. Usually, you’ll want to start with store credit cards, as these tend to have the highest interest rates associated with them.

Once you determine where to focus your debt payoff first, you’ll want to focus on putting all your extra income towards your first obstacle before tackling your next card or loan. Once your first goal is paid, you’ll want to add your first card’s payment to the next goal’s payment. So you should be paying your first card’s minimum payment and your second’s towards the second card once you have completely paid the first card.

You will continue doing this until you have paid off all the credit card and loan debt.

3-6 Month Emergency Fund

Next, Dave Ramsey's Financial Peace budget has you re-establish that Emergency fund that you started in the first step. Grow it until you reach about 3-6 months salary.

You want to plump up this emergency fund in case of layoffs or you’re unable to work.

While it’s important to include personal or luxury items into your budget, you want to make sure that all of your basic needs are met. Establish your emergency fund for the necessities and, if you need to, maybe set aside the $1,000 you set aside earlier for those superfluous spending, like presents, going out to eat, etc. You want to be prepared if anything unexpected arises, but sometimes, like holidays, outings, clothing emergencies (it’s a thing), occur and you need to keep those in mind as well.

Invest 15% of income

Stock markets can be a bit difficult and wary for people. If you don’t want to invest in stocks, you might learn about other investment opportunities. Investing in real estate, bonds, or business opportunities can be a good use of your money when you have trepidation about the stock market.

Just like any venture, investments can go south. They don’t always make money, however, that is the point of this particular Dave Ramsey baby step.

Investing 15% of your income should allow you to make money without necessarily having to work more hours. When you invest, you are allowing others to make good financial decisions concerning their business on your behalf. If you invest in real estate, you can turn said real estate into a rental property or ‘flip’ the property and have a higher return investment. Investing in bonds is a bit of a slower process and investing in a business start-up returns a profit depending on how well the business goes.

Save

I say Save for this category, but the initial title for this step in Dave Ramsey's Financial Peace budget is: Save for Children’s College Fund. Seeing as some people do not plan to have children or cannot have or support children, this step can fit many needs.

For this Dave Ramsey Baby Step, I simply say save. Find a goal or opportunity that you would like to pursue and save for it in this step. Many people, even ones with children and who will be saving for their education, have expensive dreams they want to pursue.

I would put your goal on par with saving for a college education, however. Maybe save for a retirement home or a remodel for your current home. Think big and expensive!

Pay off Mortgage

Mortgages are probably one of the most expensive loans someone or a couple will venture into in their lifetime, the next being student loans.

You might have saved enough for the down payment and the monthly payment plan but it’s another thing to pay the mortgage completely off. If your mortgage loan is in a 30-year repayment plan, you might also consider moving it to a 15-year plan. This will cause your monthly payment to increase, along with a fluctuating interest rate.

Determine what your payments can safely and comfortably increase towards and try to reach your maximum contributions for your mortgage loan repayment. Reaching your maximum contribution will allow you to save on the interest your payment would have accrued in the meantime.

Give

Giving is a big step for Dave Ramsey’s Baby Steps. As Dave Ramsey’s Financial Peace plan originated in the church, Ramsey’s program holds a heavyweight in giving, especially in the form of tithes and offerings.

No matter your religious affiliation, it’s important to give back to the community in some way. Whether you give back your time, work abilities, or financially, that is up to the individual.

My recommendation is to discover what programs are important to you and where you feel needs the most support. Want to decrease the cost of healthcare for unemployed individuals? Find a charity or organization that supports that. Want to help the homeless in your community? Volunteer your time and drop-off supplies at your local Habitat for Humanity or Food Shelter. There are many ways you can devote 10% of your income and time to give back to your community.

Need more tips from Dave Ramsey’s Baby Steps or how to start Dave Ramsey’s Financial Peace budget guidelines for your successful lifestyle? Join my e-newsletter to receive tips and advice to keep to Dave Ramsey’s Financial Peace budget throughout the month.