Without a doubt, Dave Ramsey has his devoted fans. His 7 Baby Steps have revolutionized the personal finance world, benefiting millions of people. However, this has also led to a lot of criticism. In fact, many say Dave Ramsey’s 7 Baby Steps are outdated.
But is this really true? Somehow, I don’t think so. I’ve taken a lot of time to comb through some of these online articles to see what they say.
What I found is that many of them make assumptions about Dave Ramsey’s 7 baby steps. I even found one particularly harsh article that said they never “wasted their time” reading one of his books.
It just goes to show that many people only take what he says in snippets. As a result, they fail to look at what he says in full context.
Spoiler alert: I fully believe and endorse Dave Ramsey’s Baby Steps. Not only for what his philosophy has done for my finances, but also how I’ve seen him help others.
We’re going to take a deeper look at Dave Ramsey’s 7 Baby Steps. We’ll also look at some of the complaints and my response to them.
But first, a couple of resources for you!
The Total Money Makeover is Dave Ramsey’s definitive book! If you want to learn about Dave Ramsey’s 7 Baby Steps from the man himself, this book is how you do it!
And of course, I’ve written my own free resource for you as well! If you enter your email below, I’ll send you my FREE 23-page eBook on how to get out of debt!
Now, let’s take a look at Dave Ramsey’s 7 Baby Steps!
A Review of Dave Ramsey’s 7 Baby Steps
First, some of you may not be familiar with Dave Ramsey’s 7 Baby Steps.
Essentially, Dave’s steps revolve around getting rid of your debt and building your wealth. And no, this is not a get-rich-quick scheme. It takes years of diligence to become successful using the Baby Steps.
Here’s a quick rundown:
- Baby Step 1: Build up a $1,000 starter emergency fund.
- Baby Step 2: Pay off all debt except your mortgage using the Debt Snowball Method.
- Baby Step 3: Build up a fully-funded emergency fund of 3-6 months of expenses.
- Baby Step 4: Invest 15% of your gross income into retirement.
- Baby Step 5: Invest in your kids’ education.
- Baby Step 6: Pay off your mortgage early.
- Baby Step 7: Build wealth and be outrageously generous.
And there you have it! Simple, easy to follow, and highly effective.
How Do Dave Ramsey’s 7 Baby Steps Work?
Basically, you do the first three Baby Steps with what Dave refers to as “gazelle intensity.” In other words, you’re making every attempt to run as fast as possible away from your debt.
That means extreme sacrifices for a period of time. For example, you cut your grocery budget down to practically nothing, cut up your credit cards, avoid eating out, skip the vacations, and more.
After you get out of debt, you can slow down and begin to enjoy your life.
Also, the first three Baby Steps are the only ones you do sequentially. That means you do them one at a time. You do Baby Steps 4-6 simultaneously, and Baby Step 7 is more of a state of being.
A Few Things Dave Wants You to Do That You May Not Like
Without a doubt, people know Dave Ramsey for his intensity! Indeed, he advocates for some pretty extreme things to help you get out of debt quickly.
However, some of the things he says rub people the wrong way. So, before we get into the complaints people have about the Baby Steps, let’s talk about some of the other things he says.
Dave Hates Credit Cards
One thing Dave Ramsey will never tell you to do is get a credit card. In fact, he hates credit cards with a passion. During his live events, he even performs “plastic surgery” and has people come forward to cut up their credit cards.
The Complaint: Many people say that credit cards, if used wisely, can be beneficial. They help build credit, and can provide some great rewards if you pay off the balance ever month. Dave Ramsey’s view of credit cards is borderline extremist and irrelevant to today’s consumer.
My Response: I’m actually not a fan of credit cards, either. Here’s why: I was the guy who paid off his credit card faithfully every month. Until one month I didn’t. Then I found myself staring down thousands of dollars in credit card debt.
In reality, credit cards teach you that borrowing money is okay. As a result, it feels more natural to get a payday loan, a car loan, or any other kind of loan.
Are there people who use credit cards responsibly? Sure there are. But you can’t deny that credit cards have made it easier for millions of Americans to go into debt.
As for me, giving me a credit card would equate to giving an alcoholic a drink. And no, my reward points didn’t come close to making up for the interest I paid.
Dave Wants You to Pay Off Debt with Intensity
When you first start working Dave Ramsey’s 7 Baby Steps, you do it with intensity. That means Dave wants you to cut out the restaurants, pick up extra jobs, and use every penny you have to knock out your debt.
That means you build up your starter emergency fund quickly. After that, you start working your debt snowball with intensity. Finally, you build up that emergency fund of 3-6 months of expenses with fervor.
The Complaint: A common one I hear is that no one can live with that kind of intensity their whole lives. Sacrificing time with friends, family, and never eating out again wouldn’t make life worth living. No one would do that every time they go into debt!
My Response: I think you misunderstand Dave’s plan. You don’t live your whole life with a crazy level of intensity. It’s just until you pay off your debt and build up your emergency fund.
Dave himself says it’s time to take your foot off the gas once you have your 3-6 month emergency fund. For most people, Baby Steps 1-3 can be done within 2-3 years.
“But that’s a long time to have no life!” You want some cheese with that whine?! Here are the facts: getting out of debt doesn’t happen by accident. You have to decide when the cycle ends.
As for my wife and I, we resolved never to borrow money again. That means no debt for cars, TVs, or any other toys. And no, we don’t feel like we’re missing out. On the contrary, we feel quite free without any monthly payments!
Dave Wants You to Stop All Investing Until You Get Out of Debt and Have an Emergency Fund
This is perhaps the most controversial one. But if you have debt, Dave wants you to stop all contributions to retirement. The idea is you can use the extra cash flow to accelerate paying off your debt and build up your emergency fund.
And yes, he wants you to stop even if you get a match at your company.
The Complaint: We’ll miss out on company matches as well as compound interest! We can just use other money we have to get out of debt.
My Response: For this, you’ll really have to think through your long-term goals. You’ll also need to take a good look at your financial situation and see how much debt holds you back.
I know for me, my debt hindered me in many areas. It hindered my ability to give, to invest, and to do what I wanted with my money.
As such, it was worth it to stop investments for a time to knock out my debt. Now I can invest more, give more, and we have more cash flow to do what we want!
Examining Dave Ramsey’s 7 Baby Steps
Now that we’ve looked at some of Dave’s unpopular opinions, let’s dive a little deeper into his Baby Steps. In this section, we’ll examine each of Dave Ramsey’s 7 Baby Steps and talk about common complaints.
We’ll also find out whether or not Dave’s program is in desperate need of upgrading. As such, I’ll give my perspective on each of the Baby Steps and how they’ve affected my life.
Baby Step One: Save $1,000 in a Starter Emergency Fund
This is where the intensity starts! In Baby Step 1, Dave says to save up $1,000 as quickly as you can as a starter emergency fund.
The Complaint: Many people say $1,000 isn’t nearly enough to keep as an emergency fund. In fact, most emergencies will cost you more than $1,000. Therefore, many people recommend that you save up $2,000 or one month’s expenses as your starter.
My Response: Of course $1,000 isn’t enough! But even Dave says this isn’t enough in the long run. The idea here is that you’ll use any extra money towards paying off your debt quickly.
The thing is, Dave isn’t advocating that you always have $1,000 as your emergency fund. If you do his program correctly, you’ll pay off your debt within 2-3 years. You can have a smaller emergency fund for a short period of time while paying off debt.
Also, I want you to consider that 69% of Americans have less than $1,000 in savings. Y’all, that’s absolutely shocking. If you manage to get $1,000 in an emergency fund, then you’re doing better than 69% of Americans.
Is Baby Step 1 Outdated?
No, I don’t believe so. With the majority of Americans not even having $1,000 in savings, I believe Baby Step 1 to be a great place to start.
Also, I’ve had several minor emergencies in the past few years. None of them have cost me more than $1,000.
Baby Step 2: Eliminate All Debt Using the Debt Snowball Method
This right here is perhaps the most well-known of Dave Ramsey’s 7 Baby Steps. People know Dave for his intense hatred of debt. And this is where you knock it out!
Just in case you’re unfamiliar with the Debt Snowball Method, here’s a quick review. You order your debts from smallest to largest, regardless of the interest rate. After that, you attack the first one with all the extra money you can muster while you pay the minimum on everything else.
Then you just keep going until you pay off all your debt!
The Complaint: One of the biggest complaints is a mathematical one. Mathematically, it makes more sense to pay off the largest interest rates first. They call that method the debt avalanche method.
My Response: Boy, you need to listen to Dave Ramsey more! When Dave first started, he actually taught people to use the debt avalanche method. Why? Because the math nerds are right. Mathematically, you will save more money using the avalanche method.
But Dave started to notice that people faltered and couldn’t stick to the plan very well. He decided to try the debt snowball method, and the change was night and day. More people stuck with the plan using the debt snowball method over the debt avalanche method.
Personal finance has a lot more to do with your behavior than it does with math. Sure, math plays a part. But your motivation is what will get you through tough things like paying off debt.
Is Baby Step 2 Outdated?
Definitely not! In fact, there’s even research that supports using the debt snowball method as the best strategy for paying off debt.
Baby Step 3: Save Up 3-6 Months of Expenses in an Emergency Fund
The is the final Baby Step that you do with intensity. Dave advocates for saving up 3-6 months of expenses. You keep these funds in a high-yield money market or savings account. That way, you can access the funds with little trouble when the time comes.
The Complaint: There are those who say your emergency fund loses you money. You miss out on the opportunity to invest your money if you just leave it in a money market or savings account. Also, there are even some who say 3-6 months of expenses isn’t enough. After all, some people stay unemployed for longer than 6 months.
My Response: People always find something to complain about, don’t they? Your emergency fund is NOT an investment. It’s insurance to protect you whenever Murphy comes to visit.
What’s really strange is when most people complain about Dave Ramsey, they attack his “what if” attitude. For example, if you have a lot of debt but live well, Dave says, “What if you lose your job? Then you’re in a heap of trouble!”
Funny enough, these same people who attack Dave’s “What if” scenarios often reply to this Baby Step with their own “What if.” What they say is, “What if you can’t find employment for 6 months?”
Are you really just not going to do ANYTHING for six months? The only time that should happen is if you injure yourself and physically can’t move around! Not only that but in today’s world, there are tons of ways to make extra money.
Is Baby Step 3 Outdated?
Once again, this Baby Step holds up. Most Americans don’t have this in an emergency fund. If anything, the pandemic of 2020 has shown the need for an emergency fund.
Baby Step 4: Save 15% of Your Gross Income in Retirement
Now is the time to take your foot off the gas and relax a little bit. You’ll still want to be intentional, but you no longer have to be so freaking intense.
At this stage, you’ll want to take advantage of company matches, if you have one. Also, investing 15% leaves room in your budget for other financial goals.
If you invest well, you could see returns around 10-12% (and in some cases, even higher).
The Complaint: Investing 15% isn’t enough to retire early! You can’t get the returns Dave says you’ll get! This will cause people to underinvest! Dave should encourage people to start their own businesses and be financially independent!
My Response: Oh boy. Where do I start? First, the vast majority, and I mean VAST majority, of people will not retire early.
Let me ask, what’s the goal with retiring early? For some, it just means they can pursue their passions more. But for others, it means they just don’t want to work anymore. That sounds pretty boring to me.
Second, Baby Step 4 is less about the returns you’ll get and more about you just investing. After all, the average American barely contributes 7-8% of their income into retirement. In that case, Baby Step 4 should help you jumpstart your retirement.
Finally, Dave does have resources for people who want to start their own businesses. It’s called EntreLeadership. But once again, most people won’t start their own business. Nor should they!
Also, saying Baby Step 4 needs to focus on starting your own business is kind of silly. The point of the Baby Steps is not to focus on businesses. And even if you have your own business, it still doesn’t change the Baby Steps!
Is Baby Step 4 Outdated?
Nope, definitely not. Most Americans still don’t contribute enough money to retirement. Until they do, Dave Ramsey’s 7 Baby Steps hold true.
Baby Step 5: Invest for Your Kids’ Education
This step is in conjunction with Baby Steps 4 and 6. In this step, you start finding ways to invest for your child’s education. That can be through a 529, ESA, or any other way you can think to invest.
The Complaint: College is so expensive that it has become prohibitive. Therefore, we need to take out student loans. You can’t save up for your child’s education unless you have A LOT of money.
My Response: What’s interesting about this Baby Step is that it’s optional. That’s right! It’s not immoral to not pay for your child’s education. Or maybe you don’t even have kids.
However, I personally want to make sure my children have what they need to succeed. I want them to be better than me, so I plan to save up and pay for whatever schooling they need.
But if we can’t afford a four-year college at first, we’ll turn to community college. We’ll also try for as many scholarships as we can. And you can bet that I’ll start investing as soon as my kids come into this world!
And yes, you can totally pay for college without student loans.
Is Baby Step 5 Outdated?
No way. There are plenty of steps you can take to help your child pay for college. Also, your child doesn’t have to go to college if they want to learn a skill or a trade. Regardless, there will always be a need for education.
Baby Step 6: Pay Off Your Mortgage Early
Time to tackle the big one! Can you imagine what it would be like to not owe ANYBODY? Everything you have will be completely yours!
During this Baby Step, you’ll take any extra money you have at the end of the month and throw it at the mortgage.
The Complaint: You can get a better return if you just invest the extra money. Besides, you don’t want all your money tied up in your house.
My Response: Dave and his team did the largest study EVER on millionaires. One of the data points they found was that the average millionaire paid off their home in 11.2 years.
Once they paid off their homes, they freed up a lot of cash flow so they could continue to invest and give even more.
Besides, as Dave always reminds us, debt equals risk. And did you know that the only houses that go through foreclosure are the ones that have a mortgage on them?
If there’s no mortgage, there’s zero chance of foreclosure. Zero. Just imagine the peace that comes with knowing no one can ever take your house?
It just goes to show that Dave Ramsey’s 7 Baby Steps are about a lot more than money. Their about financial peace.
Is Baby Step 6 Outdated?
Not even close. Paying off your mortgage early can only set you up for success.
Baby Step 7: Build Wealth and Be Outrageously Generous
Finally, you’ve made it! Now is the time to invest more, give more, and enjoy more!
During this Baby Step, Dave recommends deciding on percentages. In other words, you decide what percentage to give away, what percentage to invest more, and what percentage to use for more fun.
The Complaint: It takes too long to get to this point! Dave should do more to recommend (insert whatever get-rich-quick thing here).
My Response: Dave isn’t all about get-rich-quick. For the majority of people, building wealth is a slow, boring, methodical process.
Face it, your average Joe or Joleen isn’t going to start a multi-million dollar business. Nor are they going to invest an outrageous amount of money and retire early.
On the contrary, they’ll work normal jobs, raise kids, and retire at a normal age. If they play their cards right, they could easily become millionaires by the time they retire.
Is Baby Step 7 Outdated?
Nope. Building wealth, giving, and enjoying the fruits of your labor will never become outdated.
Are Dave Ramsey’s 7 Baby Steps Outdated?
As you can tell, I’m a pretty big Dave Ramsey fan. Dave’s principles are what my wife and I apply to our own finances. And we don’t plan on turning back!
The reason Dave Ramsey’s 7 Baby Steps are so appealing is because anyone can do them!
And you can, too!
Therefore, I say stop with the excuses! It’s time to make a change.
And yes, Dave Ramsey’s 7 Baby Steps are more relevant than ever!
In my opinion, it’s the best plan out their for setting you up for financial success. That’s because Dave doesn’t just focus on the money. He addresses the heart behind the money.
And that’s why I continue to listen to him and to take his advice.
So no, Dave Ramsey’s 7 Baby Steps aren’t outdated. In fact, I think 2020 is the perfect year to start something new! Why not give Dave a try? If you don’t like it, you can easily go back to the way you were.
But if it does work for you, you’ll likely never turn back!
Learn about Dave Ramsey’s 7 Baby Steps straight from the man himself in The Total Money Makeover!
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