When I read the Total Money Makeover by Dave Ramsey, I knew going through all of the 7 baby steps could take quite a while. 

The book’s structure of saving money, paying off debt and investing was simple and easy to understand, but it had some years attached to it. This was not a “get rich quick book” for sure. 

Nevertheless, I was intrigued and inspired to follow all the way through Dave Ramsey’s Baby Step 7 and see where it took me and my new family.

10 years and two kids later, our family has become debt-free, mortgage-free, and millionaires. It is safe to say that this book was extremely beneficial to my family’s financial future. 

I’m thankful to have found the book and the charismatic and inspiring author who wrote it.

But after the mortgage is paid off and we hit baby step 7 … What do we do then?

Baby Steps 8, 9 and 10

Instead of waiting for Dave Ramsey’s next new book to come out, I decided to create my next three baby steps. That would get me to the magic number 10. 

The beauty of Dave Ramsey’s first 6 baby steps is they are very goal-oriented. Each step is specific and measurable. For example, Baby Step 1 instructs you to save $1,000 in an Emergency Fund. Baby Step 6 encourages you to completely pay off your mortgage. Very specific and easily measurable.

I’m going to try to use the same specificity and measurability with my made-up Baby Steps 8, 9 and 10.

Baby Step 8:  Max Out Tax-Favored Retirement Accounts

Up until this point in Dave Ramsey’s Baby Steps, he’s told his readers to invest 15% of their income in tax-favored retirement vehicles. In my humble opinion, Baby Step 8 is an excellent time to max those out to get their full benefits.

401k, 403b and 457 Plans

The annual contribution limits for a 401k, 403b and most 457 plans is $23,000 in 2024. If you have a fully-funded emergency fund and you’re completely debt free, it is time to max this baby out!

That being said, if your place of work has garbage investment options with low returns and high fees, this could be a whole different story.

At my previous place of work, we had index fund options with low fees. Additionally, my employer provided a 15% match on 100% of our contributions. So, if I invested $19,000 and the match was 15%, I got $2,850 additional that year. 

Free money = awesome! 

In a situation like mine, it made complete sense to max out the 401k annually.

If your situation is not as favorable, talk with your workplace 401k plan manager about including some index funds and matching retirement benefits in the future. If you get an unfavorable response, no worries. Move on to maxing out the IRA.

Traditional IRA and Roth IRA

Let’s say we’ve maxed out our 401k plan because it has a favorable match and the investment options are solid. Now what?

Next up would be to contribute the maximum contribution level to a Traditional IRA or Roth IRA. Total allowed IRA annual contributions in 2024 are $7,000 if you’re under 50 and $8,000 if you’re over 50. 

With Traditional IRAs, you are eligible to receive a tax deduction when you make the initial contributions. Roth IRAs allow you to avoid paying taxes when you withdraw your money because you paid those taxes from the start. Either option helps immensely in reducing your tax burden to Uncle Sam.  

Given our situation, I moved on to fully fund my Roth IRA. We were under the income limits and I developed a solid portfolio that is generating excellent returns with low fees.

If you’re married, talk with your spouse about doing the same thing. This way, if you’re under 50, you’re contributing $12,000 per year into tax-favored accounts!

Health Savings Account (HSA)

Health Savings Accounts (HSAs) also have similar tax-favored benefits that are highly attractive. I didn’t have the option at my office, but I did sign up for mine through Lively.

These HSAs pack a triple tax benefit. 

1. You can contribute pre-tax (if you’re signed up for an HSA through your employer) or your contributions are tax-deductible if your employer doesn’t have an HSA option (like my previous employer). 
2. Funds inside an HSA grow tax-free!
3. If you use the funds for qualified medical expenses, the funds can be withdrawn tax-free.

Down with you, taxes!!

Baby Step 9:  Achieve Coast FIRE

When can I stop investing for retirement?

The answer is our Baby Step 9 which is called Coast FIRE!

Coast FIRE is when you have enough invested in your retirement accounts that you can decide to drastically slow down or completely stop new contributions and still retire comfortably in your 60s. 

Our family hit Coast FIRE recently after saving up $550,000 in tax-advantaged retirement accounts before 40 years old. If our family simply did not add another dime to our $550,000, with a conservative 7% growth rate, we could expect to have around $3 million by the time we retire at 65. Check out our free Coast FIRE Calculator to see if you hit Coast FIRE already!

Will we be stopping retirement contributions completely?

Not necessarily, but we’re sure glad we have the option to slow things down after saving and investing nearly 50% of our income for 10 years straight. 

We will more than likely take advantage of employer 401k and HSA matches going forward but outside of that, we’re done investing for retirement. 

What else can you do with the money then? 

Well, there are two different pills you can take here …

1. FIRE to YOLO:  Relax and enjoy more life today with family and friends. Instead of hyper-saving and potentially dying with a pile of cash and investments, use more of your money to maximize your life experiences and create incredible memories with the ones you love. 
2. Baby Step 10:  Continue building your legacy and wealth for generations to come. Your hard work and dedication can change the direction of your family tree as well as the causes you believe in most. 

For the first pill, check out how our family went from 50% to 10% savings recently and why we’re happy saving less. 

For pill #2, let’s move on to fake Baby Step 10!

Baby Step 10:  Develop Your Passive Income

At this point, you’re debt-free, mortgage-free and you’ve hit Coast FIRE and hopefully still making a decent income. If you want to accelerate things and go after some BIG dreams like a career change, early retirement, or an upgrade in your overall lifestyle, you’re going to need to increase your income.

If you’re like me and you don’t have a ton of extra time, passive income through buy-and-hold rental real estate or a taxable brokerage account can be a great way to go.

Perhaps time is on your side. Looking into a profitable small business can do wonders for your overall household income.

Rental Real Estate

This is a topic I’ve explored a lot. 

Through some interviews on my weekly podcast, I’ve learned that you can get in the rental real estate game by getting a mortgage or buying with cash (Dave Ramsey's favorite). 

If you go through the cash route, you’ll have to save for quite a while, but if you’re used to the Dave Ramsey “crockpot” methodology then waiting and saving shouldn’t affect you too much.

Once you’re able to secure your first property and those monthly rent checks start to come in, you’ll have a consistent and secure passive income source. 

Yes, you’ll need to play landlord or hire a property management company to support you, but either way, you now have that coveted second income source that gets you closer to your big dreams.

If you don’t want to do the landlord thing, check out these options for investing in real estate the minimalist way. 

Brokerage Account

Once you’ve exhausted your tax-favored accounts, you could look into a taxable brokerage account. I’m a big fan of Vanguard because of their transparency and ability to provide a boatload of low-cost investment options. 

If early retirement is your game, you could consider an option like Target Date Funds. These investment options allow you to pick a specific year for your early retirement, invest consistently through dollar-cost averaging and “set it and forget it”. If you’re partnering with a low-cost brokerage partner like Vanguard, you’ll find these investment vehicles have decently low fees which allow you to retire earlier.  

Alternatively, you can create and manage your own portfolio of diversified investments or work directly with an advice-only Certified Financial Planner. Nectarine has professionals with a variety of specialties available to support you.

Small Business

Building your passion around a small business idea can be an excellent way to increase your joy and increase your income. I'm motivated by the hundreds of online business entrepreneurs I’ve spoken with who have developed a solid income by starting a blog, promoting their services and selling products.

Small business development does take time, patience, and a whole lot of hard work to become successful. If you have spare time and the will to succeed, dip your toes in and see how the entrepreneurial water feels.

A few years ago, I decided to take this entrepreneurial leap full-time. I quit my job at 38 years old and decided to be a family finance coach. So far, I’m absolutely loving it! I work 20-30 hours per week and have more time to enjoy life.

There are disadvantages to entrepreneurship, but there are plenty of advantages too. 

The Final Destination:  Bring In More Passive Income Than Your Expenses

We’re talking specific and measurable, right?

The final destination of all of these baby steps would be to generate enough passive income to completely cover your annual expenses. 

This consistent passive income stream would allow you the freedom to change careers, retire early or dedicate more time to causes and hobbies that bring you the most joy.  

Passive Income Example

Let’s say Justin and Jenna are earning $100,000 from their full-time jobs. Justin likes his job, but he isn’t positive his position is secure. The company, XYZ Interactive, has been going through some leadership changes recently. With the corporate shake-up, XYZ’s clients are leaving left and right.

Luckily for Justin and Jenna, they have gone from Baby Step 1 all the way through Dave Ramsey’s Baby Step 7, and they've completed Baby Steps 8,9 and 10 as well. They've built up enough passive income through their brokerage account to net $30,000 annually using the 4% rule. And his web development side hustle has allowed him to earn $40,000 per year in “happy active income”. Since Justin and Jenna are big savers and squirreled away 50% of their income annually, their expenses are only $60,000.

Their passive income and “happy active income” of $70,000 exceeds their annual living expenses of $60,000! Ding, ding, ding! They win the game of financial independence.

Essentially, Justin would be covered if there happened to be a “downsizing” at XYZ. If Justin didn’t get along with XYZ’s new management and he wanted to start his own web development firm, he would be well-positioned to do so.

Justin and Jenna's dedication to saving, staying out of debt and investing has provided them the ability to live their life on their terms.

Final Thoughts on Life After Dave Ramsey's Baby Step 7

Dave Ramsey's 7 Baby Steps creates a fun, easy-to-follow way to conquer the mountain of financial independence, but it might not be for everyone. I've spoken to millionaire entrepreneurs who have built their businesses using debt or their real estate empire by leveraging properties. There's nothing wrong with that. Building a business with debt works for them and that method has brought them tons of financial success.

Personal finance is just that … it's personal. Not everyone's situation fits perfectly into 7 steps (or 10 for that matter). 

Do what's best for you and your family. Your true contentment, personal satisfaction, and ability to follow your life's passion are the true measures of financial success in my book.

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What would life look like for you after Dave Ramsey's Baby Step 7? What do your Baby Steps 8, 9, and 10 look like?

Please let me know in the comments below.

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