Dave Ramsey's Baby Steps - The South African Version

•8 min read

Dave Ramsey's Baby Steps have helped millions of people get out of debt and build wealth. But let's be real - the dude is American, and some of his advice doesn't quite translate to our South African reality.

So I've adapted his 7 Baby Steps for us South Africans. Same principles, but with Rands instead of Dollars and strategies that work nicely with our tax laws and investment options.

Baby Step 1: Save R20,000 for Your Starter Emergency Fund

Dave says $1,000. We like round numbers, so converting to Rands and rounding it up gives us R20,000.

Why R20,000?

R20,000 gives you breathing room for most unexpected expenses without going into debt.

Where to keep it:

  • High-interest savings account (Capitec, TymeBank, Discovery Bank)
  • Money market fund
  • NOT in investments - you need instant access

This is your "I'm not going back into debt" fund. Once you have it, move to Baby Step 2. We come back to growing this more in Baby Step 3.

Baby Step 2: Pay Off All Debt (Except Your Home Loan)

Use the debt snowball method:

  1. List all debts smallest to largest (ignore interest rates)
  2. Pay minimum on everything except the smallest
  3. Attack the smallest debt with everything you've got
  4. Once it's gone, roll that payment into the next smallest
  5. Repeat until you're debt-free

What counts as debt:

  • Credit cards
  • Store cards (Edgars, Woolworths, Mr Price, etc.)
  • Personal loans
  • Car loans
  • Student loans
  • Owe money to family/friends

What doesn't count:

  • Your home loan (we'll get to that later)

Why smallest first? Quick wins = motivation. Math says do highest interest first, but psychology says you need those victories to stay fired up.

This step can take months or years depending on your situation. Stay intense, stay focused.

Baby Step 3: Build 3-6 Months Emergency Fund

Now that you're debt-free (minus the house), it's time to fully fund your emergency fund.

How much exactly?

Calculate your essential monthly expenses:

  • Rent/bond repayment
  • Utilities (electricity, water, internet)
  • Groceries
  • Transport/petrol
  • Insurance
  • Medical aid

Multiply that number by 3-6 months. That's your target.

Where to keep it:

  • Same places as Step 1
  • Split between instant access (savings account) and slightly higher return (money market)
  • Still NOT in the stock market

Why 3-6 months?

  • Job loss protection
  • Major car repairs
  • Medical emergencies
  • Appliance replacement
  • Unexpected home repairs

This fund buys you peace of mind and time to make good decisions when life happens.

Baby Step 4: Invest 15% of Income for Retirement

Here's where it gets South African. Dave says invest 15% into retirement accounts. But we've got TFSAs and Retirement Annuities with their own quirks.

The South African Strategy:

1. Max your TFSA first (R36,000/year = R3,000/month)

Your TFSA is incredible:

  • Zero tax on growth, dividends, and withdrawals
  • Flexible - can access if desperate (but don't!)
  • R500,000 lifetime limit
  • Use the TFSA Calculator to track your progress

2. Then contribute to your Retirement Annuity (RA)

After maxing the TFSA, dump the rest of your 15% into an RA:

  • Tax deduction up to 27.5% of income (max R350,000/year)
  • Locked until 55 (can't touch it)
  • Forced offshore exposure limits
  • Great for tax savings

Example: You earn R40,000/month (R480,000/year)

  • 15% of income = R6,000/month (R72,000/year)
  • TFSA contribution = R3,000/month (R36,000/year)
  • RA contribution = R3,000/month (R36,000/year)
  • Tax benefit on RA = ~R810/month saved in tax (assuming 27% tax bracket)

Where to invest it:

TFSA:

  • Open with Easy Equities
  • Go 100% global equity ETFs (S&P 500, MSCI World)
  • Your RA will already have SA exposure

Retirement Annuity:

  • Easy Equities

     (my top pick - low fees, easy to use)
  • Choose aggressive growth if you're under 50

Baby Step 5: Save for Your Children's University Fund

If you have kids, now's the time to start saving for their tertiary education.

Open a regular brokerage account with Easy Equities and invest in a diversified ETF portfolio. Keep it simple - a low-cost global or SA equity ETF will do the job.

How much?

  • University degree: R60,000 - R150,000 per year
  • 4-year degree: R240,000 - R600,000
  • Start with at least R1,000 - R2,000/month per child

Bare in mind that the cost of a university education generally goes up more than inflation, so you'll need to save more than you think.

Important: Don't open a TFSA in your child's name for education savings. TFSAs are way too valuable for long-term wealth building to blow on university fees. Use a regular taxable brokerage account instead - you don't want to rob your child's best wealth building tool.

Don't sacrifice your retirement for their education though.

Baby Step 6: Pay Off Your Home Loan Early

Now comes the controversial one. Pay extra on your home loan.

The Arguments:

For:

  • Guaranteed return = your interest rate (10-12%)
  • Psychological freedom of owning your home
  • No monthly bond payment in retirement = heaven

Against:

  • Could invest in the market for potentially higher returns
  • Home loan interest is your only tax deduction
  • Money locked in house = not liquid

My take: Do both! Keep investing a bit while paying extra on the bond. Maybe 70% extra bond payments, 30% extra investments.

How to do it:

Option 1: Pay extra monthly

  • Even R1,000 extra per month can cut years off your loan
  • Use the Home Loan Calculator to see the impact

Option 2: Annual lump sum

  • Take your tax refund, bonus, or 13th cheque and throw it at the bond
  • Most banks allow one big payment per year without penalty

Example:

  • R1.5 million bond at 11% over 20 years
  • Normal payment: R15,500/month
  • Add R3,000/month extra
  • Result: Paid off in 12 years, save R800,000+ in interest

Baby Step 7: Build Wealth and Give

You've made it! No debt, fully funded emergency fund, investing 15%+, kids' education sorted, house completely paid off.

Now you can:

Build serious wealth:

  • Invest beyond the 15%
  • Buy investment properties
  • Start a business
  • Max out all tax-advantaged accounts
  • Build a portfolio in a taxable brokerage account

Give generously:

  • Donate to causes you care about
  • Help family members
  • Sponsor education for others
  • Leave a legacy

Live a little:

  • Upgrade your lifestyle (within reason)
  • Travel without guilt
  • Enjoy the fruits of your discipline

The South African Baby Steps Summary

  1. R20,000 starter emergency fund 🏃
  2. Pay off all debt except home loan 💳
  3. 3-6 months fully funded emergency fund 🛡️
  4. Invest 15% for retirement (TFSA + RA) 📈
  5. Save for kids' university 🎓
  6. Pay off home loan early 🏠
  7. Build wealth and give 💰

Common Questions

Do I really need to do them in order?

Yes! Each step builds on the last. Don't invest for retirement while in credit card debt. Don't save for your kids' university while you have no emergency fund.

What if I'm behind on my age?

Start wherever you are. 40 and still in debt? Start with Step 2. 50 and no retirement savings? Steps 3-4 become your obsession. It's never too late to start.

Can I skip the emergency fund and just invest?

No. Murphy's Law says the moment you have no emergency fund, your car will break down, forcing you to sell investments at a loss or go into debt. The emergency fund protects your investments.

What about my company pension fund?

Count it toward your 15%! If your employer contributes 5%, you only need to add 10% more to hit 15% total.

Final Thoughts

These Baby Steps aren't sexy. They're not a get-rich-quick scheme. But they work.

They work because they're simple, focused, and play on human psychology. You get quick wins (R20k emergency fund), experience freedom (debt snowball), and build momentum (3-6 months saved).

South Africans face unique challenges - high interest rates, volatile currency, load shedding, political uncertainty. But these principles work regardless.

Start with Step 1 today. R20,000 might seem far away, but if you save R1,000/month, you'll have it in 20 months. That's less than 2 years to completely change your financial trajectory.

Ready to start? Check out the Income Tax Calculator to see how much you're really taking home, then figure out how much you can save each month.

Disclaimer: This is not financial advice. These are general principles adapted from Dave Ramsey's Baby Steps for a South African context. Always do your own research or consult with a qualified financial advisor before making financial decisions.

Want to learn more about South African investing? Check out my post on Understanding Tax-Free Savings Accounts.