Dave Says: Where Do Toys Fit in the Baby Steps?

by | Jan. 03, 2012


Dear Dave,

When is it okay to have a little fun and get a boat or a motorcycle when you’re doing the Baby Steps?


Dear Jennifer,

I always recommend that folks complete the first three Baby Steps before running out to buy a bunch of toys. Baby Step 1 is to save up $1,000 in the bank for a starter emergency fund. Baby Step 2 is to pay off all your debts, except the house, using the debt snowball method. Then, on Baby Step 3, we go back and fully fund the emergency fund to contain three to six months of expenses.

After you’ve gotten this far, it’s okay to have a little fun and save up for a toy. But don’t forget about Baby Step 4, which is putting 15 percent of your income into pre-tax retirement plans, like mutual funds and Roth IRAs. Don’t neglect saving for college, either, if you have kids. That’s Baby Step 5.

Baby Steps 6 and 7 are paying off the house early and building wealth and giving. Everyone likes having fun, and there’s nothing wrong with a few toys if you an afford them. Just make sure you don’t sacrifice your financial health for the shiny things!


For more financial help, please visit daveramsey.com.

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