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George,

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30 years ago, when I started teaching this
stuff, I was first teaching people how

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to get out of debt, live on a budget,
be generous, live on less than you make.

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You have a plan, you avoid debt,

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you save money for emergencies
and later for investing.

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All of those principles work, but people
kept saying, Which one do I do first?

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I started laying out, Well,
you should do this first and that first.

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You should have an emergency
fund before you start your 401k.

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Then I figured out it's easier to have

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an emergency fund if you
don't have any payments.

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So you need to get out of debt first.
Because, of course,

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I learned my lesson the hard way,
going bankrupt and getting out of debt.

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Learning how important it was to be
debt-free as a part of building wealth.

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All of that started to formulate after
a few years of teaching

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in various settings and what
became Financial Peace University.

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It used to be called Life After Debt.

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It started becoming what
we now call the Baby Steps.

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The interesting thing is that now

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the Baby Steps have gone
into the Total Money Makeover Book,

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which has sold almost 10 million copies,
and they have become the proven plan,

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the shortest distance between
where you are now and wealth.

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Where you are, if you live like no one

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else later, you can live and give
like no one else.

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What is the shortest distance?

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We need a path to run on because the way
you eat an elephant, it's overwhelming.

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Do I do my 401k with a match
or my kid's college?

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Or do I have an emergency fund?

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Or do I pay on this 18% credit card debt?

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Or, or, or, or, and nothing gets done.

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You get paralysis of the analysis,
you get frozen.

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Absolutely.
These baby steps have worked for me.

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They've worked for millions.
It's really simple.

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If you do it, they work.

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It It all starts with Baby Step One,

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having this foundation, saving $1,
000 for a starter emergency fund.

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This is just a small buffer between you

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and life before we
start tackling the debt.

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Exactly.
If you have $1,000 already, great.

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Just set that aside.
That's your Baby Step One.

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Any money you have that's not retirement,

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anything you can sell that is not
retirement, you're going to liquidate it.

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If it's not retirement,
you got some stock over here that grandpa

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left you, you got a gold
bar under your bed.

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I don't know what it is,
but you got any money that's above $1,000.

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Maybe you got $10,000 in savings account.

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That's $9,000 you got that you
don't need past Baby Step 1.

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We're going to put it all on Baby Step 2.

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Baby Step 2 is the famous one.

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That's the debt snowball where you
list your debt, smallest to largest.

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You pay minimum payments on everything

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but the little one, and you attack
the little one with a vengeance.

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Side note, Baby Step 1 should
not take you more than 30 days.

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Maximum.

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You need to work extra, sell some stuff,

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have a garage sale, put the kids on
Craigslist, whatever you got to do here.

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Let's get We're going to get busted
into this, get a thousand bucks quick.

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Baby Step Two, you should be
debt free, but your house...

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Now, you may have to sell a stupid boat.

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You may have to take an extra job.

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But most people that have followed
the total money makeover Baby Steps

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in Financial Peace University
are debt-free inside of two years.

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Yeah, and that's doing it with some

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gazelle intensity like you talk
about in Financial Peace University.

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Once you pay off all that debt,
now you've freed up all those payments.

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You have that income back in your life.

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Think about what it would be like to have
no payments It's about a house payment.

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Wow.
We're breathing easy.

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Then we can move on to Baby Step 3,

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where we save 3-6 months of expenses
in a fully-funded emergency fund.

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This is the final buffer where we say

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we're never going back into debt
because we are the bank now.

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Yep.
Grandma's Raining Day fund.

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Why?
It's going to rain.

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Dave, you need to be positive.
I'm positive.

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It's going to rain.

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You need to be ready when crap happens.

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There's a pandemic coming
around every corner.

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There's something coming.
If you have $20,000 cash in the bank,

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3-6 months of expenses, whatever it is,
and you have no payments,

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you are the third pig
and the three little pigs,

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the one that's in the brick house
when the big bad wolf comes.

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You're ready for life.
You're ready to go.

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Now you're ready to build wealth.

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But you just now You've
gotten up to ground zero.

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You've just now gotten up to even.

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When you have that emergency fund

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and you're debt-free,
now you're ready to build wealth.

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In Baby Step 4, you put 15% of your income

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aside into good growth stock
mutual funds in retirement plans.

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Start where there's a match.

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Beyond the match, always do Roth.

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If you've exhausted Roth and match

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and still are not to 15%,
then go on to a traditional 401k or IRA.

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But do Roths before traditional
and do match before Roths.

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It's mathematically in your
favor to do that up to the 15%.

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Don't do 20%, don't do 11%, do 15%.

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While you are doing Baby Steps 4,

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you're also going to be doing
five and six simultaneously.

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Absolutely.
Baby Step 5 is where we're saving for our

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children's college fund, and this is
going to look different for everyone.

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There's no set number here because
it really depends on your situation.

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Did you have the baby last
week or is the baby 18?

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That makes a difference on how
much you need for college, right?

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What you got to do for college.

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Is this an oh, crap moment or, Hey,
we're going to be diligent and safe?

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Did we wait almost until too late?

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Now, they have to go to college debt-free.

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They cannot participate in this epic

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student loan system failure
that is called America right now.

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It is horrible out there.

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Do not let your kids go in debt.

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You do not have to go to debt.

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Go to community college
for free for two years.

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Go to in-state school,
work six jobs, get scholarships.

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Our student loan problem
is a parenting problem.

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Mom and dad let kids sign up
for crap they couldn't afford.

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Bad mama, bad daddy.

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They got to have the conversations.
That's where it starts.

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There's a reason you say Baby Step 4,
invest for yourself before for the kids,

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because there's 100% chance
you're going to retire.

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There's a 50/50 chance or less these days
that your kid is going to go to college.

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And graduate.
Yeah.

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Yeah.

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This is less than 50% chance
they're going to graduate.

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This is important.

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While you're doing 15%,
you do whatever you need to do for your

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kid's college, whatever you decide
to do for your kid's college.

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Beyond that, if you can find any money,

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you do that on baby step 6,
and that's pay off your house.

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Start chunking on the house.

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Now, when you're in one through three,

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you are so intense,
your friends are freaking out.

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Your grandmother thinks
you need counseling.

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You are gazelle intense like
a gazelle running from a Cheetah.

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When you're in four through seven,
you're not intense anymore.

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You are now intentional.

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You're just doing it on purpose,
but you're no longer on beans and rice.

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You're on beans and rice, rice and beans,

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scorched earth on one through three
till you get those three things done.

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Now, get that house paid off.

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The average person following this stuff is

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paying off their home
in about seven or eight years.

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Now, that tells us that the whole
program is taking about 10 years.

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The average Baby Steps Millionaire,

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the average everyday millionaire
that we've studied,

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we're finding them become a millionaire
from the time they start with intensity,

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followed by intentionality, become a
millionaire in about 10 and a half years.

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11.
2 years, 10.

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6 years are the two numbers
we keep running into.

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So this is completely possible.
Yeah.

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And once you pay off that house,

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it's time to build wealth and give
outrageously in Baby Step 7.

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That's where it ends.
Yeah.

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You will be a millionaire shortly after

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your home is paid for if
you don't at that moment.

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And then you continue to build wealth

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and you raise your generosity,
and you continue to build wealth,

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and you raise your generosity,
and you enjoy the money at that point.

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That's where it gets fun.
You're giving it away.

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These are the only three things you can do

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with money, and you should do
all of them at Baby Step 7.

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That's the route you're going.

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That's where you are, that's who you are.

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That is the Baby Steps.