Our thoughts on the Dave Ramsey “Baby Steps”
We like 98% of what Dave recommends. A few issues with his organization keep us from that last 2%. It’s important to have a financial plan to follow, even if it’s a boilerplate from a radio host.
Have you heard of his baby steps? Let’s review them:
https://www.ramseysolutions.com/dave-ramsey-7-baby-steps
Step one:
Save $1000 for your emergency fund.
Our take: Good start. Maybe $2500 or so depending on your expenses would be more appropriate in 2022.
Step two:
Pay off all debt except the home mortgage, using the debt snowball method.
Our take: Mostly agreed here. The average American or Westerner is carrying credit card and auto debt that should be paid off. Perhaps the student loan payoff should wait (in this political climate). Debt Snowball: The snowball method says you pay off the smallest loans first, following up to the larger loans, regardless of interest rates.
Step three:
Save three-six months of an emergency fund.
Our take: To clarify, three to six months of bare-bones expenses, not six months of gross salary. This would be to cover unemployment or unexpected medical bills.
Step four:
Invest 15% of your income in retirement.
Our take: We like it. In some cases, it may be through a workplace 401(k) or an IRA. We might move this step earlier if you could start getting an employer match.
Step five:
Save for your children’s college fund(s).
Our take:
This is too early. Maybe it’s time to start the fund, but not to funnel all your remaining cash here. There are scholarships and grants for young people looking to go to college. Heck, maybe their loans won’t even have to be paid back! There are no scholarships for 70+-year-olds in retirement who can’t pay their bills. You did start saving 15% in step four, so you probably won’t be poor in your 70s, but this baby step doesn’t ask how old you were when you started your retirement savings and how much time you have until retirement.
Step six:
Pay off your home mortgage.
Our take:
Finally! This is pretty late in the process to make extra payments. Honestly, we are surprised that Dave put this so late since he is so against debt. We would start doing this in step five.
Step seven:
Build wealth and give.
Our take:
Great! We love it. Manage the nest egg well and make sure to give back to the community or family or religious institutions you favor. Travel or improve your homestead or get a second home.
Final thoughts: The “baby steps”, or similar action plans, are an important part of any personal finance plan. Most of Dave’s competitors have money steps or gears—maybe we’ll have our own one day. As bloggers, we have to give advice that is generic, and this template is a great place to start. But ultimately it is your personal finance, not ours. We encourage you to look at this as a guideline or template, not as a rigid plan or one that was written with your exact scenario in mind.
What do you think of the baby steps?
Excellent “game plan” for financial planning success”. Thank you for the good thoughts!!!