Dave Ramsey’s 7 Baby Steps (What to Follow and What to Throw Out)
Dave Ramsey is a prominent personal finance writer and broadcaster with a huge fan base.
Due to his loyal fan base, Dave Ramsey can just say anything with confidence.
Hence, when you’re feeling lost, a strong personality with a good opinion may seem like a godsend.
However, this article is not to criticize Dave Ramsey. Hence, some things he said were good but not all.
Thus, some of his tips should be questioned just the same way you’ll question any other opinion.
That being said, let’s have a closer look at his 7 Baby Steps to Financial Peace. It is supposed to be a guide for those trying to get their financial lives together.
Hence, in this article, we will be taking each baby step at a time. And after each step, you’ll see for yourself if Dave Ramsey is making sense or not.
Having said that let’s take it a step at a time.
Dave Ramsey’s 7 Baby Steps
Step 1: 1000 USD for your beginner emergency fund.
It can be very frustrating when all of a sudden an emergency comes up that requires some cash.
This can be very annoying. Especially when everything seems to be going well before the emergency.
Now, the whole thing falls to this simple question ‘Where are you going to get the money?’
Hence, where will you get the money to handle the emergency when you can barely meet your needs?
Here is where Dave Ramsey’s tip comes in. What you have to do is to do whatever you can to get 1000 USD.
Once you’ve gotten this money, put it in a separate account and only take from it when the need arises.
However, to raise this fund, you must examine where your money is going. Then, channel some money to raise your emergency fund.
Also, you can decide to do something that can earn you some more money. Thus, you can decide to start a side hustle or sell some of your belongings.
Hence, this is a piece of good advice and your first step in your financial life should be to build some funds.
Thus, with these funds, you won’t get frustrated when you’re faced with some emergencies.
Step 2: Using Debt snowball, Pay off all debt except the house.
Paying off your debt is also a piece of good advice for beginners who want to build their financial lives.
Hence, when you pay off your debts, you avoid paying the interest which is paying extra.
Thus, Ramsey advises you to see the debt snowball to cut your debt. In other words, it means paying off the smallest debt first.
Once you’ve paid them off, you can now move to the next which creates a snowball effect.
Although this may make much sense psychologically. But mathematically it doesn’t make sense.
Hence, you will pay more interest when you choose to use the debt snowball method.
This is because paying smaller debts only means paying off smaller interest. Whereas those huge debts with larger interest keep increasing.
For instance, Credit cards have higher interest rates than student loans. Hence, credit card debt should be paid first especially if the interest is higher.
Step 3: Build a Fully funded emergency fund of 3 to 6 months of expenses.
Well, this tip is okay. Thus having money that you can easily have access to in case of emergencies is not a bad idea.
Hence, it is a smart idea that guarantees peace of mind. So, if you can save up to 3 months of your expenses, you’re free to attend to other goals.
Step 4: Put 15% of your household income in retirement.
Saving for retirement is important, so, if you can save 15% of your household income is okay.
Hence, if you can save more of your household income for retirement is even better.
Now, this is where most people disagree with Dave Ramsey’s theory. Dave Ramsey suggests you spread your income across four mutual funds.
These mutual funds include; international, growth and income, aggressive growth, and growth
Also, Ramsey supports a more active investing plan that has proven to cost more than the return.
Hence, this is because he makes more money by encouraging his fans to use his financial advisors.
However, the better way to save for retirement is to invest 75% of your money into an S&P 500 index fund.
Then, you can decide to invest 25% of your retirement money in an aggressive growth fund.
Step 5: Save for College.
This step is for those who have kids already. Hence, he suggests you put 25% of your retirement money into an Education savings account.
Hence, he recommends the 529 Plan and the Coverdell ESA. Well, these are great ways to save for college.
This particular theory is good and I advise you to go with this particular tip, especially as a beginner.
Step 6: Pay off your home early.
I don’t agree with this theory. Especially for those trying to build their financial life as beginners.
Hence, there is a possible chance of having mortgages with a 5% interest or even less.
Thus, if you invest in stock, you can earn more depending on how you slice it. But, the stock market offers an average of 7%.
However, I advise you to put more of your money into your retirement than paying off your home early.
Step 7: Build wealth and give.
Well, there is nothing to argue about this theory. Hence, is good to build your wealth. And also give generously to those in need.
So, this particular theory is fine and okay with me.
This is a breakdown of Dave Ramsey’s Baby Steps to Financial Peace, you can now tell if is okay or not.
Hence, now that you know what the steps are, you can say if they make sense or not.
However, if you have any questions about this guide, let us know in the comment section below.
Having said that, thank you for reading!